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An 8-10 slide presentation to your staff describing your analysis, linking what tools you utilized and why you chose those tools. You will use data to support your evidence base financial decisions. You will also explain your recommendations to maximize stakeholder value, translating those to tactical outcomes to be implemented by your staff.


This assessment builds on your prior work in Assessments 1 and 2. It is a presentation to your staff describing you analysis, linking what tools you utilized and why you chose those tools. You will use data to support your evidence-base financial decisions. You will also explain your recommendations to maximize stakeholder value, translating those to tactical outcomes to be implemented by your staff.

Apply the theories, models, and practices of finance to the financial management of an organization.

Analyze financing strategies to maximize stakeholder value.

Apply financial analyses to business planning and decision making.

Use data to support evidence-based financial decisions.


The senior leadership has approved your recommendations to move forward. You are now tasked with operationalizing your recommendations. Meeting with your staff, you will translate recommendations to strategies and corresponding tactical objectives. You will explain how you used financial analysis to develop these recommendations, discussing the financial tools you will use to monitor implementation progress.

Your Role

You are one of the high-performing financial analyst managers at ABC Healthcare Corporation and are under consideration for a promotion to Director of Operations.


Follow these steps to complete this presentation:

You are presenting to your staff a summary of the reports presented to senior leadership (Assessments 1 and 2).

Start by presenting the overall current financial condition of the company as presented to senior leadership (one to two slides).

Provide an overview of your analysis, linking what tools (financial statements, ratios, industry trends, capital structure) you utilized and why you chose these tools (two slides).

Link the data used to support your evidence-based financial decisions, providing justification for the recommendations (two slides).

State the recommendations focused on maximizing stakeholder value into strategies newly adopted by the company, i.e., expansion to a new geographical market, the development of a new dividend policy, changes in capital expenditures, reduction of workforce (one slide).

Translate those strategies to tactical objectives to be implemented by your staff, noting evidenced-based academic citations (one to two slides).

Discuss what financial tools you will use to monitor the progress of these tactics (one slide).


By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies through corresponding scoring guide criteria:

Competency 1: Apply the theories, models, and practices of finance to the financial management of an organization.

Demonstrate an understanding of key financial tools (financial statements, ratios, industry trends, capital structure, competitive analysis) by providing an overview of the analysis used supporting recommendations made in Assessments 1 and 2. Provide a rationale for why tools were utilized.

Competency 2: Analyze financing strategies to maximize stakeholder value.

Link the data used to support evidence-based recommendations, translating the recommendations to strategies focused on maximizing stakeholder value.

Competency 3: Apply financial analyses to business planning and decision making.

Translate strategies to tactical objectives to be implemented by staff, noting evidenced-based academic citations.

Competency 4: Use data to support evidence-based financial decisions.

Evaluate and recommend financial tools to be used to monitor the progress of these tactics.

