Download and review the financial statements of Ascension Health, a nonprofit, r

Question

Download and review the financial statements of Ascension Health, a nonprofit, religious-based healthcare system,

from http://www.ascensionhealth.org/index.php?option=com_content&view=article &id=45&Itemid=160. Download and review the financial statements of HCA Holdings, Inc., a for-profit healthcare system. You can find the financial statements on one the many sites where such information is available, such as Zacks Investment Research or MarketWatch. Search the site with HCA Holdings' ticker symbol ("HCA") and then look for the "Financial" tab or section when you come to the site’s HCA Holdings page.

Part I Review the companies' balance sheets, statements of income/operations, and statements of cash flows. Identify and describe five similarities and five differences between the two companies' financial statements.

Part II After analyzing the statements, respond to the following: You have reviewed information on three financial statements for two respective organizations. In what way is each statement useful? Which statement seems to you most useful? If, due to time constraints, your organization could only prepare one financial statement, which one—balance sheet, statement of income, or statement of cash flow—would you recommend? Why?

Explanation / Answer

Part I: Review of Ascension Health's financial statements: Ascension Health's total current assets stood at $4,622,537,000 and its total current liabilities stood at $5,014,449,000 for the year ended 30th June 2014. The current ratio = current assets/current liabilites = $4,622,537,000/ $5,014,449,000 = 0.92 . Long term debt as a percentage of total assets = 4,994,913,000/31,298,863,000 = 15.96%.  Ascension Health generated a total revenue of $20,149,720,000 for 2014. It's net profit margin ratio = net profit/total operating revenue = 1,810,512,000/20,149,720,000 = 8.99%. Ascension Health generated a net cash of $966,173,000 from its operating activities. It generated a negative free cash flow as the capital expenditure amount was much higher than the cash flow from operations.

HCA Holdings: The organization's total current assets stood at 9,232,000,000 for the year ended 31st December 2015. Its current liabilities stood at 5,516,000,000. Current ratio = current assets/current liabilities = 9232 million/5516 million = 1.67. Long term debt as a percentage of total assets = 30,255 million/32,744 million = 0.92 or 92%. HCA Holdings generated a total revenue of 39,678,000,000 for the year ended 31st December 2015. Its net income margin = net income/revenues = 2129/39678 = 5%. The organization reported a cash flow from operations to the tune of $4,734,000,000.

Five similarities: (i) Both the organizations have statement form of consolidated balance sheets. (ii) both the organizations are generating postive cash from operations (iii) both organizations have investments in the asset side of the balance sheet. (iv) both organization's have a positive net income (v) both organizations have a negative cash flow from investing activities.

Five Differences: (i) Year end for Ascension is 30th June while for HCA it is 31st December (ii) The current ratio for Ascension is less than 1 (0.92) while for HCA it is greater than 1 (1.67) (iii) Long term debt as a percentage of total assets is very high for HCA at 92% compared to Ascension's 15.96%. (iv) Ascension has seen a decline in its cash balance for the year ended 30th June 2014, while HCA saw an increase in its cash balance for the period ended 31st December 2015 (v) HCA has intangibles to the tune of $6,731,000,000 in its balance sheet, whereas Ascension has no intangibles in its balance sheet.

Part II: The financial statements of both HCA as well as Ascension is comprehensive and is useful to anlyze the operations of both the organizations. From the income statemnet, we are able to analyse the profitability level of both companies, from the cash flow statements we are able to analyze cash generated from operations, investments and from financing for both the organizations. Balance sheet show's the assets and liabilities on the year end date and is useful to measure the strength of both the organizations, useful to analyze the capital structure and do analysis like current ratio, quick ratio, inventory turnover etc.

I would recommend cash flow statement as this statement draws from both the income statement as well as the balance sheet and one can estimate the income statement items and changes in balance sheet from the cash flow statement.

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