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Jiranna Healthcare’s financial and operational analysis

Name of student

Institutional affiliation
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PART 1: Analyze Organizational Financial Data

The financial and operational information for Jiranna Healthcare from the last five years have
been analyzed to determine whether it would be a suitable acquisition. For analysis, we have
reviewed the financial statements of Jiranna Finances.

Total Profit Margin

The company is growing, and its overall profit margin has been rising over time. Since the profit
margin increased from 2.1% in 2009 to about 9.8% over the period of five years, Jiranna
Healthcare is doing exceptionally well. The trend is anticipated to continue for the foreseeable
future. The business should think about effectively managing the indirect costs that could reduce
its earnings. Since these types of reductions will have less of an impact on the core company
operations that are essential to the business survival, the personnel and administrative costs are
the first areas where management will make their first reductions (Myková & Hájek, 2017). As
they demand a significant premium for their goods, which may have a direct impact on the
company's gross profit, efficiency can also be increased to achieve bigger profits.

Asset turnover

The low asset turnover indicates that the assets are being used inefficiently to generate revenues
and sales and that there are likely internal difficulties. For the years 2012 and 2013, asset
turnover declined from 1.1 to 1.05, then increased to 1.1 before remaining stable at 1.06.
However, we must understand how corporations use their assets to produce sales, and this ratio
should be compared with similar organizations in the group or industry in order to evaluate the
person with the most assets and examine its flaws (Anwar & Gunawan, 2016). Comparisons
between companies in the same industry will have a greater impact.

Return on assets

The growth rate of the company is moderate, and this has led to a rise in the return on assets.
Over the last five years, ROA has risen from 2.46 percent to 11.6 percent. The company's ability
to turn capital expenditures into net profit has been on the rise. A higher return on assets
indicates that a business is making more money with less effort (Anwar & Gunawan, 2016).
When compared to competitors, the company's management team stands out for how expertly it
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handles resource allocation and decision making. The company's debts have been covered by the
return on assets.

Return on equity

The company's increasing income has resulted in an increase in its net worth, and as a result, the
return to shareholders has increased. Over the past five years, the return on equity has improved
from 4.21 percent to 20.12 percent. This indicates that management is becoming more effective
at utilizing equity financing to support the company's operations (Anwar & Gunawan, 2016). We
see the company's efficient use of capital to generate net income. The management is effectively
generating income using shareholder cash, and the efficiency is rising.

Current ratio

Through the years, the current ratio has improved. This is due to improved inventory
management, improved accounts receivable, and timely payments. The current ratio has been
more than 1, indicating that they can pay off their loans when they become due within one year.
The increase in the current ratio from 2.86 to 4.66 indicates that the company is able to meet its
obligations, as it has a greater percentage of short-term assets to short-term liabilities. In
addition, a greater current ratio may indicate that the company is not utilizing its current assets
effectively, that its financing is insufficiently secured, or that its working capital is mismanaged.

Working capital

Due to increasing corporate activity, working capital has been on an upward trajectory. The
company's positive working capital has increased from $1180 million in 2009 to $2,500,000
million in 2013. This indicates the company's potential for investment and expansion. Since the
company's present assets outweigh its current liabilities, it will have little trouble paying back its
creditors, and bankruptcy is unlikely to occur in the near future (Myková & Hájek, 2017).

Debt ratio

During the past five years, the firm has maintained a debt level of less than 40%. The lower debt-
to-equity ratio suggests that the business will remain solvent and will be able to satisfy its present
and future obligations and earn a profit. The lower the ratio, the better for the company, and it
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should be examined over time to determine whether the organization's financial risk is increasing
or decreasing.

Times interest earned

Due to increasing commercial activity, EBIT margins have improved, and consequently, so has
time's interest earned. The times interest earned indicates the number of times hypothetically
needed to settle periodic interest expenses if full EBIT is used to repay debt. The greater the
interest collected on ties, the less likely it is that the company would default on its loans, making
it a safe investment proposition for providers of debt.

Dupont analysis

Over the past five years, the Dupont values have grown. The entire shift in ROE was attributable
to increased financial leverage and much more funds borrowed by the business which decreased
its average equity, but did not materially affect the company's revenue or net income, indicating
that the leverage may not be adding value to the company. The estimates demonstrate that
management is utilizing equity resources more effectively.

Decision

The company's financial performance is satisfactory, and I would consider purchasing it. All
financial ratios are favorable and investment-worthy. (Myková & Hájek, 2017) The company is
at the second stage of its evolution based on the 2013 financial results, which show a highly
promising trend in both expenses and revenues. As a result of the long-term benefits, the growth
of expenses has slowed and revenue is currently rising. If operating expenses are cut even
further, the corporation can achieve a bigger profit margin. Long-term contracts with suppliers at
cheaper pricing and intelligent procurement planning can accomplish the aforementioned.

PART 2: Case study 2

Recommendation

In this case, the project's net present value is positive, hence it should be implemented. The
project should be approved even if its discounted cash flow payback period is longer than the
standard 3.5 years. With an NPV of $38471, this is a profitable venture. Both the undiscounted
cash flow payback time (3.2 years) and the discounted cash flow payback time (4.1 years) are
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shorter than the payback time that management requires. The discounted cash flow has a shorter
payback period than the undiscounted cash flow (Rossi, 2015). The company's continued
expansion into new markets is a key benefit of this initiative. It would be in their best interest to
cut costs in order to increase profits.

