MBA6010 Managerial Finance: Financial Analysis of Allied Healthcare

This report presents a financial analysis of Allied Healthcare Products, a US-based company offering respiratory products. The analysis utilizes industry ratios, including current ratio, total asset turnover, return on assets, return on equity, receivable turnover, and debt-equity ratios, to assess the company's financial health. Trend analysis, employing vertical and horizontal methods, compares financial data between 2016-2017 and 2018-2019 to identify trends in revenue, cost of goods sold, and operating expenses. Furthermore, the report applies DuPont analysis to evaluate return on equity by focusing on operational efficiency, asset turnover, and profit margin. The findings reveal concerning trends, such as declining revenue, increasing debt, and negative returns, indicating potential financial challenges and the need for strategic improvements. The conclusion emphasizes the need for Allied Healthcare Products to improve its financial position and address operational risks, suggesting that shareholders may find the sector less attractive due to political and economic influences.

MBA6010 MANAGERIAL
FINANCE SU01

Contents
Introduction...........................................................................................................................................3
Industry Ratios......................................................................................................................................3
Trend analysis.......................................................................................................................................6
DuPont analysis.....................................................................................................................................7
Conclusion.............................................................................................................................................7
References.............................................................................................................................................9

Introduction
The report brings out a financial analysis on Allied healthcare products, which is an US,
based organisation. The company offers variety of respiratory products in wide range of site
settings, home health, and emergency medical care in wide range of hospitals (10K report of
Allied healthcare products, 2018). The report comes up with analytical report for Allied
healthcare products, which is conducted through ratio analysis, trend analysis, and DuPont
analysis.
Industry Ratios
Current ratio-
This ratio is a measurement criterion, which measures whether the company is able to pay off
its current obligations. The standard ratio for current ratio is 2:1. The industry estimations for
current ratio is 1.59. For Allied healthcare products limited, current ratio for 3.04 in 2016,
4.03 in 2017, 3.6 in 2018 and 3.07 in 2019. Higher current ratio indicates that management
has been running its business only on debtors and possess higher risk of not maintaining the
current assets efficiently. In case of Allied healthcare limited maintains 4 times debtors to
trade payables (Patil, & Mohanthy, 2017).
Total asset turnover-
Total asset turnover indicates that whether the company is using its total assets appropriately
while generating sales. The company maintains 3 times in 2016, 1.5 times in 2017, 1.8 times
in 2018 and so on (10K report of Allied healthcare products, 2018). This reducing trend
indicates that the company does not have appropriate sources to increase its revenue, leasing
issues, decreased efficiency, inefficient liquid assets, and lack of accounts receivable and
inefficient inventory. This ratio can be improved by using the assets efficiently, and
managing assets of the company to increase profitability (Noh, & Lim, 2019).

Return on assets-
The industry ratio is 0.8 percent. Allied Healthcare Company maintains negative values for
return on assets such as minus 10 percent in 2016, negative 11 percent in 2017 and so on.
Also the negative net profits show that the company is not efficient in using its assets while
generating sales. This reducing ratio indicates that competitors have been producing better
products leading to decrease in the sales of Allied healthcare company (10K report of Allied
healthcare products, 201
6).
2016 2017 2018 2019
-0.16
-0.14
-0.12
-0.10
-0.08
-0.06
-0.04
-0.02
0.00
Return on Total assets
Return on equity-
This ratio determines the level of net profit earned by employing equity. The industrial data
shows that return on equity is 1 percent in industry, which shows the industry averages are
quite low because of out of pocket costs, reduced medicare payment rates and higher
deductible health plans (Campbell, D'Adduzio, Downes, & Utke, 2019).
Whereas, the ROE is negative 13 percent in 2016, negative 13 percent in 2017 and so on.
This shows that the industry and the company is not at all worthy investing because the

management cannot make good use of investment made by shareholders (Patil, & Mohanthy,
2017).
Receivable turnover-
This ratio indicates the how effectively the company has been extending credits and collect
debts. The increasing state of receivable turnover ratio of Allied healthcare indicates 41.56
times in 2016, 36.62 times in 2017, 40.52 times in 2018 and 36.8 in 2019 (10K report of
Allied healthcare products, 2016).
This state of decreasing sales and increasing receivable turnover ratio indicate that company
has been facing issues in credit policies, increasing issues with the collection of receivable on
appropriate time. On the same side, receivable turnover of the industry has also been
increasing to 20-43 (10K report of Allied healthcare products, 2018).
Debt-equity ratios-
The company does not rely on long-term loans according to the annual reports.
Solvency Ratios
Capital structure ratio
201
6 2017 2018 2019
Debt- equity - - - -
From the above situation, it is seen that the company does not incur any long-term as well as
short-term loans.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
At June 30, 2018, the Company did not have any debt outstanding. The revolving credit facility bears an
interest rate using the prime rate as reported in the Wall Street Journal as the basis, as defined in the loan
agreement, and therefore is subject to additional expense should there be an increase in market interest

rates.
(Source:10K report of Allied healthcare products, 2018, page number 27)
Profit margin-
This ratio indicates that level of profitability by employing its investment through equity,
assets, and other source of funds.
2016 2017 2018 2019
0.00
0.05
0.10
0.15
0.20
0.25
Gross profit margin
The ratio for industry has 16.2 percent. Allied healthcare products indicate that it maintains
its COGS and direct cost in proportion to the sales revenue. However, the indirect cost of
company has been extremely increasing especially new technical equipment implementation
and increasing per head costing (Campbell, D’Adduzio, & Duchac, 2017).
Trend analysis
This analysis includes vertical and horizontal analysis, which shows the comparison between
two years of every element of income statement. For the first analysis, the base year is 2016
and then difference between the data of 2016 and 2017 has been analysed (Kazak, 2018).
Through the same method, the base year is 2018 and difference between the data of 2018 and
2019 has been examined.

