Salix Pharmaceuticals Inc.

“FINANCIAL PERFORMANCE ANALYSIS”
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Financial Performance Analysis

The financial performance analysis will measure the results of an organization’s performance, and financial health over a determined period of time. This analysis could also be used to determine the organizations’ competitiveness by comparing similar organizations in the same industry (Verma, 2019).

On December 1st, 2014, C.W. Williams filed for chapter 11 bankruptcy protection. The year 2015 was the year that followed C.W. Williams bankruptcy filing, and it is easily observed in its financial statements. Filing for chapter 11 bankruptcy protection gave the company a fighting chance, which they used very well to recover in 2016 and keep its doors open until today (Value Healthcare Services, 2019). Although in 2015 C.W. Williams acquired its new CEO Debra Weeks, it was already too late to attempt positive financials for that year. There were several factors that aided in C.W. Williams financial recovery for 2016 such as being able to put creditors on stand by for some time due to the bankruptcy lawsuit, naming Debra Weeks as their new CEO, more people have health insurance due to ACA, and being able to square away all audits that were preventing them from getting grants (Perlmutt, 2016). For this financial analysis, the author will use C.W. Williams’ income statement and balance sheet for the years 2015 and 2016 and will use profitability and liquidity ratios that are specifically geared towards analyzing non-for-profit organizations.

Income Statement Analysis. The analysis of an income statement states the company’s profits. Its interpretation is used to comprehend the fixed and variable costs that a given the company sustains, and its capability to earn a profit and make the company competitive in its industry (Bragg, 2018). The following table demonstrates the total assets, total expenses, and net income for the years 2015 and 2016.

2015

2016

Total Revenue

$2,799.32

$14.51

Total Expenses

$2,688,238.00

$2,768,729.00

Net Income

$221,509.00

$1,007,430.00

In 2016 C.W. Williams was able to bounce back from the bankruptcy filing and saw a significant positive change in all its financial statements. From 2015 to 2016 there was a 29.7% increase in total revenue, a small increase of 2.99% in total expenses, and an extraordinary increase of 354.8% in net income. In order to make a more in-depth analysis of the income statement, the author will use the profit margin and the return on assets ratios and compare them to the same ratios of its competitors Charlotte Community Health Clinic and Lake Norman Community Health Clinic.

Profit Margin. This ratio will measure how a business utilizes its expenses to create a rate of return that is above the industry average in order to stay competitive (Income Statement, 2014). According to the American Hospital Association, “In 2010, the total profit margin for North Carolina hospitals was 9.3 percent. That’s about two percentage points than the national average”. It is not expected for a non-for-profit community clinic to have such high-profit margins. Therefore, to see C.W. Williams’ profit margin competitiveness, it will only be compared to its close competitors.

Profit Margin of 2015

=

Net Income

=

221,509.00

=

0.17

Net Sales

1,278,009.00

Profit Margin 2016

=

Net Income

=

1,007,430.00

=

0.89

Net Sales

1,136,581.00

From the year 2015 to 2016, C.W. Williams managed to have an increase of 0.72 in profit margin, averaging a 0.53 profit margin for those two years. Now to understand if C.W. Williams is competitive, the profit margin will have to be above its competitors’ average. Lake Norman Community Health Clinic had a profit margin of 0.05 in 2015 and a 0.06 for 2016, thus averaging a 0.055 margin profit for those two years. In contrast, Charlotte Community Health The clinic had a profit margin of 3.57 for 2015 and 2.01 in 2016, averaging a 2.79 the profit margin for those two years. In conclusion, although C.W. Williams manages to have a steep increase in profit margin from 2015 to 2016, was still underperforming in comparison to Charlotte Community Health Clinic and the Lake Norman Community Health Clinic.

Return on Assets. This ratio measures the return on the total investment of a business, and it is measured as a the proportion of the return per each dollar worth of assets (“Financial Sustainability,” 2014). The return on assets ratios for C.W. Williams are as followed:

ROA 2015

=

Net Income

=

221,509.00

=

0.20

Total Assets

1,130,918.00

ROA 2016

=

Net Income

=

1,007,430.00

=

0.65

Total Assets

1,548,996.00

Based on these ratios it can be determined that C.W. Williams had a very low ROA in 2015. For every $1 in a return of $20, or for every $100 it had a return of $20. The ROA for 2016 was that for every $1 there was a return of $65, or for every $100 there was a return of $65; that is an increase of 225% in one year and an average ROA of 0.43 for those two years. Now to see how competitive C.W. Williams’ ROA is, a comparison to its competitors will be necessary. Lake Norman Community Health Clinic had a ROAs of 0.13 for 2015 and 0.07 for 2016 and an average ROA of 0.10 for those two years. Charlotte Community Health Clinic’s ROAs were 0.19 for 2015 and 0.11 for 2016 and an average of 0.15 for those two years. Concluding from these comparisons, C.W. Williams has a 33% higher return on assets than its competitors even in 2015 the year they filed for bankruptcy.

