Question

In: Economics

Which indicators of the broader economy are most important to watch for in the home health...

Which indicators of the broader economy are most important to watch for in the home health care industry and why?

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Expert Solution

ans.....
FOLLOWING ARE FEW IMPORTANT INDICATORS WHICH SHOW THE HEATLH OF THE COMPANY -
1. CAPITAL STRUCTURE - A VERY HIGH LEVEL OF DEBT LEVEL SHOWS THAT COMPANY IS HEAVILY DEPENDENT ON BORROWINGS FOR ITS FUNDING AND THIS IS A SIGN OF RISK AND BAD HEALTH. ON THE CONTRARY, A PROPER MIX OF DEBT AND EQUITY SHOWS A COMPANY IS WELL CAPITALISED. ROUGHLY A DEBT EQUITY RATIO SHOULD NOT BE MORE THAN 2 BUT IT MAY VARY FROM INDUSTRY TO INDUSTRY
2. CONSITENT GROWTH IN REVENUES - THE REVENUES AND ALONG WITH THAT BOTTOM LINE (PROFITS) OF THE COMPANY SHOULD GROW CONSISTENTLY OVER A PERIOD OF TIME. IF REVENUES ARE NOT GRWOING OR ARE STAGNANT AND PROFITS ARE NOT INCREASING, THAT MEANS THAT COMPANY IS NOT ABLE TO PERFORM PROPERTLY AND NOT CHANGING WITH CHANGES IN CONSUMER BEHAVIOUR. THIS IS RISK FOR THE COMPANY.
3.WORKING CAPITAL MANAGEMENT - A HIGH LEVEL OF WORKING CAPITAL INDICATES THAT COMPANIES FUNDS HAVE BEEN BLOCKED IN OPERATIONS. THE COMPANY SHOULD ACTIVELY MANAGE ITS WORKING CAPITAL. THIS INCLUDES HIGH INVENTORY TURNOVER, LOW NUMBER OF DEBTOR DAYS AND TIMELY PAYMENT OF CREDITORS FOR EXPENSES. GOOD WORKING CAPITAL MANAGEMENT INDICATES A GOOD FINANCIAL HEALTH FOR THE COMPANY.
4. CASH FLOW MANAGEMENT - COMPANY SHOULD HAVE ADEQUATE LIQUID FUNDS/ CASH FOR ITS NEEDS AT ALL TIMES. IF CASH IS NOT MANAGED PROPERTLY, IT COULD POSE SHORT TERM RISKS FOR THE COMPANY DESPITE HEALTY MARGINS AND GROWTH IN REVENUES.


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