Hospital Corporation of America Harvard Case Solution & Analysis

Alternative  Solution

If HCA decides to keep up their A bond rating, impressive progressions must be made rapidly. As specified prior, there are two ways in which it can decrease the debt ratios. One way is to decline growth or decrease debt/increase equity. If the Hospital Corporation of America decides to stay at the current obligation proportion that assumes a lower rating, then suspicion may emerge among financial specialists. In both cases, open doors of opportunities exist. HCA can maintain its current debt to equity ratio, which allows it to remain at the higher level of debt ratio but meet both the expected targets for return of equity (ROE) and growth rate. This means debt to equity ratio 68.6 % (exhibit 3), ROE 17 % (target) and growth rate 13%. This will likewise show that HCA accepts a lower rating, which can turn out to be great and worse. In a few examples, organizations with lower appraisals encounter rise in their expense of obligation or loss access to the debt or obligation market. With the growth rate at 13%, HCA has a chance to expand later on. An ROE of 17% shows effectiveness and gives evidence that the organization is heading in the right direction.

Another alternative solution is that HCA should decrease its debt ratio at any cost. If Hospital Corporation of America decreases their debt ratio to 60% that is target ratio then; it will be able to retain its A bond rating in exchange for a decrease in the return of equity (below the target of 17%) and growth rate minimum 13%. If keeping up the A rating is HCA's primary objective then this is the right choice but if HCA is worried about its growth and what a declining ROE will sign to the business then they ought to look somewhere else. The main advantage to an extreme move would be a considerably more big opportunity for future development, greater risk aversion, and stability. In the event that HCA is prepared to take a more direct monetary arrangement stance, then this is not the right choice.

The third alterative solution for HCA is that they should meet target growth rate. This alternative solution allows HCA to meet their target growth rate of 25%, which will increase their debt ratio from 68.6% and result their rating to drop. Growth rates don't specifically enhance the productivity and surely not the soundness of an organization. The increase in growth rates will result in an increase in the ROE. By focusing on the target growth rate, HCA will likewise be securing a much higher risk and diminished steadiness of the company. If they adequately assume this risk and deal with their debt well, then this choice can be truly beneficial in the long-term for HCA. However, by setting their development rate at such a lifted percentage, HCA will need to proceed with this pattern in light of the fact that a decrease will indicate the business sector. Moreover, with progressions approaching in the Medicare/Medicaid repayment program; HCA should be cautious of making such sensational improvements.Hospital Corporation Of America Case Solution

Finally, Hospital Corporation of America can enhance its growth rate; increase ROE to the target of 17% and decrease the debt ratio that has approached to 70%. HCA has been known as a traditional company and this situation permits them to take this way while assuming some extra risk. As opposed to totally changing the financial structure of their company, HCA ought to consider little steps towards while making an objective. In order to gain growth opportunity, stability and risk aversion, HCA will give up their A rating of debt. This basically gives them some time to see where the progressions with Medicare/Medicaid are going while observing whether the rating agencies upgrade their prerequisites for A bond evaluations.....................................

This is just a sample partial case solution. Please place the order on the website to order your own originally done case solution.

Share This


Save Up To




Register now and save up to 30%.