Care Tech Plc: Strategic Planning and Performance Analysis Report

This report provides a comprehensive analysis of performance improvement and management within Care Tech Holdings Plc, a public sector company operating in the health and social care sector. The report begins with a critical evaluation of strategic planning models, including the three-statement model and the consolidation model, assessing their benefits and drawbacks for Care Tech Plc, particularly in the context of potential acquisitions. The report then delves into the usefulness of financial ratios for shareholders, calculating and interpreting key ratios such as gross profit margin, operating profit margin, and return on capital employed. Furthermore, the report includes calculations of residual income, both before and after a hypothetical investment, and discusses the advantages of using the Economic Value Added (EVA) concept in financial decision-making. Finally, the report offers a critical evaluation of non-financial and multidimensional models of performance management, providing a holistic view of performance evaluation within the organization. The analysis incorporates financial data and industry benchmarks to offer actionable insights for stakeholders and management.

Performance Improvement
and Management in Health
and Social Care

Table of Contents
INTRODUCTION...........................................................................................................................1
QUESTION 1...................................................................................................................................1
Critical evaluation of strategic planning model which are appropriate for organisation.............1
QUESTION 2...................................................................................................................................4
A. Discussion of usefulness of financial ratios for shareholders.................................................4
B. Calculation and interpretation of ratios...................................................................................7
C. Calculation of residual income before and after the investment.............................................8
D. Benefits of using Economic Value Added concept while making financial decisions...........9
QUESTION 3...................................................................................................................................9
Critical evaluation of using non financial and multidimensional models of performance
management.................................................................................................................................9
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................13

INTRODUCTION
Performance improvement and management are two different activities which is very
important for all the industries such as health and social care, manufacturing, service etc. In order
to improve and manage performance it is vital for business entities to organise all the operational
and executional activities properly. For this purpose controlling and monitoring are also very
important in which managers analyse progress and actual status of all the operations and then
make judgement to formulate effective strategies for business (Abdelhak, Grostick and Hanken,
2014). The organisation which is selected for this report is Care Tech Holdings Plc, which is a
public sector company operating business all around England, Wales and Scotland. This project
report covers various topics such as detailed analysis of strategic planning models, usefulness,
calculation of financial ratios and residual incomes etc. Apart from this, benefits of using
economic value added and critical evaluation of non financial and multidimensional models of
performance management are also covered under this assignment.
QUESTION 1
Critical evaluation of strategic planning model which are appropriate for organisation
Internal Memorandum
Care Tech Plc is a public company which provides care services to adults with learning
disabilities, people who are dealing with mental illness and individuals with autistic spectrum
disorder. In year 2017 an acquisition was made by the company and in next years it is also
planning for further acquisition in order to grow the business. For this purpose manager of the
organisation is being asked to prepare an internal memorandum for stakeholders which covers
benefits and drawbacks of strategic planning models which are appropriate for care sector in
England. All the models are described below:
Strategic planning models: Such types of tools which are used by business entities to
take strategic decisions are known as strategic planning models. In order to deal with challenges
which are affecting organisation's performance it is vital for companies such as Care Tech Plc
to use strategic planning models. With the help of them business issues can be dealt effectively
and their negative impact can be reduced (Adler, Glymour and Fielding, 2016). All the models
which could be used by Care Tech Plc are described below:
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Three statement model: According to this model business entities are required to
formulate three different types of statements which depicts actual financial position of the
company. These are income statement, balance sheet and cash flow. With the help of all of
them stakeholders of Care Tech Plc will be able to analyse actual performance, liquidity and
profitability of organisation. If they analyse that enterprise is not performing well then they can
form strategic decisions in order to resolve the problems. All of them are linked to each other as
net profit of income statement is recorded in balance sheet and closing balance of cash flow is
also recorded in it. In order to attract new stakeholders towards the company it is very important
for managers to make sure that whether appropriate information is recorded in the final
accounts or not. This model helps to record different types of information such as assets,
liabilities, revenues, sales, purchases, income, expenses, equities etc. in final accounts. All these
elements are used to analyse financial condition of the company and formulate strategic
decisions if it is weak (Benavides-Velasco, Quintana-García and Marchante-Lara, 2014).
