A Comparative Analysis of Ramsay Health Care Limited and Quadrant Private Equity

Contents Introduction 3 Items in Equity Section 3 Equity Section – Movements 4 Liabilities section 5 Liabilities section – Movements 6 Comparison of the sources of funds 8 Part B 9 References 13 Introduction Ramsay Health Care Limited is a private healthcare service provider found and established in Australia. The share price fell significantly in 2018 when a public inquiry was announced by the government in the aged care center (Estia Health, 2018).

Corporate and Financial Accounting

Finance
Abstract
The assignment is based upon the different sources that a company uses to raise funds. In
this report, two companies are selected for evaluation that is Ramsay Health Care Limited
and Quadrant Private Equity both operates in the field of health. The comparative analysis is
done considering a time frame of three years. With the help of this report, the fund movement
of the companies will be known with ease. Further, the second part of the part is devoted to
the classification of different entities for reporting purpose.
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Contents
Introduction...........................................................................................................................................................3
Items in Equity Section...........................................................................................................................................3
Equity Section – Movements..................................................................................................................................4
Liabilities section....................................................................................................................................................5
Liabilities section – Movements.............................................................................................................................6
Comparison of the sources of funds.......................................................................................................................8
Part B......................................................................................................................................................................9
References............................................................................................................................................................13
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Introduction
Ramsay Health Care Limited is a private healthcare service provider found and established in
Australia. With specialization in surgery, psychiatric care and rehabilitation, it has been able to
successfully spread its operation to the UK, USA, France, Malaysia, and Indonesia. It has
more than 100 facility operation centers in Australia making it the largest service provider.
The global operations are over 500 locations committed to delivering high-quality healthcare
services to the patients (Ramsay Health Care, 2018). It is a well-respected name in the
industry and has an excellent track record in patient care, staff engagement and hospital
management.
Quadrant Private Equity floated an aged care operation in 2014 in Australia under the name
Estia Health. Today it is listed on the ASX and valued in millions. It operates through its 69
locations in New South Wales, South Australia, Victoria, and Queensland. The share price fell
significantly in 2018 when a public inquiry was announced by the government in the aged
care center (Estia Health, 2018).
Items in Equity Section
The equity section comprises of issued capital, treasury shares, and convertible adjustable-
rate equity securities (CARES), other reserves and retained earnings. Issued share capital
refers to the ordinary shares that are entitled to one vote per share, either in person or in
proxy at the general meetings of the shareholders (Ramsay Health Care, 2018). They are
entitled to receive dividends as and when declared and also enjoy the rights of participation in
the surplus assets of the company in the event of winding up in proportion to the number and
amounts paid up on the shares. Treasury shares are held by the Employee share plans and
these are deducted from the equity. CARES are the non-cumulative, redeemable, convertible
preference shares issued by Ramsay with a face value of $100 per CARES. The dividend
rate is calculated based on the market rate and the margin. CARES do not have any maturity
date but it can be converted into shares upon the happening of the regulatory event which is
declared by Ramsay. CARES holders do not enjoy voting rights in general meetings.
Estia Health’s Equity section comprises of Issued Capital, Share-based payments reserve
and retained earnings which in this case are accumulated losses (Estia Health, 2018).
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Equity Section – Movements
The movements in the equity section over the last three years have been tabulated below:
( '$000)
Equity 2019 2018 2017
Issued Capital 713,523 713,523 713,523
Treasury Shares (82,022) (76,753) (70,608)
CARES 252,165 252,165 252,165
Other Reserves (33,248) (26,260) (17,556)
Retained Earnings 1,693,219 1,494,285 1,398,664
Parent Interests 2,543,637 2,356,960 2,276,188
Non-controlling
interest 479,433 90,449 82,498
Total Equity 3,023,070 2,447,409 2,358,686
The issued capital has remained constant over the years. Treasury shares are increasing due
to the rise in the employee stock option plans. CARES has remained constant over the years.
Other reserves are on a reducing side while the Retained earnings have increased constantly
over the years that is a strong sign for the company (Ramsay Health Care, 2018).
Estia Health has seen the below changes in the equity section:
( $' 000)
Equity 2019 2018 2017
Issued Capital 801,843 801,836 801,830
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Share based payments reserve 1,794 1,136 673
Accumulated Losses (42,130) (41,408) (41,387)
Total Equity 761,507 761,564 761,116
The movements in ordinary share issue include Institutional Rights Issue, Retail Rights Issue,
DRP and movements in a management equity plan. The accumulated losses have been
increasing marginally which signifies that the company has not been able to improve its
performance to a greater extent.
Liabilities section
Ramsay Healthcare’s balance sheet reveals a broad classification into current liabilities and
non-current liabilities. Current liabilities include trade and other payables, interest-bearing
loans and borrowings, derivative financial instruments, provisions, and income tax payable.
