Business, 13.08.2020 05:01 airsealands

A. What were HCA's liabilities-to-assets ratios and times-interest-earned ratios in the years 2005 through 2009? b. What percentage decline in EBIT could HCA have suffered each year between 2005 and 2009 before the company would have been unable to make interest payments out of operating earnings, where operating earnings is defined as EBIT?
c. How volatile have HCA's cash flows been over the period 2005 - 2009?
d. Calculate HCA's return on invested capital (ROIC) in the years 2005 - 2009.
HCA INC
ANNUAL INCOME STATEMENT
($ MILLIONS, EXCEPT PER SHARE)
Dec09 Dec08 Dec07 Dec06 Dec05
Sales $ 30,052 $ 28,374 $ 26,858 $ 25,477 $ 24,455
Cost of Goods Sold 24,826 24,023 22,480 21,448 20,391
Gross Profit 5,226 4,351 4,378 4,029 4,064
Depreciation 1,425 1,416 1,426 1,391 1,374
Operating Profit 3,801 2,935 2,952 2,638 2,690
Interest Expense 1,987 2,021 2,215 955 655
Non-Operating Income/Expense 188 256 661 179 412
Pretax Income 2,002 1,170 1,398 1,862 2,327
Total Income Taxes 627 268 316 625 725
Minority Interest 321 229 208 201 178
Net Income $ 1,054 $ 673 $ 874 $ 1,036 $ 1,424
ANNUAL BALANCE SHEET
ASSETS Dec09 Dec08 Dec07 Dec06 Dec05
Cash & Equivalents $ 312 $ 465 $ 393 $ 634 $ 336
Net Receivables 3,692 3,780 3,895 3,705 3,332
Inventories 802 737 710 669 616
Other Current Assets 1,771 1,319 1,207 1,070 931
Total Current Assets 6,577 6,301 6,205 6,078 5,215
Gross Plant, Property & Equipment 24,669 23,714 22,579 21,907 20,818
Accumulated Depreciation 13,242 12,185 11,137 10,238 9,439
Net Plant, Property & Equipment 11,427 11,529 11,442 11,669 11,379
Investments at Equity 853 842 688 679 627
Other Investments 1,166 1,422 1,669 1,886 2,134
Intangibles 2,577 2,580 2,629 2,601 2,626
Deferred Charges 418 458 539 614 85
Other Assets 1,113 1,148 853 148 159
TOTAL ASSETS 24,131 24,280 24,025 23,675 22,225
LIABILITIES
Long Term Debt Due In One Year 846 404 308 293 586
Accounts Payable 1,460 1,370 1,370 1,415 1,484
Taxes Payable - 224 190 - -
Accrued Expenses 2,007 1,912 1,981 1,868 1,825
Total Current Liabilities 4,313 3,910 3,849 3,576 3,895
Long Term Debt 24,824 26,585 27,000 28,115 9,889
Deferred Taxes - - - 390 830
Minority Interest 1,008 995 938 907 828
Other Liabilities 2,825 2,890 2,612 1,936 1,920
TOTAL LIABILITIES 32,970 34,380 34,399 34,924 17,362
Preferred Stock 147 155 164 125 -
Common Stock 1 1 1 1 4
Capital Surplus 226 165 112 - -
Retained Earnings (9,213) (10,421) (10,651) (11,375) 4,859
Common Equity (8,986) (10,255) (10,538) (11,374) 4,863
TOTAL EQUITY (8,839) (10,100) (10,374) (11,249) 4,863
TOTAL LIABILITIES & EQUITY $ 24,131 $ 24,280 $ 24,025 $ 23,675 $ 22,225

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Answer from: kony345p

HCA

a. HCA's Liabilities-to-assets ratios and times-interest-earned ratios in the years 2005 through 2009:

1. Liabilities-to-assets ratios = Total liabilities/Total Assets

Dec. 09 Dec. 08 Dec. 07 Dec. 06 Dec. 05

136.63% 141.60% 143.18% 147.51% 78.12%

2. Times-interest-earned ratios = EBIT/Interest Expense

Dec. 09 Dec. 08 Dec. 07 Dec. 06 Dec. 05

1.91 times 1.45 times 1.33 times 2.76 times 4.11 times

b. The percentage decline in EBIT that HCA could have suffered each year between 2005 and 2009 to make it unable to make interest payments out its operating earnings, where operating earnings is defined as EBIT:

Dec. 09 Dec. 08 Dec. 07 Dec. 06 Dec. 05

191% 145% 133% 276% 411%

c. The volatility of HCA's cash flows over the period 2005 to 2009:

The standard deviation of the cash flows (cash and cash equivalents) is 115, showing that there is so much volatility in the cash flows.

d. HCA's return on invested capital (ROIC) in the years 2005 - 2009:

= Net Income - Dividend / Total Liabilities + Equity x 100

ROIC = 4.37% 2.77% 3.64% 4.38% 6.41%

Explanation:

a) Data and Calculations:

