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