Kendra Holcomb
MBA-FPX 5014
Financial Condition Analysis
April 16, 2021
Executive Summary
This report evaluated the suitability of ABC Healthcare as an investment partner based on
its historical financial performance. The company’s overall financial position is strong based on
growing earnings per share, a solid price-to-book ratio, and a stable price-to-earnings ratio. Over
the three years under review, ABC earnings per share averaged 7.98 against the industry average
of 1.06, while the p/b ratio stood at 0.4 against the industry average of 6.3. However, the
company lags behind its closest rival, HCA, on stock market prices and earnings per share. The
report recommends developing new revenue channels, repurchasing common stocks, and
undertaking organizational restructuring to maximize shareholder wealth.
Company Background
ABC Healthcare Corporation is a company operating in the healthcare industry. The
company owns urgent care centers, ambulatory surgical centers, hospitals, and outpatient clinics.
Like other established firms, the company stocks are listed on the exchange allowing potential
investors to buy a stake in the company. ABC wishes to review the market performance of its
stocks to determine if they are valuable for investment purposes compared to prevailing market
conditions. The company is also interested in understanding appropriate measures that should be
undertaken to maximize shareholder value as a company’s strategic objective. This information
will be vital in positioning the company as an attractive investment destination for current and
future investors.
Overall Financial Analysis
The financial strength can be measured through an objective assessment of the company’s
financial statements. The statements provide an overview of the accurate picture of financial
transactions over a given accounting period (Frecka, 2015). A ration analysis of ABC Healthcare
Corporation provides the overall financial health of the corporation that may form the basis for
investment decisions.
ABC market share prices have remained stable over the past three years, indicating the
company’s stock price predictability. A more volatile stock price is indicative of a risky stock, a
scenario that is not observable with the ABC. However, the constant market price may also
indicate low investment returns as investors prefer stocks with the rising market share price. A
growing share price means that investors are willing to buy the stock while declining stock prices
underscores a lack of investor confidence in the stock’s future growth of the stock.
The P/E is one of the most extensively used ratios to assess the value of a stock. The
significance of the ratio stems from the fact that, on the one hand, it can be used to show if a
firm’s stock is undervalued or overvalued, and on the other hand, it reveals how a firm’s stock
value compares with the market or industry benchmark (Frecka, 2015). The 2019 financial data
shows that ABC Healthcare Corporation’s price/earnings ratio of 12.10. This means that
investors paid $12.10 for every dollar that the company earned during the year.
P/E Ratio Comparison of ABC Healthcare Corporation and HCA Healthcare
Source: (HCA, 2021)
In comparison, its closest rival HCA Healthcare P/E ratio stood at 10.07 during 2019. By
this measure, ABC performed relatively similar to its rival. A higher P/E ratio of 12.10 for ABC
suggests that investors expect higher returns from the company’s stock in the future (Ross et al.,
2018). However, the high P/E ratio may also mean that ABC stocks are overvalued. Ultimately,
investors were willing to pay more for ABC’s stocks compared with HCA’s stocks.
Price/Earnings Ratio
Market price
Earnings per share
83.62 146.6 83.62 121.92 83.62 85.03
Price/ Earnings ratio 12.10 14.56 10.63
The U.S healthcare industry average had a P/E average of 27.14 for the TTM ending
December 31, 2019. Based on the industry average, investors were willing to pay $27.14 for $1
earnings in the industry. In comparison, the amount is higher than what investors were willing to
pay for a share in ABC Limited based on the historical data for the company and the industry
The same scenario replayed in the years 2018 and 2017. The industry P/E average for healthcare
services in which ABC operates stood at 33.47 and 40.93, respectively, compared to ABC’s
10.63 and 9.14 over the same period. The ABC’s low P/E ratio indicates that the company’s
stocks are possibly undervalued. This market condition makes ABC’s stock attractive for
investment purposes (Ross et al., 2018). The overall impression is that ABC’s earnings were
considerably higher during the period under review than the industry averages based on the P/E
Price to Book Comparison between ABC Healthcare and HCA Healthcare
Price to Book Ratio
Market price
121.92 83.62
83.62 146.60
Book value per share 199.1
Price to Book ratio
Source: (HCA, 2021)
The price-to-book ratio (P/B ratio) is another ratio that can explain the company’s
financial health. This ratio compares a company’s asset book value to its market capitalization.
The 2017 data showed investors were willing to pay $0.37 for a dollar’s worth of the company’s
