Comparative Financial Analysis of Ramsay & Sonic Healthcare HI5020

This report provides a comparative financial analysis of Ramsay Healthcare and Sonic Healthcare, two publicly listed companies on the Australian Securities Exchange (ASX) operating in the healthcare industry. The analysis covers the period of three years and focuses on key financial aspects such as debt-equity position, comprehensive income disclosures, cash flow statements, and taxation. It includes a detailed examination of owners' equity, capital structure decisions, and reporting for comprehensive items, along with a comparative analysis of cash flow statements. The report also calculates and discusses effective tax rates, cash tax rates, and book tax rates for both companies, providing insights into their financial performance and strategies. The assessment effectively presents a comparative analysis of financial information obtained from the annual reports of the business and covers the above mentioned items.

Running head: CORPORATE ACCOUNTING
Corporate Accounting
Name of the Student
Name of the University
Author Note

1CORPORATE ACCOUNTING
Executive Summary
The assessment looks into the business of two companies which are operating in the same
industry . It is done with a purpose of identifying the debt equity position, comprehensive
income disclosures, cash position and taxation of the business. The companies which are
selected for this assessment include Ramsay Health care and Sonic health care which are both
engaged in providing health care services to people. The assessment effectively presents a
comparative analysis of financial information . This information is presented in the annual
reports of the business and covers the above mentioned items. These items are shown in the
annual reports of the business. The assessment conducts a period of three years for
conducting the analysis. The assessment also contains calculation of effective tax rate, cash
tax rate and book tax rate.

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Table of Contents
Introduction................................................................................................................................3
Discussions.................................................................................................................................4
Owners Equity........................................................................................................................4
Capital structure decisions.....................................................................................................5
Reporting for Comprehensive Items......................................................................................6
Disclosures of Comprehensive Items.....................................................................................6
Comparative Analysis of Comprehensive Items....................................................................7
Analysis of cash flow statement.............................................................................................8
Comparative study of cash flow statement............................................................................9
Accounting for Taxes...........................................................................................................11
Effective tax rate..................................................................................................................12
Deferred tax assets and liabilities.........................................................................................12
Cash Tax Rate Computation................................................................................................12
Difference between cash tax rate and book tax rate.............................................................13
Conclusion................................................................................................................................13
References:...............................................................................................................................14

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Introduction
The reporting framework is used by most companies nowadays. This framework helps
in assessing whether the business and the expectations of the shareholders are provided with
relevant information or not. A relevant framework is considered to be ideal when it has all
relevant information and appropriate disclosures for the same. The assessment makes a focus
on certain key disclosures which are engaged in similar operations. The two companies which
are considered for this assignment include Ramsay Health care and Sonic Healthcare
Limited.
Ramsay Healthcare is one of the leading operators in hospitals and provides
healthcare services to clients as well as hospitals. The company operates around 235 hospitals
and day surgery facilities. The company has these services set up across Australia, France,
UK and parts of Asia as well. The annual report shows that the business draws about half of
its revenue from operations in Australia and again around one fifth from the market of UK.
Sonic Healthcare is another leading operator of healthcare services in Australia . It
also has its operations across various countries that include UK, USA, Germany and other
several countries. It is engaged in providing laboratory services and radiology services to the
customers . It is considered to be one of the largest diagnostic companies in the country.
The assessment provides a comparative analysis of the cash flow statement,
comprehensive items and debt equity position of the business. It also shows computation of
effective tax rate, tax rate and book rate.