Non-current liabilities include interest-bearing loans and borrowings, provisions, defined
employee benefit obligation, derivative financial instruments, other creditors and deferred tax
liability. The interest-bearing loans and borrowings are presented at the fair values. Despite
the risks associated with the loans and liabilities, the company’s performance risk was
assessed as insignificant as on 30 June 2019. Derivative financial instruments are carried as
assets when the fair value is positive and as liabilities when the fair value is negative.
The Liabilities section of Estia Health is also divided into current liabilities and noncurrent
liabilities. Current liabilities include Trade and other payables, income received in advance,
refundable accommodation deposits and bonds, other financial liabilities and provisions. The
non-current liabilities include deferred tax liabilities, loans and borrowings, provisions and
other payables (Estia Health, 2018). Income tax payable is worked out by calculation of the
current tax payable with adjustments in respect of income tax for the previous year and
deferred income tax relating to the origination and reversal of the temporary differences.
Trade and other payables are classified into trade creditors, payroll liabilities and sundry
creditors and accruals. The current provision is created for employee benefits and stepped
lease provision whereas the non-current provision is for employee benefits. Other financial
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liabilities represent the Independent living unit entry contributions. Borrowings represent
secured bank loans. Refundable accommodation deposits and bonds are classified for
current residents and departed residents.
Liabilities section – Movements
The movements in the liabilities section can be tabulated as below:
( '000)
Current Liabilities 2019 2018 2017
Trade and other payables 2,369,490 1,771,569 1,694,889
Interest-bearing loans and
borrowings 107,108 100,078 85,543
Derivative financial instruments 18,570 11,371 16,046
Provisions 101,107 76,641 69,348
Income tax payable 60,112 39,507 36,522
Total Current Liabilities 2,656,387 1,999,166 1,902,348
Non-Current Liabilities
Interest-bearing loans and
borrowings 5,487,543 3,852,032 3,261,816
Provisions 754,541 679,642 475,298
Defined employee benefit
obligation 215,284 80,463 75,237
Derivative financial instruments 43,827 11,682 14,065
Other creditors
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16,512 8,328 8,648
Deferred tax liability 335,477 234,147 239,263
Total Non-Current Liabilities 6,853,184 4,866,294 4,074,327
Over the years, the current and non-current liabilities have increased steadily. This also
signifies the growth of the company (Leo, 2011). Derivative financial instruments are used by
the company to hedge the exposure to fluctuations in the interest and foreign exchange rates.
To fund the acquisition of Capio Group the company has entered into Syndicated Facility
agreements. Also, the refinancing of the existing debt obligations has been done for better
management.
Estia Health has displayed the below movements in the liabilities secion:
. ( $' 000)
Current Liabilities 2019 2018 2017
Trade and other payables 44,046 42,647 28,855
Loans and borrowings - - 264
Income received in advance - 25 24
Refundable accommodation deposits
and bonds 805,033 791,508 730,222
Other financial liabilities 1,304 1,371 1,293
Income tax payable - - 4,227
Provisions 45,616 41,793 38,955
Total Current Liabilities
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895,999 877,344 803,840
Non-Current Liabilities
Deferred tax liabilities 107,775 107,610 108,765
Loans and borrowings 125,000 75,000 121,250
Provisions 4,496 4,269 3,441
Other payables 12 61 115
Total Non-Current Liabilities 237,283 186,940 233,571
The total current liabilities have steadily increased whereas the non-current liabilities have
seen ups and downs in the recent three years.
Comparison of the sources of funds
Ramsay Healthcare has not made any new issue of shares in recent years and the balance
sheet throws light on the increased non-current liabilities that the company has been taking
every year. Thus it has been funded by debt and the robust balance sheet and a strong cash
flow position continue to provide flexibility for the company to meet its working capital
requirements, debt repayment obligations, and also fund the ongoing demand for brownfield
expansion (Lister, 2018).
Estia is having a strong and stable equity capital. The bank loans are pretty low and hence
the company is not burdened with debt obligations making it a cash sufficient company. Its
obligations are met on time and hence the management is making efficient utilization of the
available funds (Merland & Urgeghe, 2013).
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Part B
Proprietary companies
A proprietary company is a private entity that does not offer its shares to the general public.
There are two types of proprietary companies- one which is limited by shares and the other
which is unlimited. The basic requirement of a proprietary company is to have one registered
office. A minimum requirement for the existence of a company is one shareholder which can
be extended up to 50 and such shareholder should not be working as an employee. It is
mandatory to a. Minimum one director but appointing a company secretary is optional for
such companies (PWC, 2019). The shareholders of a limited proprietary company are liable to
the extent of the face value of shares which are owned by them. It is totally opposite in the
case of a proprietary company which is unlimited by share capital. In such a case the
shareholder's liability is unlimited.
Small proprietary
A company has to meet two criteria at least to be considered as a small proprietary- Firstly,
the net value of the asset that is owned by proprietary should not exceed 12.5 million dollars
at the end of a financial year. Secondly, the number of employees appointed in a proprietary
company must not exceed 50 at the end of the financial year. Also, the gross operating profit
earned during the year must not exceed an amount of $25 million (ASIC, 2019).