book value equity. The ratio is instrumental in helping investors to understand the extent to
which equity shareholders pay for the company’s value of net assets (Tukdeo, 2015). The general
rule of thumb is that a ratio less than 1 indicates strong investment performance. Accordingly,
the overall financial health of ABC Healthcare based on the P/B ratio is solid and promising.
Financial Ratio Analysis
Ratio analysis is a powerful management tool that helps to enhance the understanding of
a company’s financial statements and the long-term trend in performance. The ratio provides key
indicators of organizational ability to meet its obligations, including maximizing shareholder
wealth (Tukdeo, 2015). The management of ABC Healthcare can use ratio analysis to point out
weaknesses and strengths inherent in the company’s financial activities. The understanding
gained from the analysis is vital in informing the company’s strategies to improve profitability
and strategic organizational performance.
Earnings per share and Its Trend
Earnings per share is one of the critical financial ratios used to measure the profitability
of a firm. The ratio is derived from the division of a company’s net income with outstanding
ordinary shares. The higher the earnings per share of a firm, the better the profitability.
Earnings per share = Net income (after tax) / number of shares
ABC’s earnings per share stood at $6.91, 7.87, and 9.15 for 2019, 2018, and 2017. Based on this
ratio, the company’s performance is on a positive trajectory with a 37.5% growth between 2017
and 2019. On the other hand, the closest rivals, HCA Healthcare, posted EPS of 10.07, 10.65,
and 5.94 for 2019, 2018, and 2017 respectively. By comparison, ABC’s earnings per share are
lower, implying that the company’s profitability is weaker compared to HCA Healthcare. HCA’s
EPS is on an upward trajectory rising by 41% over three years under review.
Comparison of earnings per share between ABC and the industry averages
Industry ABC HCA Industry ABC HCA Industry
per share
The industry average metrics indicate that the earnings per share ratios for Healthcare
Services were $0.87 for 2019, $1.12 for 2018, and $1.19 for 2017. In comparison, ABC
performed above the industry average. However, HCA’s strength in earnings per share is dwarfed
with a much better EPS over the period under review.
The Price-to-Book Ratio
The Price-to-Book ratio (P/B) compares a firm’s book value to its market value. While
the market value is determined by the outstanding number of shares and the share price, the P/B
is arrived at by dividing the market price per share by the book value per share.
Comparison of P/B ratio between ABC and the industry averages
ABC HCA Industry
ABC HCA Industry
The P/B ratio indicates the remaining value after a company’s assets are liquidated to pay
off its debts. The ratio provides a company’s book value that may act as a reality check for
investors keen on getting growth at reasonable stock prices (Ross et al., 2018). When evaluated
along with the Return on Equity (ROE), P/B gives investors a reliable growth indicator.
Although investors may consider stocks with a P/B of less than three as good enough for
investment, those with a ratio below 1 are most solid and attractive.
The above table shows ABC with a consistently low P/B value of less than 1. Between
2019 and 2017, the ratio ranged between 0.37 and 0.42, indicating the company’s strong
performance. In contrast, the industry average P/B ratio ranged between 3.76 and 8.87 over the
same period. The relatively low P/B ratio for ABC may signal that the company’s stocks are
undervalued, an appealing prospect for investors.
Price Earnings Ratio
The Price-Earnings Ratio (P/E) compares the value of a stock with the industry average. In
general, a high P/E may signal that investors are anticipating higher earnings growth.
Conversely, a low P/E indicates the undervaluation of the company stocks. It may also suggest
that the company is performing exceptionally well compared to its historical trends.
Comparison of P/E ratio between ABC and the industry averages
HCA Industry
HCA Industry
12.10 14.56 33.47
10.63 11.45 40.93
Source: (HCSG, 2021)
ABC healthcare recorded a P/E of 12.10 in 2019 against the industry average of 27.14.
Similarly, the 2018 data indicate that the company’s P/E was 10.63 against the industry average
of 33.47. In 2017, the ratio was 9.14 against the industry average of 40.93. This data showed a
consistently low P/E for ABC Healthcare in comparison to the industry averages. This ratio
indicates that ABC’s stock was generally undervalued. The P/E for the nearest rival HCA is also
higher at a high of 14.56 and a low of 11.45, underscoring the undervaluation of the company’s
Summary of the Trend Analysis
Trend analysis is a management technique used to predict the future movement of a
company’s stock price using historical data trends. The method is based on the idea that past data
signals future activities and market behavior. The trend in ABC’s earnings per share is declining
from 9.15 in 2017 to 6.91 in 2019. Going by this trend, the company should anticipate the EPS
to decrease unless the company takes decisive measures to tackle the decrease. The decrease