Following are the advantages and disadvantages of financial statement model:
Advantages Disadvantages
With the help of three statements model actual
financial status of the company can be
measured by stakeholders in order to form
strategic decisions.
Financial statements are based upon market
patterns and organisation is required to modify
according to the changes in the patterns which
is increases work load of accounting
professionals.
Financial statement model guide stakeholders
to make judgement regarding investing their
money in company.
All the transactions which are recorded
according to this model are based upon
historical data.
While organisation is willing to acquire credit
then it can help to represent actual performance
of company in front of creditors and facilitate
to get it.
With the help of financial statements model
only financial issues can be measured it cannot
guide to identify non financial issue.
From the above analysis it has been determined that financial statement model have
positive as well as negative aspects. If these statements are formulated appropriately then it can
help stakeholders of Care Tech Plc to assess actual performance of the company but, if these are
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not formed properly according to rules and regulations then it can leave negative impact upon
their decision (Berman, 2015).
Consolidation model: This model states that business entities should formulate their
financial statements in consolidated format so that it can guide stakeholders to take strategic
decisions. All the statements which are formulated under this model are linked to each other as
they have information of company and its subsidiary. As Care Tech Plc has made an acquisition
in year 2017 and it is planning for more in next years for the purpose of growth then
consolidation model can be used by it in order to provide detailed information of enterprise and
its subsidiary to the stakeholders. With the help of this model internal stakeholders evaluate that
company is generating profits or not (Chandler, 2017). It also guides them to form strategies for
betterment of organsiation. Advantages and disadvantages of this model are as follows:
Advantages Disadvantages
Consolidation model helps business entities to
increase revenues because when a company
acquired another one then it results in
increased number of customers and revenues.
When a company acquires another company
and formulate final accounts in consolidated
format then it may result in increased debts
which were required to be paid by subsidiary.
When consolidation model is used by
organisations then it help them to eliminate
duplicate assets and use the saved money for
operational activities.
It results in decreased power of owner because
it is required to be shared by others who were
in the board of subsidiary.
When consolidation model is used by
companies then it shows that organisation is
paying amount of loan. In this situation the
debt agreements were not broken which helps
to maintain credit rating.
Sometimes consolidated financial statements
show poor performance of the company due to
bad records of subsidiary organisation.
Consolidation model could be implemented
easily and quickly as it is a easy to understand
by the accounting professionals of business
entities.
Consolidation model can result in decreased
goodwill because when an organisation acquire
another company and formulate final accounts
in consolidated format then market image of
acquired enterprise can leave negative impact
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upon the parent entity.
Consolidation model guides organisations to form final accounts in consolidated format
so that actual performance of business can be determined. It helps to enhance revenues and on
the other hand it also creates problems by increasing debts of the acquired company. If it is
adopted by managers then it is very important for them to comply with all the governmental
rules and regulations (Cherry and Jacob, 2016).
Recommendation and justification: It has been recommended by the manager to the
directors to implement consolidation model because Care Tech Plc is planning for acquisitions
in future for the purpose of attaining growth. Hence, it will be beneficial for the company to
adopt consolidation model in which all the final accounts could be created in a consolidated
form to show actual position of the company and its subsidiary to the stakeholders. Currently it
has became compulsory for enterprises to consolidate their financial statements so that global
performance and financial status of business can be measured (Curtis and Burns, 2015).
QUESTION 2
A. Discussion of usefulness of financial ratios for shareholders
Calculations of gross, net and operating profits, ROCE, asset turnover, trade receivable and trade
payable ratios of Care Tech Plc:
Ratios Calculation Result
Gross Profit Margin
= ( Net Sale – COGS ) / Sale *
100
= (166,018 – 106,110) /
166,018 * 100
36.08%
Operating Profit Margin
=Operating Profit / Net Sales *
100
= (34,150 / 166,018) *100 20.57%
Net Profit Margin
= Net Profit / Revenue * 100
= ( 26,636 / 166,018 ) *100 16.04%
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Return On Capital Employed
= Operating Profit / Capital
Employed * 100
= ( 34,150 / 411,978 –
35,463 ) * 100
9.07%
Assets Turnover
= Sales / Net assets
= 166,018 / 411,978 0.40 times
Trade Receivable days
= (Trade Debtors / Revenue) *
365
= (23,519 / 166,018) * 365 51.72
52 Days.
Trade Payable days
= (Trade payable / Purchase )
* 365
= (15,709 / 106,110) * 365 54.03
54 Days
Gross Profit Margin: This ratio used to identify the company's financial position in term
of gross profit. Gross margin is the difference between revenue or cost of goods sold and it will
be represented in percentage form. Purpose of this ratio is to identify the financial position of
company after deducting cost in the sale.
 Firstly calculate the gross profit through deducting COGS from net sales
 Divide the gross profit from sale and then multiply with 100 so result will be comes in
form of percentage.
Interpretation: Gross profit of the Care Tech Holding PLC is 36.08 % and industry
average is 36.4 %. Company is efficient to control their operational functions because it fulfil
the industry requirement. This difference indicate that company required a little bit improvement
in their operational activity (Dickinson and O'Flynn, 2016).
Operating Profit Margin: It indicates that, how much profit company earn from their
operational functions. Purpose of this ratio is to identify the exact profit after deducting all
variable or production cost. It also expressed in percentage form where this ratio show the
efficiency of company.
 Firstly company have to determine operating profit and then,
 Divide operating profit by net sales and multiply with 100 to convert their result in
percentage form.
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Interpretation: Operating profit of the Care Tech Holding PLC is 20.57 % and industry
average is 12.5. higher operating profit is beneficial for the company and there is huge difference
between the both operating profit which indicate that Care Tech Holding PLC perform well in
order to increase their operating profit to pay of their variable cost.
Net Profit Margin: It means deducting all the expenses from sale which provide net
profit and it will be calculated for the purpose of measuring exact profit which business earn
from their sales (Doherty, Horne and Wootton, 2014).
 Firstly calculate the net profit of the business and then,
 Divide net profit from sales and then multiply with 100 which provide the answer in
percentage form.
Interpretation: As per industry average, net profit is 8.3 % and Care Tech Holding PLC
net profit is 16.4 % which is high. Difference indicate that, price of product is correct and cost of
good will be under control.
Return On Capital Employed: It is an accounting ratio used for the finance, valuation
or accounting. Purpose of this ratio, is to measure the profitability of business after using capital
amount in the company (Garg, Boynton-Jarrett and Dworkin, 2016).
 Firstly divide net operating profit by capital employment and then multiply with 100
for the percentage form.
 Capital employed will be calculating through deducting current liability from total
assets.
Interpretation: Return on capital employed of the Care Tech Holding PLC is 9.07 % and
industry average is 6.2 %. Higher ROCE is beneficial for the stakeholders so company ROCE is
good because it is higher then industry average.
Assets Turnover: This ratio is used for the purpose of measuring company's efficiency
where lower profit margin provide higher assets turnover. Similarly, higher profit margin tend to
have lower assets turnover.
 This ratio will be calculated through dividing sales from net assets of the company.
 Result of this ratio will be consider in times.
Interpretation: Assets turnover of the company 0.40 time and industry average is 0.65
times which is higher then Care Tech Plc. Higher assets turn over is beneficial for the company
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because they efficiently use their assets but company have less then industry average so they
required improvement to increase their assets turnover.
Trade Receivable days: Number of days customer will take time of pay their invoices
which is outstanding. Purpose of this ratio is to determine the days when debtors pay their
outstanding amounts.
 Firstly calculate the trade debtors and divided by sales and then,
 It will be multiplied with 365 days to identify the day when debtors pay their invoices.
Interpretation: Trade receivable of the company is 52 days and industry average is 41
days (Ginter, Duncan and Swayne, 2018). So company have to improve their recovery strategy
because lower the ratio is beneficial for the company.
Trade Payable days: This accounting ratio help the organization to analyse the payment
to the creditors. Higher the days is good for the company. Purpose of this ratio is to take
advantage of their trade creditors.
 Firstly calculate trade payable and divide from cost of sale which is also called purchase.
