Healthcare Fin for Non Fin Mgrs

Using Financial Ratios to Assess Organizational Performance

Cheryl L Lunsford

Dr. Laura Forbes

HSA 525

February 22, 2014

Abstract

Health Management Associates Inc. (HMA) is the nation’s third-largest for-profit hospital chain. Operating a network of over 70 hospitals and more than 470 clinics in 15 states - mainly in the South - with approximately 11,000 licensed beds, HMA's hospitals provide general medical and surgical care, along with outpatient and emergency room services and specialty care in such areas as cancer care and obstetrics. Using HMA’s financial statements that were analyzed from a prior assignment, this report will focus on three main questions. The financial ratio that most financial analysts would use to evaluate the financial condition of the company, and the organization's ability to meet its financial obligations as they come due. Based on my ratio analysis, I will determine whether the profitability trends of HMA are favorable or unfavorable and lastly, using financial ratio analysis, I will predict whether or not the company will be viable in five years based on its performance over the past three years.

Financial ratio used to evaluate Health Management Associates Inc.

Due to the many troubles of HMA at the time of my evaluation, and the fact that the company was up for acquisition, the financial ratio used to evaluate HMA is the EV/EBITDA ratio. EV/EBITDA is one of the best ratios out there. Some academic research has shown that it’s the single-best valuation measure there is (Elfenbein, E. February 2014). EV/EBITDA stands for Enterprise Value divided by Earnings Before Interest, Taxes, Depreciation and Amortization Enterprise Value (sometimes called total enterprise value or market value).

Numerator: To calculate EV...