reflects a similar trend in the industry average.
The P/B ratio is on an upward trend beginning with 0.37 in 2017 to 0.42 in 2019. While
the increase is marginal, the company should aim at maintaining or lowering the ratio. The
significance of this trend is notable in the industry average that is on the downward trajectory
with a high of 8.87 in 2017 and a low of 3.76 in 2019. Keeping the P/B as low as possible is vital
in assuring prospective investors that the company’s stocks are valuable.
ABC Healthcare’s P/E ratio was upward from 9.14 in 2017 to 12.10 in 2019. The 32.4% growth
compares favorably with the industry declining rate of 34.5% (a drop from 40.93 in 2017 to
27.14 in 2019). On the other hand, HCA’s P/E has remained relatively stable, changing by 0.25
points over the review period.
Competitive Comparative Analysis
Its financial ratios can measure the competitiveness of ABC Healthcare compared to the
nearest rival HCA Healthcare and the industry’s average performance. ABC Healthcare’s 3-year
moving average of earnings per share is higher than the industry average at 7.98 > 1.06.
However, the company lags behind its closest rival, HCA, at 8.89. ABC needs to improve its
EPS to better its competition to stand a chance of attracting investors.
3-Year Moving Averages 3-Year Moving Averages
Industry average ABC
Earnings per share
Price/ Earnings ratio
Price/Book ratio
Market price
83.62 117.85
ABC’s P/E ratio is less than both the HCA’s and the industry average indicating that the stock
may be undervalued. On the contrary, ABC’s moving 3-year average P/B ratio is 0.4, which is
much lower than the industry average. The negative HCA P/B value makes it impossible to
compare with ABC (Ross et al., 2018). The 3-year average market price of ABC’s stock is higher
than the industry average, a good indicator for investment purposes. However, the stock’s price
lags behind HCA by $34.23, making it less attractive for investment purposes.
Recommendations to Maximize Shareholder Wealth
ABC Healthcare should grow its revenue channels that ultimately increase the company’s
profitability to strengthen its earnings per share. This measure is vital in helping the company
compete favorably against its nearest rival, HCA Healthcare, whose EPS is higher by $0.91.
ABC should repurchase some of the common stocks from shareholders to increase the book
value and reduce the P/B ratio. Alternatively, the company should reduce its liabilities further to
reverse the upward trend of its P/B ratio and enhance investor returns. ABC should undertake
organizational restructuring and begin valuing its assets based on financial performance, such as
EBIT margins of each business unit. This approach will help the company identify nonperforming units and either change growth strategies or dispose of them to avoid deadweight
losses while strengthening its market prices.
ABC Healthcare is a viable partner based on the solid financial metrics discussed above.
The company’s P/B ratio is stable, outweighing the industry average and its closes rival HCA
Healthcare. Similarly, the company’s EPS is comparatively low, suggesting that the company’s
stocks may be undervalued. The company is likely to increase its earnings in the future to
compensate for the common P/E values.
Frecka, T. J. (2015). Earnings per share. Wiley Encyclopedia of Management, 1-4.
HCA. (2021). Healthcare Price to Book Ratio 2006-2020 | HCA.
HCSG. (2021). Healthcare Services PE Ratio 2006-2020. Macro Trends.
Ross, S. A., Westerfield, R. W., Jaffe, J. F., & Jordan, B. D. (2018). Corporate finance: Core
principles and applications (5th ed.). New York, NY: McGraw-Hill
Tukdeo, R. (2015). Analysis of financial statements.
Kendra Holcomb
MBA-FPX 5014
Evaluation of Capital Projects
April 15, 2021
Executive Summary
As one of Maria’s trusted and high-performing financial analysts’ managers at the
corporation to ABC healthcare, senior leadership, having been impressed with my past
performances, has tasked me with analyzing three projected capital projects based on projected
cash flow. This paper entails conducting an analysis, thereby recommending the project that will
provide the most shareholder value to the entity. The proposed project includes project A,
project B, and Project C, namely, Major Equipment purchase, Expansion into three additional
States, and marketing/ Advertising campaign. The report aims to analyze every project via
budgeting tools and propose which one of the three is recommended to yield more benefits to the
shareholders. To make a formal decision concerning which project ought to yield most
beneficial to the involved stakeholders, particularly the shareholders, this reports stand to apply
capital budgeting methods to compute the projects’ future cash flows, thereby effectively
comparing the projects.
Information Provided On Projects
The suggested project subjects for review have the following information paramount in making
the best decision about which of the three projects is most viable for the entity.
Major Equipment Purchase- Project A
It is anticipated that the new significant equipment purchase costs amount to $10 million.
It is expected to have its sales costs reduced by 5% every year for eight years.
