Question

Write 500-600 words on some financial ratios or metrics to analyze in a large national company in healthcare over the last 3 years.

Answer 1

Financial Ratio to analyze large national company healthcare over the last 3 year

Introduction

The Healthcare sector is one of the biggest market sectors, including industries like medical equipment, hospital, health insurance, and the pharmaceutical industry. This sector of the economy is made up of companies that are engaged in product and service in regards to medical care and health.

Securities(stocks) issued by companies in the healthcare sectors are insulated from the business cycle because of the essential nature of healthcare service required at all levels of society. Considered as defensive sector means investors are able to defend against volatility(fluctuation) in the market and investors include healthcare sector stock in their portfolio.

The sector is attractive to the investors because of the sector performance in regards to growth. Consumer demand for healthcare service is constant, in relation to economic condition whereas other sectors like retail and automotive demands depend on the economic conditions.

Financial Ratios to analyze the large national companies in healthcare are as discussed below.

1. Operating Margin

2. Cash flow Coverage Ratio

3. Debt Rati

4. Capital Spending

Explanation of the above ratios

1. Operating Margin

Operating profit margin is the amount company able to earn from the sales of products and services after reducing production and operating expenses but before the cost of interest and taxes. Used to know how well managed the company is since the management of basic overheads cost and operating expense is very important to the profitability. The ratio is used to calculate potential earnings and hence calculating the growth potentials of these large companies.

2. Cash flow coverage ratio

Formula  =   Operating Cash Flow

Debt obligations.

By this ratio, an investor can know the company's ability to meet its financing obligations. It refers to the company's ability to obtain additional financing. The ratio of 1 is generally considered acceptable and a higher value is more favorable.

3. Debt Ratio

Formula  = Long Term debt

Total Average Available Capital

Debt capitalization is a measure of financial leverage and reflects the organization's level of debt as compared to its cumulative earnings and fund balance.

4. Capital Spending

Capital spending measures the company level of capital expenditure as a percentage of annual depreciation.