Balance Sheet Analysis. This type of analysis investigates the assets, liabilities, and equity of a given business at a given point in time. In the case of non-for-profits, the term “equity” becomes “net assets” because a non-for-profit organization does not have shareholders. This type of analysis is useful for obtaining specific data about the revenue, assets, and liabilities of the organization. The author will use the current ratio, liquid ratio, and the month of cash ratio (“Balance Sheet,” n.d.). Based on the information obtained from the balance sheet, it is easy to see that 2015 was the year that followed that C.W. Williams’ filed for bankruptcy protection. By filing for bankruptcy protection at the end of 2014, C.W. Williams was able to avoid paying its creditors in 2015 and thus allowing them to recover for the year 2016 (Value Healthcare Services, 2019). The following table demonstrates the total assets, total liabilities, and net assets for the years 2015 and 2016.

2015

2016

Total Assets

1,130,918.00

1,548,996.00

Total Liabilities

3,373,844.00

2,784,492.00

Net Assets

-2,242,926.00

-1,235,496.00

Based on this information, it is noticeable that C.W. Williams had a 36.97% increase in its total assets, a decrease of 17.47% in its total liabilities, and an 81.54% decrease in its net assets. Although this information can tell us that the company made progress from 2015 to 2016, a more in-depth analysis using liquidity ratios will be needed to have a better understanding of the company’s solvency and ability to pay for its current liabilities. This analysis will use the current ratio, the liquidity ratio, and the months of cash ratio.

Current Ratio. This ratio demonstrates a company’s ability to pay its bills on time. Organizations strive to have a current ratio of at least 1 or higher; this means that the company has enough current assets to cover its current liabilities (“Financial Sustainability,” 2014).

Current Ratio 2015

=

Current Assets

=

596,910.00

=

0.41

Current Liabilities

1,457,325.00

Current Ratio 2016

=

Current Assets

=

1,023,539.00

=

7.94

Current Liabilities

128,854.00

In 2015 C.W. Williams had a current ratio of 0.41, meaning the organization did not have enough current assets to satisfy its current liabilities or current debts. In 2016 its current ratio increased to 7.94; this means that for that year, the organization current assets were 7.94 times more than its current liabilities.

In comparison, Lake Norman Community Health Clinic current ratios were 8.5 and 5.68 for the years 2015 and 2016 respectively. There was a decline of 2.82 from 2015 to 2016. The highest current ratios are from Lake Norman Community Health Clinic; their balance sheets states extremely low current liabilities of $298 for 2015 and $37,503 for 2016. Therefore, generating unprecedented current ratios of 2799.32 for 2015 and 14.51 for 2016. With the increase in current liabilities from 2015 to 2016 this reflected as a decrease in its current ratio of 2784.81 times. This comparison has made it evident that C.W. Williams had very low current ratios in those two years in contrast to its competitors.

Liquid Ratio. Also known as the acid test or quick ratio, this ratio will measure the company’s ability to use its most liquid assets to pay for its most immediate liabilities. A ratio that is a 1:1, means that the company is barely making it to pay for its immediate liabilities. A healthy company will have a ratio higher than a 1:1 (“Financial Sustainability,” 2014).

Liquid Ratio 2015

=

(Cash+Acc. Receivable)

=

317,803.00

=

0.22

Current Liability

1,437,325.00

Liquid Ratio 2016

=

(Cash + Account Receivables)

=

704,853.00

=

5.47

Current Liability

128,854.00

In 2015 C.W. Williams had a liquid ratio of 0.22 in 2015 the year of their bankruptcy; this meant that they did not have enough cash to cover its current liabilities. In 2016, they made a known improvement and had a liquid ratio of 5.47. This means the company had 5.47 times more cash than current liabilities, which is 5.25 times increase in cash from the previous year.

In contrast, Charlotte Community Health Clinic liquid ratios for the years 2015 and 2016 were 8.09 and 5.51, respectively; a decrease of 2.58 times the cash from one year to another. Lake Norman Community Health Clinic beats both competitors in the liquidity ratio as well due to its extremely low current liabilities. In 2015 it had a 2791.20 liquidity ratio and a liquidity ratio of 26.26 for 2016. Lake Norman Community Health Clinic’s liquidity ratios are very uncommon.