Because the project's IRR of 3% is lower than the minimum desired return of 11%, the typical
response would have been to reject it. Because the investment's internal rate of return (IRR) of
3% is lower than the 11% return required by hospital management, the IRR technique also
suggests rejecting the investment proposal. If the guidance provided by the NPV approach differs
from the IRR approach, the NPV approach should be followed. Therefore, the project is
approved, and the IRR recommendation is disregarded, because the net present value of the
venture is $387471. (Kengatharan, 2016). However, as was previously mentioned, the project is
still in its infancy and is gaining traction, so given its higher potential, we anticipate improved
performance in the near future. The upper management has no idea how much the start-up will
set them back.

As can be seen from the 2013 financials, the company has entered its second evolutionary phase,
with expenses decreasing and revenues rising as a result of the long-term benefits of the first
phase. The corporation can increase its profit margin if operating costs are minimized
(Kengatharan, 2016). Long-term contracts with suppliers to receive at cheaper prices and
strategic planning for procurement can help accomplish the aforementioned goals. Capital
budgeting entails a number of other procedures, such as determining the company's goals,
conducting an evaluation of potential projects, and eventually selecting the best option.

PART 3: Conduct a budget evaluation

1)Original forecast pf profits

The initial revenue forecast was for $50,155,710. Budgeted costs of $48069860 gave rise to the
initial income forecast. This means that the expected initial profit is $50155710 less $48069860,
or $2085850.

To date, the company has spent a total of $23198408 on operations while bringing in $24220949
in sales, for a net profit of $1022541.
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Profit of $1042925 is predicted after expenses of $24034930 are subtracted from the projected
revenue of $25077855. Accordingly, the discrepancy equals $20384 (U)

(2) Over budget service

OBGYN, ORTH, NEUR, MENTAL, OTHER, and RESP are just few of the services that cost
more than expected. Workload increases have contributed to the OB and Mental Health
departments going over their budget.

(3) Actions to take mid-year for fee-for-service hospital 

If the facility was one that charged patients for services rendered, I would perform a variance
analysis to determine which areas were spending more than necessary while others were under-
spending. I will change shifts because it is a service shift. Taking into account the increase in
work load, I would have evaluated the PWP for product lines that were over budget in Q2 if I
had to make a judgment about a Fee for service hospital. Charges on my PWP need to be
reevaluated in light of new information and insights gained from research on comparable
treatments at other hospitals like SMC. When deciding how to allocate resources, I always look
for the service lines with the highest predicted profit per unit and ramp up production of those
while decreasing output of the less lucrative ones.

Management is one potential source of new and useful insights. They will grasp the concepts at
play and be able to identify which departments within the service delivery chain are overstaffed
and therefore wasteful. With better demand data from marketing, factories may better allocate
resources.

4) Actions to be taken mid-year if it was a capitated hospital

Since the hospital is losing money, treating patients will be limited to those who have presented
with the proper symptoms and test results. With capitation, the hospital's income would be
redirected from the profit line to the expense line. On top of that, effective service delivery and
cost control are crucial to maximizing profits.

Notes

With some modifications, variance analysis can be applied to the study of businesses that aren't
involved in manufacturing (Horngren & Horngren, 2002). Since direct material cost makes up
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such a small percentage of total expenses for firms in the service industry, for instance, the
utilization and material price fluctuation is less significant there.

In addition, the differences in overhead and labor are critical components of the calculations. For
instance, in a healthcare setting, it is more crucial to track the hours and expenses of various
types of labor, such as interns, nurses, general practitioners, surgeons, and overhead costs like
support staff, medical equipment, etc (Bai, 2016). As a result, a service company will use
variance analysis primarily to examine the costs associated with indirect and direct labor.

Many companies in the service sector have adopted activity-based costing, following through the
system's steps to identify internal cost drivers. Quality assurance, setup, and secretarial services
are all examples of fixed costs that can be made variable by adjusting for the right cost drivers. A
more reliable basis for comparing projected expenses to actual expenditures is provided if
service providers adopt flexible budgets after careful consideration.

As a technique for manufacturers, the production volume variance has limited relevance in
service industries when there is little to no output. But several service sectors have established
their own reliable measures for quality.
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References

Anwar, K., Marliani, G., & Gunawan, C. I. (2016). Financial ratio analysis for increasing the
financial performance of the company at Bank Bukopin. IJSBAR, 29(2), 231236.

Bai, G. (2016). Applying variance analysis to understand California hospitals' expense recovery
status by patient groups. Accounting Horizons, 30(2), 211-223.

Horngren, C. T., Bhimani, A., Datar, S. M., Foster, G., & Horngren, C. T. (2002). Management
and cost accounting. Harlow: Financial Times/Prentice Hall.

Kengatharan, L. (2016). Capital budgeting theory and practice: a review and agenda for future
research. Applied Economics and Finance, 3(2), 15-38.

Myšková, R., & Hájek, P. (2017). Comprehensive assessment of firm financial performance
using financial ratios and linguistic analysis of annual reports. Journal of International
Studies, volume 10, issue: 4.

Rossi, M. (2015). The use of capital budgeting techniques: an outlook from Italy. International
Journal of Management Practice, 8(1), 43-56.