Financial Analysis of Company - Doc

RUNNING HEAD: Financial analysis of Company 1
Name of the student
Topic- Financial analysis of Company
University name

Life Health Care Group Company 2
Table of Contents
Introduction...........................................................................................................................................3
1. Details of Company....................................................................................................................3
2. Governance structure of Life Health Care Group Company...........................................................3
3. Ratio analysis of Life Health Care Group Company......................................................................6
Short term solvency...........................................................................................................................6
Long term solvency ratio...............................................................................................................7
Profitability ratio............................................................................................................................8
Market pay-out ratio.....................................................................................................................9
4. Share price movement of Life Health Care Group Company........................................................9
4.1 Graph Movement of Life Health Care Group Company..............................................................9
4.2 Comparison off the share price movement of Life Insurance Group Company with the all
ordinary index..................................................................................................................................10
Introduction.................................................................................................................................10
Conclusion...................................................................................................................................10
5. Announcements..........................................................................................................................11
6. Research via internet...................................................................................................................11
6.1 The value of beta is calculated from the data fetch from Yahoo finance i.e. .15.......................11
6.2 Computation of required rate of return by using CAPM method..............................................12
6.3 Determination of conservative investment...............................................................................13
7. Weighted Average Cost of Capital (WACC)..................................................................................13
7.1 Cost of equity (calculated above using CAPM......................................................................13
7.2 Implications that a higher WACC on investment decision...................................................13
8. Consideration of Debt ratio of Life Health care group.................................................................14
8.1 Increased financial leverage and debt portions in capital structure..............................................15
9. Divided policies of company........................................................................................................15
10. Letter of recommendation.......................................................................................................15
11. Conclusion...............................................................................................................................17
12. References...............................................................................................................................18

Life Health Care Group Company 3
Introduction
This report shows the financial analysis of the company. In this report, several
financial analysis tools have been used such as capital budgeting tool, Capital structure
analysis and ratio analysis. In this report, Life Health Care Group Company has been
selected. This report starts with the capital structure and governance of the company. After
that ratio analysis has been used. Afterwards, share price movement and beta analysis have
been used to identify the future growth of the business. After that, determination of the
dividend policy, letter of recommendation have been given to clients.
1. Details of Company
It is healthcare organization which is established as biggest private hospital having its
business in South Africa and owned by the Australian Departmental Stores.
2. Governance structure of Life Health Care Group
Company
The present CEO of Life Health Care Group Company is André Meyer who takes all the key
decisions in company
Life Health Care Group Company is owned by Brimstone Investment Corporation

Life Health Care Group Company 4
(Yahoo finance, 2017)
Owner of company
There are several owners of the Life Health Care Group Company. However, current
owner’s activities have been shown as below.
(Yahoo finance, 2018)

Life Health Care Group Company 5
(Yahoo finance, 2017)
There are top five shareholders who owned the shares in the company.
 Lazard emerging Company
 Vanguard Emerging Company
 DFA emerging Market core equity
 I share Core Equity.
Name Ownershi
p Trend
Previous 8
Qtrs.
Shares Change %
Total
Share
s Held
%
Total
Asset
s
Date
Lazard Emerging
Markets Equity
Install
Premium 44,740,23
2
801,68
5
3.10 0.79 03/31/201
8
Vanguard Emerging
Mkts Stock Idx Inv
Premium 23,444,23
8
0 1.59 0.06 04/30/201
8
Vanguard Total Intl
Stock Index Inv
Premium 18,814,16
6
191,87
0
1.28 0.01 04/30/201
8
Fidelity® Series Premium 16,984,50 0 1.17 0.26 03/31/201

Life Health Care Group Company 6
Emerging Markets 0 8
DFA Emerging
Markets Core
Premium 14,094,78
1
0 0.97 0.11 03/31/201
8
(Yahoo finance, 2017)
Main key managerial persons
Rank Name Age Company Compensation
$ k
Shares
Owned
k
1 E. Hunter
Harrison
CSX Corp 151,147 0
2 George R.
Roberts
74 KKR & Co LP 113,712 44,650
3 Henry R.
Kravis
74 KKR & Co LP 113,434 44,650
4 Hock E. Tan 66 Broadcom Inc. 103,211 98,323
5 Rob Roy 49 Switch Inc. 94,638 89,444
6 Alex A.
Molinaroli
Johnson Controls
International PLC
78,282 9,042
(Yahoo finance, 2017)
These above all are all the key persons who take all the imperative decisions to run the
business of Life Healthcare effective.
3. Ratio analysis of Life Health Care Group Company
The ratio analysis is used to analyse the financial performance of Life Health Care Group
Company by using the two financial factors (Life Health Care Group, 2015).
Short-term solvency
The short-term solvency is measured in terms of the liquidity of the Company.