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Discussions
Owners Equity
Owners equity represents the share capital that is used by the businesses of funding
the operations that a business conducts. The owner’s equity consists of items like share
capital, reserves and other equity related funds. These disclosures are shown in the balance
sheet of a company(Henderson et al. 2015). The annual report of Ramsay Healthcare , which
is shown for the year 2017 shows that the owners equity is comprised of reserves, equity
share capital and retained earnings of the business. The equity share capital is obtained by the
business through issuing equity shares t the public(Konchitchki and Patatoukas 2013).
Through the issue of shares, it takes the capital for the purpose of financing other financial
projects and making sure that the day to day operations are run in a smooth manner.
Reserves are a great source of direct finance . These are used by businesses in meeting
special requirements. The use of retained earnings is also known as ploughing back of
profits(Farshadfar and Monem 2013).
The equity share capital of Ramsay healthcare was shown to be $ 2871 million in
2015 with the same having increased significantly in 2017. This signifies that the
management of the company needed a huge amount of capital that is drawn from equity
sources. The reserve balance of the business is shown to be at $ 176.2 million and the same is
shown to have reduced drastically in 2017 and the figure is shown to be $ 67.8 million. On
the other hand, the retained earnings of the business have shown an improvement during the
years between 2015 and 2017. There is a steady growth in the retained earnings of the
business. It shows that the business is growing strength to strength(Gitman, Juchau and
Flanagan 2015).

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In case of Sonic healthcare, the share capital that is shown in the balance sheet is
estimated in the amount of $ 2675 million which has significantly improved from the figures
of last year. The other reserve balance and retained earnings balance that is shown in the
financial statements also signify a slight increase in the values of both items. The increase in
share capital of the business shows that the management of the business has issued new
shares during the year. The figure for retained earnings is shown to be $ 21,761 million.
Capital structure decisions
The capital structure of a business is dependent on the requirements that is to be made
by the businesses for the funds. The management needs to consider the cost and risk factors
that are associated with the business while making decisions regarding the capital structure of
the business(Jain, Singh and Yadav 2013). The capital structure of Ramsay Health Care is
composed of both loan and equity debt capital as per the balance sheet of the company. The
company has taken a significant amount of equity and debt capital in 2017 which is evident
from the cash inflows . These are seen in the cash flow statement of the business during the
year. The debt capital of the business is shown to have increased from $ 1092.8 million in
2016 to about $ 1565.9 million during the year 2017. This sudden increase in the capital
structure of the company suggest that the management of the company is planning on making
improvements in business structure or investing in long term financial projects.
The capital structure of Sonic Healthcare is composed of both equity and debt capital
for the purpose of financing the different projects of a business. The debt balance of the
business is shown to be at $ 1499 million and the same has reduced in comparison to the
figures of last year. This means that the management of the company has repaid a substantial
part of the loan. On further analysis , it is evident that the equity capital of the business is
being utilised by the management for the most part and employ a part of debt capital in order

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to attain a more favourable capital mix. a graph has been presented a s well to analyse the
debt position
Ramsay sonic
1566
1499
Debt
Reporting for Comprehensive Items
The comprehensive items for the year 2017 shows that the business of Ramsay
Healthcare has invested in hedge cash flow contracts and it shows translation of foreign
currency during that period. The comprehensive items of Sonic Healthcare show cash flow
hedge contracts, revaluation of assets and translation of foreign currency during the period .
The annual items of both companies show similar items in case of comprehensive item
disclosures(Angelsen et al. 2014).
Disclosures of Comprehensive Items
The comprehensive items which are included in the annual reports of the companies
are shown separately . They are shown separately for the reason that they are extraordinary in
nature and can therefore affect financial statements. In addition to this , the items are non
recurring in nature for the companies and therefore the same is not shown in the profit and
loss statement(Alkema et al.2013).

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Comparative Analysis of Comprehensive Items
The comprehensive items of both Ramsay Healthcare and Sonic Healthcare
effectively shows items that are included like cash flow contracts, translation of foreign
currency during the year. The comprehensive income of Sonic Healthcare is shown to be at
$ 187.8 million during 2017 and the same has decreased from previous year. While the
comprehensive income of Ramsey Healthcare is shown at $ 1178 million which is quite
higher than Sonic Healthcare. This can be due to the higher scale of operations of Ramsey
Healthcare in comparison to Sonic Healthcare(Ramsayhealth.com, 2018).
The comprehensive items which are shown in the annual reports of the business
should not affect the decision making process of the management as these items are non
recurring in nature. The management can make provisions for the same(Duran and Lozano-
Vivas 2013). A graph has been shown to review the comprehensive income of Ramsay
healthcare and Sonic Healthcare.
Comprehensive income
0
200
400
600
800
1000
1200
1400
Comprehensive income
Ramsay Sonic