HCA INC

ANNUAL INCOME STATEMENT

($ MILLIONS, EXCEPT PER SHARE)

Dec. 09 Dec. 08 Dec. 07 Dec. 06 Dec. 05

Sales $ 30,052 $ 28,374 $ 26,858 $ 25,477 $ 24,455

Cost of Goods Sold 24,826 24,023 22,480 21,448 20,391

Gross Profit 5,226 4,351 4,378 4,029 4,064

Depreciation 1,425 1,416 1,426 1,391 1,374

Operating Profit 3,801 2,935 2,952 2,638 2,690

Interest Expense 1,987 2,021 2,215 955 655

Non-Operating

Income/Expense 188 256 661 179 412

Pretax Income 2,002 1,170 1,398 1,862 2,327

Total Income Taxes 627 268 316 625 725

Minority Interest 321 229 208 201 178

Net Income $ 1,054 $ 673 $ 874 $ 1,036 $ 1,424

ANNUAL BALANCE SHEET

ASSETS Dec. 09 Dec. 08 Dec. 07 Dec. 06 Dec. 05

Cash & Equivalents $ 312 $ 465 $ 393 $ 634 $ 336

Net Receivables 3,692 3,780 3,895 3,705 3,332

Inventories 802 737 710 669 616

Other Current

Assets 1,771 1,319 1,207 1,070 931

Total Current

Assets 6,577 6,301 6,205 6,078 5,215

Gross Plant, Property

& Equipment 24,669 23,714 22,579 21,907 20,818

Accumulated

Depreciation 13,242 12,185 11,137 10,238 9,439

Net Plant, Property

& Equipment 11,427 11,529 11,442 11,669 11,379

Investments

at Equity 853 842 688 679 627

Other Investments 1,166 1,422 1,669 1,886 2,134

Intangibles 2,577 2,580 2,629 2,601 2,626

Deferred Charges 418 458 539 614 85

Other Assets 1,113 1,148 853 148 159

TOTAL ASSETS 24,131 24,280 24,025 23,675 22,225

LIABILITIES

Long Term Debt Due

In One Year 846 404 308 293 586

Accounts

Payable 1,460 1,370 1,370 1,415 1,484

Taxes Payable - 224 190 - -

Accrued

Expenses 2,007 1,912 1,981 1,868 1,825

Total Current

Liabilities 4,313 3,910 3,849 3,576 3,895

Long Term

Debt 24,824 26,585 27,000 28,115 9,889

Deferred Taxes - - - 390 830

Minority

Interest 1,008 995 938 907 828

Other

Liabilities 2,825 2,890 2,612 1,936 1,920

TOTAL LIA-

BILITIES 32,970 34,380 34,399 34,924 17,362

Preferred

Stock 147 155 164 125 -

Common

Stock 1 1 1 1 4

Capital

Surplus 226 165 112 - -

Retained

Earnings (9,213) (10,421) (10,651) (11,375) 4,859

Common

Equity (8,986) (10,255) (10,538) (11,374) 4,863

TOTAL

EQUITY (8,839) (10,100) (10,374) (11,249) 4,863

TOTAL LIABILITIES &

EQUITY $24,131 $ 24,280 $ 24,025 $ 23,675 $ 22,225

ii) Liabilities-to-assets ratio:

Dec. 09 Dec. 08 Dec. 07 Dec. 06 Dec. 05

Liabilities 32,970 34,380 34,399 34,924 17,362

Assets 24,131 24,280 24,025 23,675 22,225

136.63% 141.60% 143.18% 147.51% 78.12%

iii) Times Interest Earned:

Operating Profit 3,801 2,935 2,952 2,638 2,690

Interest Expense 1,987 2,021 2,215 955 655

1.91 times 1.45 times 1.33 times 2.76 times 4.11 times

iv) Volatility: This is the degree of change of the cash flows, showing its tendency to change from one period to the other. As calculated, the volatility is very high, showing that the cash flows have higher risk of change. See below:

Dec. 09 Dec. 08 Dec. 07 Dec. 06 Dec. 05

Cash & Equivalents $ 312 $ 465 $ 393 $ 634 $ 336

Mean = $428

Deviation from mean -116 37 -35 206 -92

Squared deviation 13,456 1,369 1,225 42,436 8,464

Sum of squared deviation = 66,950

Mean = 13,390

Square root of mean or Standard Deviation = 115

v) Return on Invested Capital = Net Income/Total liabilities + Equity

Dec. 09 Dec. 08 Dec. 07 Dec. 06 Dec. 05

Net Income $ 1,054 $ 673 $ 874 $ 1,036 $ 1,424

TOTAL LIABILITIES &

EQUITY $24,131 $ 24,280 $ 24,025 $ 23,675 $ 22,225

ROIC = 4.37% 2.77% 3.64% 4.38% 6.41%

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A. What were HCA's liabilities-to-assets ratios and times-interest-earned ratios in the years 2005 t...