Life Health Care Group Company 7
Current ratio
The current ratio measures how well company pay off its short term and long term debts out
of its available current asset.
The current ratio of the company had been .32 in 2016 which have increased to .82 in 2017. It
reflected that Life Health Care Group Company has increased its investment in the current
assets.
Quick ratio
This ratio depicts the immediate ability of Life Health Care Group Company to pay off its
debts from its available quick assets. The quick ratio of the company was .23 in 2016 and
increased to .52 in 2017. Most the investment in the current assets is related to the inventory
of Life Health Care Group Company.
Long term solvency ratio
This ratio analyses company capital structure and its financial leverage of the company.
Debt to equity ratio- The debt to equity shows the relation between the debt and equity part of
the company. It is analyzed that the debt to equity of company has decreased to 61% in 2017
which is 8% lower as compared to last year data.
This ratio divulges that company has high financial leverage and by making effective
business it has decreased its debt funding to keep the low financial leverage.
Gearing ratio
The gearing ratio shows how well Life Health Care Group Company could cover its interest
payment from the earning. The gearing ratio of the company has been increased to 48% in
2017 which reflects that company has increased its EBIT with the drastic rate (Life Health
Care Group Company, 2016). In 2016, gearing ratio was 16% which increased to 48% in
2017.

Life Health Care Group Company 8
Profitability ratio
The profitability ratio of the company shows its ability to create profit from its overall
turnover.
Return on assets
The return on assets of Life Health Care Group Company shows its assets ability to earn a
profit. The return on assets of Company has been decreasing since last three years. In 2017,
Life Health Care Group Company had 2% returns on equity which is 7% lower as compared
to last year data.
Return on Equity
The return on equity of company reflects that % of return available to equity shareholders.
The return on equity of company has decreased to 5.66% in 2017 which is 24% lower as
compared to last year. It does not seem positive indicator for the business growth of the
organization (Brigham and Ehrhardt, 2013).
This equation which shows that EBIT
TA X NPAT
EBIT X TA
OE will be equal to NPAT
OE
EBIT/TA*NPAT/EBIT*TA/OE
EBIT
TA X NPAT
EBIT X TA
OE = NPAT
OE
Providing equation
2
014 2015 2016 2017
Net profit After tax/OE 0.57888 0.361068111 0.29457 0.05661
EBIT/TA*NPAT/EBIT*TA/OE 0.57888 0.361068111 0.29457 0.05661
(Please check the excel file for the calculations)

Life Health Care Group Company 9

Life Health Care Group Company 10
Market pay-out ratio
Price-earnings ratio
The price-earnings ratio of Company is .12 which is 10% higher as compared to last year
data.
Dividend payout ratio
The dividend payout ratio of the company is 27% in 2017 which is 12% higher as compared
to last year data.
4. Share price movement of Life Health Care Group Company
4.1 Graph Movement of Life Health Care Group Company
12/1/2015
3/1/2016
6/1/2016
9/1/2016
12/1/2016
3/1/2017
6/1/2017
9/1/2017
12/1/2017
3/1/2018
-0.15
-0.1
-0.05
0
0.05
0.1
0.15
Average return- Life health care
group.
Average return- life health
care group.
This graph shows that in 2016, there was no fluctuation in the share price of Life Health Care
Group Company.
However, in 2017 there has been drastic ups and down in the share price of Life Health Care
Group Company (Laudon and Traver, 2013).