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Analysis of cash flow statement
The cash flow statement are essential impacts of financial reports that is prepared by
the business. It allows the users of the financial statements to keep track of the cash inflows
and outflows of the business during a period(Robinson and Sensoy 2016). The cash flow
statement shows the liquidity position of a business. A cash flow statement generally shows
three types of activities which are operating activities. investing activities and financing
activities(Chen and Teng 2015).
The cash flow statement which is prepared by the management of Ramsey Healthcare
shows that the main receipts of cash is the one that they receive from customers by way of
providing them health services , which is shown to be at $ 6,54, 321 million which shows that
the figures have increased from previous year. The main cash outflow that can be identified
from the above analysis is the cash that is paid to suppliers and employees of the business
during the year. The cash from operating activity is shown to be positive and is shown to be
at $ 55,566 million which has also increased from last years. The cash flow from investing
activities is negative for 2015 while it has been positive for the next two years. In 2015, there
has been a substantial purchase of property, plant and equipment while the purchase amounts
have dropped significantly. This is the main reason why cash outflow is more than cash
inflow in 2015. The cash from financing activities of the business comprises of net capital
which is raised by the business. It also consists of debt capital which is taken for the year
2017. The net cash from financing activities of the business is shown to be positive in the first
year while it is shown to be negative for the last two years. In the first year, it is positive
because excessive cash has entered into the business while in the following two years, it is
negative because there have been more repayments of loan than share
issue(Ramsayhealth.com 2018).

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The cash flow statement of Sonic healthcare for the year 2017 shows that the cash
from operations of the business is $ 24,874 million which has shown an improvement from
the last two years. This means that the scale of operations of the business has increased
during this period. The cash from operations of the business comprises of operating activirties
. The main items include receipts from customers and the cash paid to suppliers. the main
investing activities of the business shows that the management of the company has purchased
and sold property and also investments and intangible assets(Sonichealthcare.com 2018).
This is the main reason why cash from investing activities is shown to be negative during
2015 and 2017. The inflows from investing activities of the business is from sale of property.
The cash from financing activity show that the major cash outflows is from repayment of
borrowed capital. the major cash inflows include issue of shares and proceeds from
borrowing. The cash from financing activities of the business represent those activities which
are required for fund generation of the business(Zayed and Liu 2014).
Comparative study of cash flow statement
As per the cash flow statement of Ramsay Healthcare , the cash flow from operating activity
is shown to be at $ 24874 million which has shown a significant improvement over the last
two years. The cash flow from investing activity shows a negative figure in 2015 which is
mainly due to the excessive purchases of business and property. It became positive in 2016
when it had less purchases. In 2017, it again became negative due to excessive purchases of
property(Ramsayhealth.com, 2018)
The financing activities of the business for the year 2017 shows that the company
made more outflows than inflows. The major outflows include significant amount of
repayment of debt and borrowings., which were more than the inflows which included issue
of share proceeds. A graphical presentation of the cash flow statement is shown below:

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particulars 2015 2016 2017
net cash flow from operating activity $32,926 $41,235 $55,566
net cash flow from investing activity -$1,10,336 $11,711 $68,334
net cash flow from financing activity $28,448 -$13,499 -$32,071
Source: (Ramsayhealth.com 2018)
2015 2016 2017
-$120,000
-$100,000
-$80,000
-$60,000
-$40,000
-$20,000
$0
$20,000
$40,000
$60,000
$80,000
cash fl ow analyis of Ramsey
Healthcare
net cash flow from operating activity net cash flow from investing activity
net cash flow from financing activity
The cash flow statement of sonic healthcare shows that the cash from operating
activities of the business has increased significantly in 2017 compared to the last few years.
The increase in cash from operating activities is due to increase in sales and the reduction in
operating costs of the business. The cash from investing activities of the business is shown to
be negative in 2017 which is mainly due to purchase of property, plant , investment and
intangibles which is undertaken by the business. The cash from financing activity reveals that
the management has repaid a significant portion of the loans in order to reduce the overall
risk which are associated with the business. A graphical representation of the cash flow
statement is shown in the figure below:

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particulars 2015 2016 2017
net cash flow from operating activity $13,923.00 $15,386.00 $24,874.00
net cash flow from investing activity -$30,650.00 $7,377.00 -$22,757.00
net cash flow from financing activity $17,722.00 -$15,596.00 $7,846.00
Source:( Sonichealthcare.com 2018)
net cash flow from operating
activity net cash flow from investing
activity net cash flow from financing
activity
$13,923.00
-$30,650.00
$17,722.00$15,386.00
$7,377.00
-$15,596.00
$24,874.00
-$22,757.00
$7,846.00
Cash flow analysis of Sonic
Healthcare
2015 2016 2017
Accounting for Taxes
The tax expense which is incurred by Ramsay Healthcare as per the profit and loss
stateemt is shown to be $ 5477 million for the year 2017 and the same has increased in
comparison to last year analysis. The tax expense of Sonic Healthcare for the year 2017 is
shown to $ 4355 million for the year 2017.

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Effective tax rate
Particulars Ramsay Healthcare($ mil) Sonic Healthcare($ mil)
Income tax expense $5,477.00 $4,355.00
Earning before tax $21,435.00 $16,789.00
effective tax rate 25.55% 25.94%
Computation of effective tax rate
The effective tax rate of Sonic Health care and Ramsay health care are calculated in
the above table. The tax rate is shown to be a little higher for Sonic Healthcare than Ramsay
Healthcare. It is marginally higher for sonic Healthcare than Ramsay Healthcare.
Deferred tax assets and liabilities
The deferred tax assets and liabilities refer to the tax obligations that are either paid in
advance by the business or is due to be paid in a future pint of time(Laux 2013.). The same
relates to tax items for the previous years as well. The deferred tax assets and liabilities are
shown in the balance sheet of both the companies as shown in the annual report that is
prepared by the business. The deferred tax liabilities of Ramsay Healthcare is shown to have
diminished significantly whole the deferred assets of the business is shown to be in an
improvement. This suggests that the business has reduced their tax obligations in respect of
previous years. In case of Sonic Healthcare , the company only has deferred tax assets which
are shown in the financial statements of the business and the same is shown to have a slight
improvement over the years.

13CORPORATE ACCOUNTING
Cash Tax Rate Computation
( S million) ($ million)
Particulars Ramsay Sonic
Income tax provision $5,477.00 $4,355.00
Add: Increase in DTL $36.00
Less: Decrease in DTA -$34.00 -$23.00
Add: taxes on finance costs $675.00 $568.00
Cash tax amount $6,154.00 $4,900.00
EBIT $32,345.00 $27,654.00
Cash tax rate 19.03% 17.72%
Computation of effective tax rate
The cash tax rate is computed in the above figure shows that the cash rate of Ramsay
Healthcare is a little higher for the year 2017 compared to that of Sonic Healthcare . The
computation considers changes in both deferred tax assets and liabilities of the business.
Difference between cash tax rate and book tax rate
The cash tax rate computation considers the cash items of the business and also
considers the changes that take pace in deferred tax and liabilities of the business as shown in
the above table. The book tax rate , on the other hand does not consider such items and is the
general tax rate on which the tax of a business is charged(Inger 2013).
Conclusion
As per the discussion which is shown above, it can be ascertained that the business of
Ramsay Health care is larger compared to the operations and profit generating capacity than
Sonic Healthcare. It is larger due to the fact that the expenses and profits of Ramsay
Healthcare are higher than Sonic Healthcare. The cash position of Ramsay Healthcare is
better than Sonic Healthcare which shows that the liquidity of Ramsay Healthcare is better in
comparison to Sonic Healthcare

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