Healthway Medical Case Harvard Case Solution & Analysis

Healthway Medical Case Case Study Solution

Matrix Analysis

The matrix analysis has shown a declining trend in profit margin as of 2013. The profit margin increased in 2012 from 10% to 38% in 2013, it kept on declining afterwards from 12% to 2% in 2015. Conclusively, it turned into an unprofitable growth of Healthway reporting a loss of SGD 40 million. A low profit margin has indicated a low margin of safety due to the decline in sales which erased the profit and resulted in the negative margin.

The current gearing of Healthway in 2013 leveled at 27%, depicting the long term debt that the company had in respect to its equity.  The highest gearing occurred in financial year 2013 and lowest gearing occurred in 2012 approximate to 19% showing the lower portion of debt to equity. The return on capital employed showed a consistent trend since 2013, it significantly improved in 2013 when it reached to 15% from 4%, but following the year 2014, it kept on declining and operating in loss due to the increasing cost and reducing sales, conversely it did not allow the company to invest back profits into the company for the shareholder’s benefits.

Interest coverage ratio translated the time that the company required to pay interest from the profits of the current fiscal year. The interest coverage ratio of Healthway increased  from 8 times in 2012 to 15.5 times in 2013.  It kept a declining trend in 2014 from 10 times to 3 times in 2015. In 2016, for the time being the company was left with no profits for paying interest. The reason could be the burden of debt expense on company making the company unable to meet the interest expense.

The quick and current ratios of Healthway remained unwavering. In 2012 the current ratio was 2.55 but in 2013 it declined and recovered in the next year. The reason of declining current ratio includes increase in short term debt resulting in a reduced ability of Healthway in generating cash. Finally, in 2015, the ratio returned at 2013’s level at 1.60. Currently, the company has satisfactory current assets to pay off its debt obligations (Mauboussin, 2012).

The calculation are shown in Appendix.

Alternatives – Decision Choice

The strategic decision and future plans would help the company to overcome the current situation and devalued price of share, the business strategies are discussed below:

Overseas expansion

Healthway Medical Corporation  believed that there are several overseas growth opportunities and intended to grow clinics as well as facilities through joint venture, acquisition and strategic alliances as such business opportunities tend to arise. The company should identify the oversea expansion initiative i.e. China. The current revenue stream of Healthway is 99.9% from Singapore whereas 0.1% in China.  The company should ponder change strategy as main competitors have a ratio of 70:30 and are developing and growing. The division needs to be exploited by the company in order to build a strong market reputation.

Improving the medical service quality for aging population

Healthway Medical Corporation physicians should pursue medical training, education and product knowledge and capitalize on the technology advancement in order to cater enhanced and comprehensive types of medical services and develop sub-specialist in various medical field.  Since, in Singapore the demand for medical services would be increasing as a result of the demographic changes such as aging population. The aging population would most likely result in high demand for orthopedics service, the company can provide better and quality healthcare services to them while focusing on improving the scope of current healthcare facilities & services as well as exploring other specialist healthcare associated fields that would complement Healthway services in long run.

Reducing management & receivables of doubtful debts

Currently, the receivables are amounted to 68 million more than fifty percent of the current revenues. This in turn, would lead to bad debts that is recognized as an expense of SGD 37 million. In order to effectively manage this, the company should reduce the days of collecting receivables and factorize the receivables. In consideration to factoring of current debts, the company would have liquid assets that would lower the current expense of doubtful debts.

Decision Criteria Matrix

Recommendation

After taking into account various alternatives along with their benefits, it has been analyzed that the market factors for the company are different in health care industry and they has been differing in Price earnings ratio as the organization has been diverse as compared to the international firms as well as their size including Raffles Medical Group who would most likely enjoy the benefit of economies of scale by lowering the unit costs and producing large quantities. So, it is significant to adjust PE ratio with the standards of healthcare industry

It is recommended that the company should emphasize on the expansion of business operations in Chinese market arena as it would greatly and positively affect the cash flows and revenue streams of company (Quackenbos, 2016). Additionally, it is also recommended that the company should manage debt through factoring as it would most probably reducing the level of expenses and improving its liquidity position, thus leading to increase in capitalization and stock price (Weinhold, 2017).

Conclusion

In conclusion, Healthway Medical Corporation is a largest outpatient healthcare service provider offering number of quality services across the medical value chain. The financial performance outlook has given a considerable reasoning of expanding the business operations in overseas market and managing debt in order to add value to the firm. By doing so, the company would remain competitive in highly competitive market place by adopting competitive strategies. The performance indicators have been used in order to translate the company’s vision into meaningful terms...........

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