Life Health Care Group Company 11
4.2 Comparison of the share price movement of Life
Insurance Group Company with the all ordinary index
12/1/2015
1/1/2016
2/1/2016
3/1/2016
4/1/2016
5/1/2016
6/1/2016
7/1/2016
8/1/2016
9/1/2016
10/1/2016
11/1/2016
12/1/2016
1/1/2017
2/1/2017
3/1/2017
4/1/2017
5/1/2017
6/1/2017
7/1/2017
8/1/2017
9/1/2017
10/1/2017
11/1/2017
12/1/2017
1/1/2018
2/1/2018
3/1/2018
4/1/2018
5/1/2018
-0.15
-0.10
-0.05
-
0.05
0.10
0.15
Average Return
Average return- life health care group. null
0.041209383 0.031872394 0.024793041 -0.025221173 0.062820146 -0.020304766 -0.000759523 -0.022225492
0.018510292 0.039382851 -0.00771102 0.015154185 0.024787329 0.007419 -0.031323608 0.000468678
0.00171754 0.000415647 -0.005435989 0.040296612 0.013519894 0
Introduction
It is evaluated that the share price movement of Life Health Care Group Company has been stable
in 2016. After that, the company had to see high fluctuation in the share price since last two years
(Yahoo finance, 2017)
The share price movement increased due to the high profitability of the company. However,
due to the high financial leverage of company has been a negative factor which has been
affecting the share price of the company in a negative manner. The share price of Life Health
Care Group Company shows the positive indicator for the future growth of the business.
Conclusion
After analysing all the factors, it could be inferred that Life Health Care Group Company
should lower down its financial leverage which may be a positive factor for the future share
price growth. An investor who wants to invest their capital should invest their money in Life

Life Health Care Group Company 12
Health Care Group Company for the long run only. Investing capital in Life Health Care
Group Company for short run will result in the destruction of business.
5. Announcements
There are several factors which have affected the share price of Life Health Care Group
Company.
1. Life Health Care Group Company invested AUD $ 1 million in its research and development
department.
2. The reduction in the return on capital employed will negatively impact the business growth
3. The company has planned to increase the employee’s strength by hiring more 100 employees.
4. The investment of Life Health Care Group Company has been high for the use of technologies
and system process which may increase the overall outcomes of business.
6. Research via internet
Stock information collected from Yahoo finance and beta calculation by using Excel sheet.
6.1 The value of beta is calculated from the data to fetch
from Yahoo finance i.e. .15
SUMMARY OUTPUT
Regression
Statistics
Multiple R
0.31431
1
R Square
0.09879
1
Adjusted R Square
0.06412
9
Standard Error
0.02086
6
Observations 28
ANOVA
df SS MS F Significance F
Regression 1 0.001241 0.001241 2.850142 0.103327

Life Health Care Group Company 13
Residual
2
6 0.01132 0.000435
Total
2
7 0.012561
Coefficie
nts
Standard
Error t Stat
P-
value
Lower
95%
Upper
95%
Lower
95.0%
Upper
95.0%
Intercep
t
0.01153
9 0.003946
2.9243
42
0.0070
66
0.00342
8 0.01965 0.003428 0.01965
X
Variable
1
0.16550
1 0.098032
1.6882
36
0.1033
27
-
0.03601
0.36700
8 -0.03601 0.367008
The beta value of Life Health Care Group Company is .16 which reflects that the share price
movement of the company will be in the same direction as with the market factors changes.
6.2 Computation of required rate of return by using CAPM
method
E(R) = Rf +( β∗R p)
E(R) = Expected rate of return
Rf = Risk-free rate of return
β = Beta
Rp= Market Risk Premium
RF=4%
Beta= .16
RM= 6%
Cost of Equity= 4.99%

Life Health Care Group Company 14
The required rate of return is computed by using the CAPM method i.e. 4.99% (Life Health
Care Group Company, 2017).
6.3 Determination of conservative investment
After analysing the annual report of Life Health Care Group Company, it is inferred that
company has followed conservative investment method. (Bodie, Kane and Marcus, 2014).
7. Weighted Average Cost of Capital (WACC)
7.1 Cost of equity (calculated above using CAPM
The computation of the weighted average cost of capital is done by using the
proportionate of the capital pars in business.
Cost of Equity= 4.99% (Computed by using the CAPM method)
Cost of debt= the cost of debt of the company is 3.6%
WACC = Cost of debt (Deducted after-tax rate + Cost of equity)
Particular Capital Amount (AUD $ in Million)
Equity- 14380
Debt – 11162
Cost of capital= Equity = 3.6%
Debt= 8%
The weighted average cost of capital is 3.11.
The weighted average cost of capital of the company is way too low which reflects
that company has been creating value on its investment (Life Healthcare group, 2016).

