Black Hawk Urology Harvard Case Solution & Analysis

Black Hawk Urology Case Solution

Forecast Evaluation with Base Case.

With basic assumptions the total income will increase by 16%, P&E will increase by$1.25 million, as a result the building will increase in totalby$0.35 million. Following results were extracted. See Exhibit 1

  1. Gross profit decreases from 36% to 27.6%.It is continuously decreasing with respect to the total revenues, and it might be a result of inefficiency, though the company’s expenses have been increased by the average growth rate. See Exhibit 1
  2. Property and equipment turnover also decreased by 1.46 to 1.42, whereas total assets turnover also decreased from 0.86 to 0.76, which indicates that Black Hawk Urology is not producing sufficient revenues with respect to the total assets, even after the expansion, and its past records show that the company has been good on these ratios before 2007 expansion. The company’s assets and P&E turnover ratios are decreasing instead of increasing, and even not able to sustain the ratios.
  3. Its debt to assets ratio has been increasing, and similarly in 2007, its debt to assets ratio increased from 47.4% to 57%.This ratio shows what percentage of the company is financed by debt, and this is an alarming situation, therefore the company needs to reduce its expenses or become more efficient by increasing its revenues.

Fix-it Scenario

See Exhibit 2 for the scenario’s assumptions. Following outputs were extracted based on assumptions.

  1. The gross profit of the company increased from 36% to 38.6%, which is quite interesting that with these assumptions there are improvements.
  2. Property and equipment did not increase but rather they remained constant.On the other hand, its assets turnover has not been performing well, but in comparison with base case assumptions, it is quite well. Moreover,the base case has ratio of 0.76, and Fix-it Scenario has 0.81, which is much better than that.
  3. With respect to the company’s historical data, its debt/asset ratio is continually increasing, but with outcomes of this scenario, the debt/asset ratio will decrease. Debt ratio as compared to first scenario has 57% debt ratio, however this scenario has 26% ratio, which indicates that the company does not need much debt in this scenario. See Exhibit 3, and 4.

Analysis

Black Hawk Urology’s doctors should focus on the statements that do not show good strength, because the debt is rising continually, whereas its revenues have not increased with respect to the investment made on assets, because its Property & Equipment (P&E), and assets turnover did not remain constant or increased.However, the ratio is decreasing, which indicates that the company is not producing sufficient income with respect to the investment. It could be said that this is mostly because of the company’s inefficiency or excess assets have been acquired....................

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