The equipment is expected to be disposed of for $500,000 towards the end of the eighth
The anticipated rate of return remains 8 percent.
On the equipment for depreciation entail MACRS7-year schedule.
Annual sales for the first year remain anticipated at $20 million and need to stay constant
every year for eight years.
Before this project, the COS has been at 60 percent.
The marginal corporate rate of tax remains presumed at 25 percent.
Expansion into Three additional States -Project B
Project B has a projection of increasing sales and its cost of sales by 10 percent every year for
five years.
The annual sales for the previous year remained at just at $20 million.
The initial cost of the project were projected at $7million, which includes an initial
investment of $1 million in net working capital. At the end of the fifth year, the working
capital remains recouped.
The project Bs marginal corporate tax rate is estimated to be 25%.
The project is considered as a risky investment, therefor the required rate of return is at
Marketing/ Advertising Campaign Project C
The chief expected new campaign of Marketing/ advertising anticipates to cost $2 million
every year lasting for six years.
It remains anticipated that the campaign will result in sales and costs of sales constantly
remaining at 15 percent every year.
The previous annual sales amounted to 25 percent.
The presumed marginal corporate tax is 25 percent
As a modest risk investment, the project’s requisite rate of return remains at 10 percent.
Budgeting Tools
Capital Budgeting/ Investment Appraisal
According to Senthilnathan (2020), capital budgeting, also referred to as “investment
Appraisal,” refers to the process of planning paramount in determining which of the entity’s longterm investment add more value to the entity’s owner. The capital budgeting method involves
several items, including land acquisition, purchasing fixed assets such as machinery and trucks,
and any other project involving a considerable outlay. It is the interest of every organization to
carry out those project that increases profitability besides increasing the wealth of the
shareholders. In line with the requirement of capital budgeting, every project will be assessed
using its future cash flows during its lifetime. The whole idea entails determining whether the
potential returns remain weighty enough concerning the key stakeholders’ expectations to have
the project invested.
When it comes to applying capital budgeting in making an investment decision, it is
appropriate to determine the project’s likely profit, evaluate the involved risk, select the project,
and execute it. Various successful top management applies capital budgeting techniques in
determining the projects that yield the best return in a given period. For the successful
completion of these tasks, the report will use different capital budgeting tools and methods
paramount for the computation of NPV, IRR, PBP (Payback Period), as well as profitability
Index (PI) (Michelon & et al., 2020). After analyzing the above capital budgeting tools and
methods, it will be an essay providing recommendations on which of the project stands to benefit
ABC Healthcare Corporation.
Net Present Value
NPV refers to the variance between the cash inflows and outflows present values over a
given period. NPV method remains a valuable capital budgeting method used in investment
planning in analyzing projected projects or investments. NPV uses discounted cash flow when it
comes to analysis, making it more precise than other capital budgeting methods since it takes
into account risks and time variables. Using spreadsheets under Microsoft Excel, NPV for every
project is computed to establish a common denominator upon which the project’s comparability
is undertaken. The benefit of the NPV method entails considering the time value of money in
that the future dollar remains worth more than the present-day dollar. At all times, the cash
flows stand discounted by another period of capital costs. The other advantage connected to NPV
entails that it gives the management dollar the value it created for the firm and not a proportion
of another factor. It is equally imperative to note that NPV also has some limitations that include
the need for some guessing when using the company’s cost of capital. In case one assumes too
low a cost of capital, the outcome entails making suboptimal investments. On the other hand,
costs any assumption that makes the cost of capital too high makes the management forge many
suitable investments (Marchioni & Magni, 2018).
Internal Rate of Return
The other computation and NPV are IRR, which helps determine the potential project that adds
value hence worth pursuing. Having IRR in place, there are associated advantages as well as
disadvantages worth taking into consideration. One of the main advantages of IRR involves the
timing of cash flows considering all periods; hence, each cash flow stands having equal weight
regarding the time value of money. One of the major setbacks of the budgeting tool entails that it
fails to consider the magnitude of a given project whenever projects are matched. Cash flows