Life Health Care Group Company 15
7.2 Implications that a higher WACC on investment decision
It is analyzed that the return on capital employed by the company highly depends
upon the cost of capital of the business. The analysis says that the WACC of Life
Health Care group is 3.11%, which is less. The company has a various alternate in the
market to raise its funds on cheap rates, which would help the company to accept
various investment plans and projects which gives a higher return on investments. The
increase in investment return will eventually increase the value of its capital.
On the other side, the higher WACC of the company will prohibit the management
from taking any investment decisions. Due to higher WACC, the return on capital
employed by the company will decrease and also leads to the result due to which the
company lose the project for investment which has higher returns. If a company wants
to increase its overall business efficiency then it will first have to undertake proper
strategic program and lower down its cost of capital. Thus, the investment decisions
get highly influenced by the return on capital employed. The increase in debt funding
is the measure plus factors which will eventually increase the overall outcomes of the
business and increase the return on capital employed at large.
8. Consideration of Debt ratio of Life Healthcare group
This ratio analyses company capital structure and its financial leverage of the
company.
Debt to equity ratio
The debt to equity shows the relation between the debt and equity part of the
company. It is analyzed that the debt to equity of company has decreased to 61% in
2017 which is 8% lower as compared to last year data. It is analyzed that company

Life Health Care Group Company 16
has high financial leverage and by making effective business it has decreased its debt
funding to keep the low financial leverage.
Gearing ratio
The gearing ratio shows how well Life Health Care Group Company could cover its
interest payment from the earning. The gearing ratio of the company has been
increased to 48% in 2017 which reflects that company has increased its EBIT with the
drastic rate (Life Health Care Group Company, 2016). In 2016, gearing ratio was 16%
which increased to 48% in 2017.
Gearing Ratio
2014 2015 2016 2017
Gearing Ratio 16% 26% 15% 48%
8.1 Increased financial leverage and debt portions in the
capital structure
It is evaluated that if Life Health Care Group Company has high financial leverage
then it will negatively impact the business functioning in long run. However, the positive debt
portion of the business will give the positive impact on the share price growth of the business
in long run. IN case if Life Health Care Group Company had to face sluggish market
condition and had low profitability then it will negatively impact the business sustainability
in long run (Bodie, Kane, and Marcus, 2014).
9. Divided policies of the company
10. Letter of recommendation
To the directors of Life Health Care Group Company

Life Health Care Group Company 17
Life Health Care Group Company follows the dividend policy based on the profits.
The company has decreased the amount of dividend with the fall in the profits. To attract the
investors the company should maintain a positive dividend policy.
After analysing the financial data of the Life Health Care Group following
recommendations can be given. The investors should go for the long rum investment in the
Life Health Care because if the investors make investment for short time than there may be
chance that they will not get any return and end up with losing their money. Further the
analysis says that there is a chance that the company might not be surviving in future due to
the high financial leverage. The analysis says that the WACC of Life Health Care group is
3.11%, which is less. Therefore, it the management of Life health care could take more and
more projects in its business then it will not only provide good amount of benefit but also
increase their overall return on capital employed at large. The main advice for the directors of
the Life Health group is related to positive choice of business to increase the overall
profitability. It should add on more values and service line in its work department to create
value on the company’s investment at large. In addition to this the return on equity of
company has also decreased to 5.66% in 2017 which is 24% lower as compared to last year.
It shows that company has destructed its profitability throughout the tie. Therefore, It would
not be a good choice for the investors to not to invest in the Life Healthcare group. After
overall evaluation, it is determined that the Life Health Care Group has been suffering
through the lethargic market conditions. The investors should not include the Life health
Care group into their investment portfolio. The company has drastic downfall in its revenues
as it is decreasing the rate of return and increased the financial leverage.

Life Health Care Group Company 18

Life Health Care Group Company 19
11. Conclusion
After analysing all the detail of the Life Health Care Group Company, it could be inferred
that company had faced high financial leverage in the business. However, if in case it had low
profitability then it may result in failure to cover the interest charges in business. In addition
to this, Life Health Care Group Company has used high debt portion in its business which has
negatively impacted the financial leverage and positively decreased the overall costing of
business. The ratio analysis has shown that since last two years, the company has destructed
the business and lower down its overall profitability throughout the time. The share price
analysis of Life Health Care Group Company has also shown that company has stable share
price in 2016 which shown high fluctuation in its share price in 2017 and 2018. However, if
the company does not improve its business performance then it may result to the destruction
of business and risk to the sustainability of the business at large. Now in the end, it could be
inferred that investing capital in Life Health Care Group Company for short run will result to
the destruction of business