 Then, multiply with the 365 days which provide the days in which company have to pay
their creditors (Issel and Wells, 2017).
Interpretation: Industry average of trade payable is 32 days and 54 days of the Care
Tech Plc which ids good. Because higher trade payable is beneficial for the company.
B. Calculation and interpretation of ratios
Calculations of current, gearing and interest cover ratios are as follows:
Ratio and formula Calculations Result
Current ratio
= Current assets/ current
liabilities
30756/35463 0.87
Gearing ratio
= Long term liabilities/ capital
employed*100
172314/ 377415* 100 45.66%
Interest cover
= EBIT/ interest expenses
35592/ 4955 7.18
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Current ratio: It is a type of liquidity ratio which is calculated by business entities to
measure liquidity level of the company. Purpose of this ratio is to determine that organisation is
able to pay all its short term liabilities with the help of current assets or not. Steps to calculate it
are as follows:
 First of all current assets and liabilities are identified from balance sheet.
 Afterwards, current assets are divided by liabilities and the ratio is measured.
Interpretation: From the calculation it has been analysed that industry average of
current ratio is 1.3 but ratio of Care Tech Plc is very low which shows that its liquidity is not
good and it is not able to pay all its short term liabilities with the help of current assets.
Gearing ratio: This ratio shows relationship between long term liabilities and capital
employed of the company (Johnson and Sollecito, 2018). Main purpose of it, is to evaluate
capital structure of business entity. Steps which are followed while calculating it are as follows:
 Firstly long term liabilities of organisation are identified and then value of capital
employed is measured by subtracting current liabilities from total assets of the company.
 Afterwards, long term liabilities are divided by capital employed and then the result is
multiplied by 100.
Interpretation: From the calculation it has been analysed that gearing ratio of Care Tech
Plc is 45.66% and industry average for this ratio is 40.5%. It shows that organisation's ratio is
very high as compare to industry which means its risk measuring ability is very high and able to
attain sustainability in future (Ocloo and Matthews, 2016).
Interest cover ratio: It is mainly used to analyse that organisation is able to pay interest
on its outstanding debts easily or not. With the help of it profitability of business entity can also
be measured. Steps which are followed while calculating it are as follows:
 First of all, organisation's EBIT is identified from income statement.
 At second stage interest paid by the company in accounting years is figured out.
 At the end EBIT is divided by interest paid and then interest cover get calculated.
Interpretation: The calculations are showing that interest cover ratio of CateTech Plc is
7.18 which is very high as compare to industry average which is 5.4. It shows that organisation's
ability to pay interest on its debts is very good and it has high profitability (Oliver, 2015).
C. Calculation of residual income before and after the investment
Residual income before investment:
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Residual income = Net operating income – (Average operating assets * Minimum required rate
of return)
= 40000 - ( 800000 * 9%)
= 40000 – 72000
= - 32000
Residual income after investment:
Residual income = Net operating income – (Average operating assets * Minimum required rate
of return)
= 40000 – ((800000+375000) * 9% )
= 40000 – 105750
= -65750
D. Benefits of using Economic Value Added concept while making financial decisions
Economic value added (EVA) is the measurement process which analyse the financial
performance which is based on the residual wealth calculation. It help to reduce the cost of
capital from their operating profit. It help the Care Tech Plc company at the time of taking
financial decision (Economic value added concept, 2019). Their are some benefits which is
discussed below:
 It provide the clear picture of wealth creation in comparison to other financial measuring
tools.
 It is simple to understand and can calculate for the different project or division which
helps in decision regarding appropriate investments.
QUESTION 3
Critical evaluation of using non financial and multidimensional models of performance
management
In all the business entities non financial and multidimensional performance management
models are used by top executives in order to make sure that all the business activities are
executed properly and appropriately. All of them should also be used by Care Tech Plc in order
to enhance performance of the company. Both the models are as follows:
Non financial models: These are the factors which are focused by business entities in
order to maintain the high level of performance. With the help of them managers formulate such
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strategies which can help to deal with challenges which may take place in future. There are
various types of non financial models which could be used by it in order to manage its
performance (Platis, Reklitis and Zimeras, 2015). All of them are as follows:
Competition model: It is one of the main element which is required to be analysed by
business entities in order to attain business objectives such as attaining competitive advantage,
maximising sales and profits etc. It is main responsibility of top level managers to analyse all the
companies which are operating business in the same sector and analyse that they are giving
tough competition to their enterprise or not. It should also be used by Care Tech Plc for the
purpose of dealing with available competition in the health care sector. Its major competitors are
Pathway residential care and Horizon. Both the enterprises give tough competition to Care Tech
Plc. For managers it is vital to use competition model as it can guide to form such strategies
which can help to deal with competitors and attain competitive advantage for the business.