stand likened to the quantity of capital spending that produces cash flows. Such may be
problematic, especially when comparing two projects that to a great extent need a differing
amount of initial outlay, though the smaller returns of the project, the higher internal rate of
return (Gul & et al., 2018).
Payback Period
Using the payback period in computation, the focus mainly entails having faster and more
profitable payback. The investment decision rule that accompanies the payback period remains
simple as well as potentially informative. The method provides know-how when the cash flow of
a given investment is recovered, i.e., ‘paid back’ using cash inflows. In computing the payback
period of the projects involved, the critical factors included include the initial investments,
involved cash flows, and other elements essential in calculating the project’s payback period—
the same as with other methods above, the payback period has pros and cons. In terms of its
advantages, it is worth noting that the PBP is easy to comprehend besides having its calculation
procedure quicker and more straightforward compared with other methods. Some of the
disadvantages of the payback period method include not considering all cash flow generated by
the projects in their entire useful life and pay no attention to the time value of money (Burgos et
al. 2020).
Profitability Index (PI)
Profitability Index is the last computation in this setup essential in arriving at the
appropriate decision. Profitability Index remains paramount in measuring the ratio between
future cash flows’ present value and the initial outlay. PI remains a valuable tool that mainly
tends to rank investment projects besides demonstrating value generated per every unit of
investment. The most attractive project is the one that has the highest PI. The main advantage of
using PI is that it assesses all the cash flows and demonstrates whether the investment tends to
increase its value (Marchioni & Magni, 2018).
Profitability Rate of
Net Present Value
Project A: Major
Equipment Purchase
Project B: Expansion into
Three additional States
Project C: Marketing or
Advertising Campaign
Based on the above calculations, it’s apparent that all the projects stand to benefit the
corporation since they are all profitable to the company. However, some assignments tend to be
more profitable hence highly regarded compared to others. From the table above, Project A has
the highest Net present value amount to $44,262,268.65. Project B remains the weakest of all the
projects though it also has a positive NPV. Project B’s payback period is short yet losing
significantly when it comes to NPV and PI concerning the other three projects. Given the
setbacks associated with PBP, that tool alone cannot be considered vital in determining the best
investment. Compared to NPV, PBP does not consider cash flow after the point of break-even.
Project C has the highest Internal Rate of Return (IRR). However, its net cash flow
present value remains less when compared to that of project A. When trying to decide between
IRR and NPV, the point is that NPV is prioritized in deciding which project is more viable,
hence in this case, pick higher NPV over IRR. It is worth noting that the NPV method provides
an outcome that forms the basis of developing an investment decision in that it presents a worth
return of the invested dollar. IRR fails to make such a decision considering its percentage return
fails to let the investor know how much money will be created. What is more, NPV does not
suffer from perplexing assumptions since it undertakes that reinvestment occurs at the cost of
capital, which remains realistic and conservative (Eagan et al., 2017).
Finally, Project A should be chosen as the first prioritized to benefit the shareholders
because of all the above scenarios. But if project C is selected instead, the company would still
be doing well. Both project A and C have higher NPV besides having almost the same payback
period for the corporation. All in all, the project that stands recommended for this report now is
Project A.
Burgos, J. A. M., Kittler, M., & Walsh, M. (2020). Bounded rationality, capital budgeting
decisions, and small business. Qualitative Research in Accounting & Management.
Eagan, B. R., Rogers, B., Serlin, R., Ruis, A. R., Arastoopour Irgens, G., & Shaffer, D. W.
(2017, January). Can we rely on IRR? Testing the assumptions of inter-rater reliability. In
International Conference for Computer Supported Collaborative Learning.
Gul, S., Gul, H., & Haider, M. (2018). The Review and Use of Capital Budgeting Investment
Techniques In Evaluating Investment Projects: Evidence From Manufacturing
Companies Listed On Pakistan Stock Exchange (PSE). City University Research Journal,
8(2), 247-260.
Marchioni, A., & Magni, C. A. (2018). Investment decisions and sensitivity analysis: NPVconsistency of rates of return. European Journal of Operational Research, 268(1), 361372.
Michelon, P. D. S., Lunkes, R. J., & Bornia, A. C. (2020). Capital budgeting: a review of the
Senthilnathan, S. (2020). Capital Budgeting–The Tools for Project Evaluation. Available at
SSRN 3748067.

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