Financial Analysis

[Name of the Institute]

Financial Analysis

Introduction

The following paper discusses about the ratios that are most commonly used by the investor, along with the evaluation of the financial performance of the firm (Universal Health Services). In the end on the basis of the last three years the expected five years forecasting was also calculated in order to evaluate the firm's financial performance in future.

Discussion

The financial ratios that most financial analyst used to evaluate are as follows.

Current Ratio

It is basically a liquidity ratio which measures the estimation of a company to meet its short term obligation or short term debt. The current ratio is also called as the cash asset ratio. If the current ratio is higher than one or more the firm has ability to back its debt while lower the current ratio or if it is less than 1 the firm does not have ability to meet its short term obligation. It is measured by using following formula

Current Asset = Current Assets /Current Liabilities

Quick Ratio

Quick ratio is also called as the acid test ratio. It gauges the short term liquidity of the firm. The quick or the acid test ratio is helpful in the measurement of a company or the firm's short term debt along with its liquid assets.

The formula for the calculation of the quick ratio is as follows

Quick Ratio = (current Assets - Inventories) / Current Liabilities

If the quick ratio is higher the financial position of the firm is better.

Debt to equity ratio

This ratio determines the qualification of the financial leverage of the firm. It is calculated by the dividing total liabilities by total share holders' equity. Total debt shows the proportion of equity and debt which is used by the firm or entity to finance its assets.

It is calculated by following formula

Debt to Equity Ratio = Total Liabilities / share holders Equity

Return on Equity

Return on equity is the amount of the net income which is returned against the percentage of the share holder's equity. Furthermore, it helps to measure and to estimate the profitability of the firm by disclosing the profit that is being generated by the firm along with the money being invested by the shareholders. It is shown in the percentage and calculated by the following formula (Taylor, 2009)

Return on Equity = Net Income / Shareholders Equity

It is also known as the return on the net worth.

Net Profit Margin

It indicates the efficiency of the company as its cost control. If the net profit margin is higher the efficiency of the firm is also high by converting its revenue into the actual profit. This ratio helps in the measurement and the evaluation of the firm to compare companies in the same industry, having same business conditions usually ( Melkun, 2010).

It is calculated by following formula

Net Profit Margin = Net Profit / Sales

Income Statement

 

2010

2011

2012

Revenue

4900147

6760222

6961400

COGS

_

_

_

Gross Profit

4900147

6760222

6961400

Operating Expenses

 

 

 

Selling and Admin

4177503

5575883

5716393

Other

216930

287211

302426

Net Income

230183

398167

443446

Balance sheet

2010

2011

2012

Current Assets

 

 

 

Cash

29474

41229

23471

Short term Investments

_

_

_

Account Receivables

948654

1078126

1171658

Inventory

94330

96775

99000

Account Receivables

248658

148775

113367

Total Current Assets

1331116

1364905

1407496

Long Term Assets

6196820

6300340

6793347

Total Assets

7527936

7665245

8200843

Liabilities

 

 

 

Current Liabilities

826299

836933

894058

Long Term Liabilities

4511104

4313694

4359137

Total Liabilities

5337403

5150627

5253195

Share Holders Equity

1978772

2296352

2713345

Ratio Analysis

 

 

2010

2011

2012

Current Ratio

Current Asset/Current Liabilities

1.61094

1.63084

1.57428

Quick Ratio

(current Asset-Inventories)/Current Liabilities

1.49678

1.51521

1.46355

Debt to Equity Ratio

Total ...