Universal Health Services, Inc. is an American for-profit health care provider institution offering both psychiatric and substance abuse treatments. The facility currently operates more than 25 fully fledged hospitals, 102 rehabilitation centers in 32 states of the U.S. U.H.S is currently ranked the fifth largest publicly traded healthcare organization in the U.S. Being in the healthcare service provision exposes the body to high competition from the rapidly rising physician-owned healthcare facilities in the U.S. but a rising profitability balances the trend in the psychiatric healthcare segment that is one of the organization’s flagship program. In this paper, a financial analysis of the organization for the last two years is presented with the aim of is evaluating the organization’s current financial status. Additionally, an overview of the organization’s business environment is included in the report.
The fundamental analysis of the company was carried out by analyzing the company’s share price and the audited financial statements (Kieso, Weygandt, & Warfield, 2007). The cash flow statement, the income statement, and the balance sheet indicate that the firm’s stock price has been rising year-on-year for the last three financial years from an average share price of $44.93 in the fiscal year 2012 to S81.94 in the financial year 2013. In the fiscal year 2014, the average share price rose to $102.61. The volume of shares traded fluctuated from a high of 24 million shares in 2012 to a low of 13 million shares in 2013. In the financial vear 2014. the volume of shares traded rose to 18 million shares. The UH.S share gained 9.5% and exceeded the S&P’s growth rate of 2.7%. The U.H.S also exhibited a three-year average price to share ratio of 1.5 as compared to the medical hospital sector’s average of 0.8.
The company’s income statements for the last three financial years indicate that the company’s operating cash is double the net income although the stock shows no bullish trends towards profitability. Likewise, the price to revenue ratio stood at 22.3 which was slightly lower than the industry’s average of 23.5. The earnings per share also rose steadily in the last three financial years from 4.57 in The income statement indicates that the stock would have an above average return and hence would attract investors to buy the organization’s shares.
Investors base their investment choice on the revenue growth of an organization (Graham & Dodd, 2004). The income statement indicates that the UHS’ revenue for the last financial year (2014) stood at $ 8.07 Billion. The company’s revenue grew year on year, from $ 6.96 billion in 2013 to $ 7.2 billion in the F.Y 2013. The rate of revenue growth demonstrates that the company experienced a positive year on year revenue growth, a feature that attracts inwards investment. Similarly, the company’s gross profit grew from $ 6.16 billion in 2012 to $ 6.46 billion in 2013. In the F.Y 2014, the gross profit was $7.16. The net profit also grew year on year from $ 443.44 million in 2012 to $545.3 million in the F.Y 2014. The company also recorded a compounded net profit margin of 6.6% for the last three financial years (Universal Health Services (NYSE:UHS), 2015).
The current trend in the health care industry exhibited an increased preference for facilities operated by physicians as compared to the ones operated by for-profit organizations like UHS. However, the psychiatric and substance abuse rehabilitation services have seen a growing profitability across the U.S (Martin, 2014). Since U.H.S majorly provides psychiatric and rehabilitation health care services as its core business, the company has not been significantly affected by the falling general health patient numbers. Additionally, the industry has experienced a rise in the number of uninsured patients especially those seeking critical care. Again, the UHS* core business shields it from significant losses in the categories of patients with high risk of defaulting on payments. Similarly, the psychology and substance abuse rehabilitation brings in more than 20% of the UHS’ revenues while the hospitals bring in only 7% (Universal Health Services, INC. (UHS), 2015).
Similarly, the healthcare sector in the U.S has experienced increased competition as more healthcare providers come on board while the average expenditure on health by American citizens has been falling. For-profit organizations like the UHS also face stiff competition from government-funded not-for-profit health care providers that offer subsidized health services. The hospitals owned by UHS are located in major cities where the population has a wide range of available healthcare alternatives.
However, UHS maintains a comparative advantage over its competitors in the industry by diversifying the range of its products. For example, UHS is recognized as a leading provider of substance abuse rehabilitation services. The organization should continue to expand the psychology service facilities to reap from the weak competition, as well as its strong brand strength in this niche. The Medicare funding for the two programs is relatively favorable and exhibits lower risks of default in comparison with other aspects of healthcare especially the acute care service sector (Houlton, 2012). Similarly, the hospital can increase its competitiveness and profitability by undertaking only selective strategic acquisitions while improving the productivity and efficiency of the current operations. The hospital’s management records a bed occupancy rate that exceeds the industry’s average.
References
- Graham, B., & Dodd, D. (2004). Security Analysis. McGraw-Hill. Houlton, S. (2012). Debating Obamacare. Chemistry and Industry, 76(9), 23.
- Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2007). Intermediate Accounting (12 ed.). Hoboken, NJ: John Wiley & Sons.
- Martin, A. B. (2014). National health spending in 2012: rate of health spending growth remained low for the fourth consecutive year. Health Affairs, 33(1), 67-77.
- Universal Health Services (NYSE:UHS). (2015, April 29. Retrieved from Amigobulls.com: http://amigobulls.com/stocks/UHS/income-statement/annual
- Universal Health Services, INC. (UHS). (2015, April 30). Retrieved from 4-traders.com: http://www.4-traders.com/UNIVERSAL-HEALTH-SERVICES-14740/strategies/