Large proprietary
A company is considered to be a large proprietary when it satisfies the following criteria.
Firstly, the gross value of the assets which are owned by the proprietary or any other
company that it controls must have a minimum value of $ 25 million at the end of the financial
year. (PWC, 2019) The minimum number of employees that a company should have at the
end of your must be equal to 100. The total consolidated profits for a given financial year
should be at least $50 million.
Reporting entity
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All companies that comply with general purpose financial reporting for evaluating a company's
financial position and its performance is known as a reporting entity. These financial
statements that are prepared by a company are used by several stakeholders of the company
which includes shareholders, creditors, debenture holders, potential investors, lenders, etc.
The financial statements that are prepared by the company should be reliable because many
important decisions are taken based on them. A non-reporting entity is the one where users of
these financial statements are not dependent on the general purpose financial report. Such
entities prepare a special purpose financial report (ASIC, 2019).
Implications and compliance of large proprietary
A proprietary limited company is required to comply with the corporation's activities in 2001. It
is very important for these companies to carry out an audit procedure periodically. It is
compulsory for such companies to have at least one director who is an ordinary resident of
Australia. The director should delegate his responsibilities and duties lawfully to others. The
financial statements, as well as the director's report, must be prepared at the end of the
financial year. There are various factors like size and type of a company on which the
disclosure requirement depends. The disclosure requirements are stricter in case of a public
company because they raise funds from the public on the basis of their financial statements.
If a large proprietary company is not exempted then it must submit its financial statements
and directors’ report to the Australian Securities and Investment Commission. A small
proprietary company is not required to submit these statements. The shareholders and the
directors are considered to be the owner of a large proprietary company. The role is
completely different from each other (ASIC, 2013). It is not important for an equity holder to
participate in the workings of an organization and at the same time, it is not important for a
director to have an equity holding in the company. Equity shareholders get dividends out of
the profits as a return whereas the directors of the company receive salary for the services
that they have rendered. The small proprietary companies are just required to record the
financial transactions and lodge this statement to the ATO. It is a basic requirement that such
companies should have proprietary Limited at the end of its name. All the legal documents
should contain the official name of the company which is registered with the ASIC (Mrsland &
Urgeghe, 2013). Also, if there is any nonprofit organization that is revenue exceeds AUS$
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150000 then, it must register for goods and services tax. The company should make sure that
all the legal and statutory requirements are met timely. According to chapter 6D of the
corporation's act 2001, the PLC's are disallowed to disclose any crucial information to its
investors. A public limited company has to face a greater regulatory burden when compared
to the PLC. This shows that PLC has greater freedom relating to trade and also it faces less
competition in the industry.
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Conclusion
Ramsay Healthcare has displayed overall growth in all its areas of operations and hence the
future of the company looks bright with strong liquidity position and market stability. Estia
Health is a company with a strong foundation and a clear strategy for future growth with
specific measures to deliver the same. However, both the companies are operating with a
strong fundamentals and it is a clear indication that both the companies will project strong
results and ensure quality return to the shareholders. The second part of the report indicates
that large proprietary is a good option as it helps the business activities however the business
needs to have a system of a strong compliance.
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References
ASIC 2019, Using 'Limited', 'No Liability' or 'Proprietary' in a name, viewed 24 September
2019, https://asic.gov.au/about-asic/contact-us/how-to-complain/using-limited-no-liability-or-
proprietary-in-a-name/
Estia health 2018, Estia health 2018 annual report & accounts, viewed 24 September 2019,
http://www.annualreports.com/HostedData/AnnualReports/PDF/ASX_EHE_2018.pdf
Laux, B 2014, Discussion of The role of revenue recognition in performance reporting.
Accounting and Business Research, vol. 44, no. 4, pp. 380-382, doi:
10.1080/00014788.2014.897867
Leo, K. J 2011, Company Accounting (9th ed), Boston:McGraw Hill
Lister, J 2018, Advantages and Disadvantages of Financial Risks Within Companies, viewed
24 September 2019 <https://smallbusiness.chron.com/advantages-disadvantages-financial-
risks-within-companies-16048.html>
Melville, A 2013, International Financial Reporting – A Practical Guide, Pearson, Education
Limited, UK
Mersland, R., & Urgeghe, L 2013, International Debt Financing and Performance of
Microfinance Institutions, Strategic Change, vol. 22, pp. 36-47
Mersland, R., & Urgeghe, L 2013, International Debt Financing and Performance of
Microfinance Institutions, Strategic Change 22, 36-47
PWC 2019, Doing Business in Australia, viewed 24 September 2019,
https://www.pwc.com.au/legal/assets/legaltalk/doing-business-australia-2016.pdf
Ramsay 2018, Ramsay 2018 annual report & accounts, viewed 24 September 2019,
https://www.ramsayhealth.com/Investors/Annual-and-Financial-Reports/Annual-Report-2018
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