Life Health Care Group Company 20
12. References
Bodie, Z., Kane, A. and Marcus, A.J., 2014. Investments, 10e. McGraw-Hill Education.
Brigham, E.F. and Ehrhardt, M.C., 2013. Financial management: Theory & practice.
Cengage Learning.
Jordan, B., 2014. Fundamentals of investments. McGraw-Hill Higher Education.
Laudon, K.C. and Traver, C.G., 2013. E-commerce. Pearson.
Life Health care group, 2015, annual report, Available at
https://www.lifehealthcare.co.za/investor-relations/results-and-reportsn Accessed on 22nd
May 2018
Life Health care group, 2016, annual report, Available at
https://www.lifehealthcare.co.za/investor-relations/results-and-reports/n Accessed on 22nd
May 2018
Life Health care group, 2017, annual report, Available at
https://www.lifehealthcare.co.za/investor-relations/results-and-reports/ Accessed on 22nd May
2018
Life Health care group, Available at
https://www.lifehealthcare.co.za/investor-relations/results-and-reports/., Accessed on 22nd
May 2018
Yahoo finance, 2018 Available at https://in.finance.yahoo.com/., Accessed on 22nd May 2018

Life Health Care Group Company 21
Appendix
Performance ratio
Life Health care Group
Particulars (Amount in
Million 2014 2015 2016 2017
AUD$
AUD
$ AUD$
EBIT 3,978 3,373 3,673 3591
Interest 0 282 507 1299
Net profit 2,774 1,866 1,616 814
Total Assets 11,813 15,935 17,497
36,639.0
0
Total Liabilities 7,021 10,767 12,011 22259
Shareholders' Equity 4,792
5,16
8 5,486
14,380.0
0
1. Rate of Return on Assets
2014 2015 2016 2017
A. Net income 2,774 1,866 1,616 814
B. Total assets 11,813 15,935 17,497 36,639
(A/B) 23.48% 12% 9% 2%
2. Rate of Return on Equity
2014 2015 2016 2017
A. Net income available to equity
shareholders. 2,774 1,866 1,616 814
B. Shareholder’s Equity 4,792 17,981 5,486 14,380.00
(A/B) 57.89% 10.38% 29.46% 5.66%
3. Debt Ratio
2014 2015 2016 2017
A. Total Liabilities 7,021 10,767 12,011 22259
B. Total assets 11,813 15,935 17,497 36,639.00
(A/B) 59% 68% 69% 61%
Gearing Ratio
2014 2015 2016 2017
Gearing Ratio 0% 8% 14% 36%

Life Health Care Group Company 22
Date
Adj
Close
Average return-LIFE
HEALTHCARE GR (LTGHF)
Adj Close (All
ordinary share index)
Average
Return
31-12-
2015 null null
31-01-
2016 31.18 4947.899902
29-02-
2016 31.18 - 5151.799805 0.04
31-03-
2016 31.18 - 5316 0.03
30-04-
2016 31.18 - 5447.799805 0.02
31-05-
2016 31.18 - 5310.399902
-
0.03
30-06-
2016 31.18 - 5644 0.06
31-07-
2016 31.18 - 5529.399902
-
0.02
31-08-
2016 31.18 - 5525.200195
-
0.00
30-09-
2016 31.18 - 5402.399902
-
0.02
31-10-
2016 31.18 - 5502.399902 0.02
30-11-
2016 31.18 - 5719.100098 0.04
31-12-
2016 31.18 - 5675
-
0.01
31-01-
2017 30.24
-
0.03 5761 0.02
28-02-
2017 30.84 0.02 5903.799805 0.02
31-03-
2017 27.87
-
0.10 5947.600098 0.01
30-04-
2017 27.09
-
0.03 5761.299805
-
0.03
31-05-
2017 24.88 - 5764 0.00
30-06-
2017 25.03 0.01 5773.899902 0.00
31-07-
2017 25.93 - 5776.299805 0.00
31-08-
2017 23.02
-
0.11 5744.899902
-
0.01
30-09-
2017 25.76 0.12 5976.399902 0.04
31-10-
2017 25.67
-
0.00 6057.200195 0.01
30-11- 6167.299805

Life Health Care Group Company 23
2017 27.29 0.06 0.02
31-12-
2017 26.06
-
0.05 6130.399902
-
0.01