Importance of this model is as follows:
 It is very important for Care Tech Plc to use this model as it can help to find major
competitors which may affect organisation's ability to operate business activities.
 With the help of competition model managers can form effective strategies for business
by evaluating performance of competitors.
 In order to achieve long term business objectives it is very important for companies such
as Care Tech Plc to determine competitors which are operating business under healthcare
sector. With the help of it competitive advantage can be achieved by offering good
quality services to clients as compare to other organisations (Selviaridis and Wynstra,
2015).
Innovation model: It is also a type of non financial model which should be implemented
by organisations which are operating business under healthcare sector so that new and modified
services could be rendered to clients to retain them for a long period in future. With the help of it
large number of prospect customers could be attracted by business entities by providing such
types of services to clients which may fulfil their requirements. It could be implemented by Care
Tech Plc in order to analyse that there is a requirement of innovation in its products and services
or not. It can provide guidance to the managers and top executives to add innovative features to
their services or use modified equipments to perform business activities. Importance of
innovation model is as follows:
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 It is an effective model which is very important to be implemented within Care tech Plc
as it can help managers and other top level managers to modify its existing services in
order to enhance profitability.
 With the help innovation model organisations such as Care Tech Plc can analyse that
their services are required to be modified or not.
Multidimensional model: These are the models which are used to manage and measure
performance of company. With the help of it organisations will be able to analyse that their
business operations are resulting positively or negatively. There are various types of
multidimensional models which could be used by Care Tech Plc in order to manage its
performance (Shanks, 2016). All of them are as follows:
Balanced score card: It is a type of tool which is used by organisations to communicate
regarding their business activities and the goal which will be attained after doing the same. It
could be implemented by Care Tech Plc in order to measure that it is performing well or not.
With the help of it internal as well as external stakeholders can also analyse that the company is
able to achieve its business goals or not (Wager, Lee and Glaser, 2017). Importance of this
model is as follows:
 With the help of balance score card model internal functions can be improves in order to
get positive outcomes of executional activities.
 It is also vital to measure that success is attained by company or not and then provide
feedback on the activities performed.
The performance prism: It a multidimensional model of performance management
which aims to analyse that a company is able to meet expectations of its internal and external
stakeholders or not. It can be used by Care Tech Plc to analyse expectations of stakeholders and
the measure organisation's capability to meet them. There are various types of external members
of a company such as investors, creditors, suppliers, customers etc. All of them have different
needs such as good quality services, higher returns, easy debt recovery etc. With the help of
performance prism model all of them are identified and then decisions are formulated to fulfil
them. Importance of this model is as follows:
 It is vital for health care companies such as Care Tech Plc in order to analyse actual
needs of clients and then fulfil them accordingly (Wang, Kung and Byrd, 2018).
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 With the help of performance prism model such types of strategies could be formulated
which may result in fulfilment of stake-holder's requirements.
CONCLUSION
From the above project report it has been concluded that performance management and
improvement are two major concepts which should be focused by companies in order to meet its
long as well as short term objectives. There are various types of strategic planning models which
could be used by enterprises in order to formulate decisions for future. These are three statement
model and consolidation model. Ratio analysis is a technique which can help to measure
financial viability of company. For this purpose different types of ratios are calculated such as
current, interest cover, net, gross and operating profit, asset turnover, return on capital employed
etc. various non financial such as competition, innovation etc. and multidimensional models such
as balance score card, performance prism etc. are implemented by organisations in order to
manage performance of company.
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Economic value added concept. 2019. [Online]. Available through:
<https://www.wallstreetmojo.com/economic-value-added-eva/>
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