Financial analysis of Community Health Systems and HCA, Inc Assignment

Financial analysis of Community Health Systems and HCA, Inc - Assignment Example There are many reasons for someone to explore a firm’s financial statements. Investors use it to explore potential returns on their capital investment, managers explore to assess performance, and the government reviews them for legal compliance. The final analysis for HCA & CHS will be presented from the prospective of the investor. In order for the investor to understand the return on an investment, he/she must examine the firm’s quality earnings. Quality earnings are different from profit. Profit could mean the firm is just breaking the even point that enables the firm from incurring losses. Maybe the profits are being absorbed by debt. Many firms hide debt in the financial statement notes. Consequently, investors willing to invest in a given organization should not evaluate the viability of the investment from the face value of the financial statements. Assessing a firm’s worth involves a deeper understanding of the firm and its industry. Ratio analyses are ve ry useful in that understanding. In the next few pages, you will find a vertical ratio and horizontal analysis for subject firms. HCA’s financial data was easy to comprehend due to the concise and clear presentation of the consolidated statements. In addition, the accompanying financial notes helped in understanding the origin of the figures in the financial statements. Most of its financial data are easily translated into terminology used in the Excel template. The financial data of HCA was presented in the millions while Community Health Services was listed in the thousands. To make the two firms’ financial statements more comparable, Community Health Services numbers were divided by 1000 to convert it to millions. Cost of goods sold for the firms is actually labeled â€Å"Revenues before the provision for doubtful†. The healthcare industry has a large provision for doubtful