Income statement of Allied health products ltd 2016, 2017, 2018, and 2019
Particulars 2016 2017 increase/decrease %difference 2018 2019 increase/decreas
e %difference
USD$ USD$ USD$ USD$ USD$ USD$
Total Revenue 35,952 33,512 -2,440 -7% 33,760 31,382 -2,378 -7%
COGS 28,593 26,956 -1,637 -6% 27,310 26,343 -967 -4%
Gross profit 7,359 6,556 -803 -11% 6,450 5,039 -1,411 -22%
Operating Profit/(Loss) -1919.0 -2052.0 -133 7% -1996.0 -2776.0 -780 39%
Finance cost - - - 24.0 56.0 32 133%
Net profit -2305 -2089 216 -9% -2192 -2110 82 -4%
Total Operating Expenses 9,279 8,608 -671 -7% 8,446 7,813 -633 -7%
Income Tax Expense 301 37 -264 -88% 173 29 -144 -83%
The information sheds that total revenue has reduced by 7 percent in 2017 to 2016. The cost
of goods sold has reduced by 6 percent so as the Gross profit has also reduced by 11 percent
in 2017. Operating profit shows an increase by 7 percent in 2017. Total operating expenses
have decreased by 7 percent in 2017 as compared to 2016 (Marketwatch, 2018).
As far as the comparative statement of 2018-2019 is concerned, the company is not able to
increase the values in comparison to 2018 or previous year. Total revenue has reduced by 7
percent in 2019 in comparison in 2018. The company has incurred a debt, which is costly, as
it has increased to USD 56 in 2019 from 24 in 2018. Total operating expenses have been
increasing as it shows 7 percent increase in 2019, which was 8,446 in 2018 (10K report of
Allied healthcare products, 2018).
The data shows that there is a greater need to improve the industry statistics. The
recommendations can be to improve the political and economic situation of the company,
which is stuck by Brexit and voting system leaving of EU (European Union) from the
country.
DuPont analysis
This analysis is used to examine the ability of the organisation and pace up return on equity.
It induces the company to focus on operational efficiency, asset turnover, and profit margin,
which shows use of assets leverage and other efficiency factors. The organisation can
improve elements to enhance the value of investment and return on equity (Patil, &
Mohanthy, 2017).

2016 2017 2018 2019
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
duPont Analysis
The graph shows that the company definitely needs more capital to improve its financial
situation so that it can improve its return on capital. The asset declining proportion shows that
equity multiplier has also been reducing and not generating any profits at all (Marketwatch,
2018).
Conclusion
From the above analysis, it is seen that there is a greater need to improve the financial
position of Allied healthcare products. Inc. The company has been facing severe issues
related to liquidity, reputational risks, and other operational risks. There is no scope of
investing in this sector by the shareholders, as they will not be earnings good amount because
of influences of political and economic factors and circumstances. The government has to
step up towards healthcare sector in US by funding them and availing them.

References
10K report of Allied healthcare products, (2016). Annual report. Retrieved from:
https://sec.report/Document/0001144204-16-125029/
10K report of Allied healthcare products, (2018). Form 10-K Allied Healthcare Products Inc
10-K - Annual report [Section 13 and 15(d), not S-K Item 405]. Retrieved from:
https://sec.report/Document/0001144204-18-051429/
Campbell, J. L., D'Adduzio, J., Downes, J., & Utke, S. (2019). Do Investors Adjust Financial
Statement Ratios when Financial Statements Fail to Reflect Economic Substance?
Evidence from Cash Flow Hedges. Evidence from Cash Flow Hedges (April 2019).
Campbell, J., D’Adduzio, J., & Duchac, J. (2017). The Use of Fair Value Accounting in Risk
Management in Non-Financial Firms. The Routledge Companion to Fair Value
Accounting.
Kazak, H. (2018). Comparison of Financial Performances For Bim Chain Stores And Turkey
Retail Sector: A Study With Ratio Analysis On Balance Sheet And Income
Statements. Journal of Life Economics, 5(3), 93.
Marketwatch, (2018). Investing in stock. Retrieved from:
https://www.marketwatch.com/investing/stock/ahpi/financials
Noh, W., & Lim, J. Y. (2019). Nursing Productivity of Tertiary General Hospitals using
Financial Statements. Journal of Korean Academy of Nursing Administration, 25(1),
35-41.
Patil, D., & Mohanthy, J. N. (2017). Analysis of Financial Statements in the Sugar
Industry. Available at SSRN 2962855.

Readyratios, (2019). Allied Healthcare Products, Inc. (AHPI) financial analysis and rating.
Retrieved from: https://www.readyratios.com/sec/AHPI_allied-healthcare-products-
inc