Months of Cash Ratio. This ratio is the most commonly used to measure a not-for-profit’s liquidity. This is a two-part that ratio will help understand how many months’ worth of cash does the organization has on hand to pay for bills if no income is generated (Antonelli, 2016). The months of cash ratio for C.W. Williams for the years 2015 and 2016 are as followed:

Total Cash Number

=

Total Expenses

=

2,688,238.00

=

224,019.83

12 Months

12.00

Mo of Cash Ratio 2015

=

Total Cash #

=

79,019.00

=

0.35

Monthly Expenses

224,019.83

Total Cash Number

=

Total Expenses

=

2,768,729.00

=

230,727.42

12 Months

12.00

Mo of Cash Ratio 2016

=

Total Cash

=

244,219.00

=

1.06

Monthly Expenses

230,727.42

This ratio displays the reasoning of why C.W. Williams filed for bankruptcy in 2015. It only had 0.35 months or 10.5 days’ worth of cash to pay for its bills. Although they made a swift recovery for 2016, the company only had 1.06 months’ worth of cash to pay for its bills. One can only assume that although they were able to generate a substantially higher income in 2016 in comparison to the previous year, they still must work on lowering their expenses.

For the year 2015, C.W. Williams’s competitors were not very liquid as well. That year Charlotte Community Health Clinic had a month of cash ratio of 0.46 and Lake Norman Community Health Clinic had a month’s cash ratio of 0.26. There seems to have been a turnaround in liquidity for all three non-for-profits in the year 2016. Although C.W. Williams had a month’s cash ratio of 1.06, it still underperformed in comparison to Charlotte Community Health Clinic with a 3.57, and the most liquid again was Lake Norman Community Health Clinic with 5.17.

Legal and Ethical Issues

Like any other organization, to operate efficiently, the C.W. Williams Health Center must be financially stable. The ramifications of not being in a healthy financial position years ago had legal implications. As such, the consequence of not being monetarily successful jeopardized the Health Center’s ability to offer quality health services to the community of Mecklenburg County. When an audit was conducted in 2014, it was identified that they had a negative net value of well over $1.5 million dollars and they were unable to pay their many creditors (Garloch, 2014). Although they tried to avoid the legal difficulties resulting from debt to creditors, bankruptcy, which is a serious legal issue, was inevitable. As explained in the article “CW Williams Health Center Files for Bankruptcy”, “After months of cutting back numbers of personnel, and the start of legal action by creditors, the C.W. Williams Health Care Center in Charlotte, North Carolina, filed for Chapter 11 bankruptcy protection on December 1, 2014” (Value Healthcare Services, 2019).

When C.W. Williams filed for bankruptcy protection in 2014, it was greatly affected by the removal of the funding they were to receive from the county, which was necessary for the health center to continue to provide services to the underserved and underprivileged. Donations were not enough to keep them out of financial trouble, and they were operating under scrutiny. Therefore, almost $100,000 of funding that was set to go to the Health Center was instead given to their competitor, the Charlotte Community Health Clinic, and they had to close an offsite location (White, 2015). Getting C.W. Williams out of Bankruptcy has not been an easy task, however, under the leadership of CEO Debra Weeks, positive changes have occurred. Since Weeks was appointed CEO in 2015, the Health Clinic has been on the right track and at the end of her first year, “a bankruptcy judge approved C.W. Williams’ plan to get out of debt and run a sustainable operation” (Perlmutt, 2016). It has not been a simple feat to keep the Health Center open to the public, but they have remained operational with the help of public funding, volunteers, and donations. At the present time, the Health Center still provides their services to those that can and cannot afford the health care they need.

Industry Environment Factors

The Health Care industry is ever-changing. Anticipating the future, and being prepared for changes that may occur, can be a challenge for any organization. This is especially true when faced with industry environmental factors that cannot be controlled. It is because of this that C.W. Williams must be aware of the external factors that are affecting their industry. This is also necessary so they may remain competitive in their marketplace. Their long-term competitive success and ability to serve their community is dependent on it.

In 2010, over 20 million people acquired health insurance under the Affordable Care Act (ACA) (Ginter, Duncan & Swayne, 2018, p. 3). The ACA provided American’s access to health benefits they would have not had access to otherwise. Health Centers benefited by receiving federal funding. According to the article “Changes at Community Health Centers, and How Patients Are Benefiting”, “the ACA’s Community Health Center Fund has doubled federal funding and improved the financial stability of health centers” (Lewis, Getachew, Abrams, & Doty, 2019, p. 3). However, there was a downside that can affect the long term stability of health centers such as the C.W. Williams Community Health Center and their ability to compete with one another. The fund was not put into effect to last forever. It was only approved for five years, after which it needs approval on a yearly basis. At some point, if Congress chooses to not renew the fund, the money will no longer be available (Lewis, Getachew, Abrams, & Doty, 2019, p. 3). Since the ACA was passed, the number of health centers has grown and more than 70% of grant money provided to such organizations came from the federal fund. (Rosenbaum et al., 2017). If the fund is no longer approved, C.W. Williams, who already has strong competition from other local Community Health Centers may be underfunded in an already competitive market.

Another issue Health Centers are anticipating in their industry are increased competition from retail clinics. For example, “Walgreens will acquire nine of Novant Health’s retail pharmacies, while Novant Health will open new retail health care clinics at Walgreens stores in the Winston-Salem, Charlotte, and Brunswick County, North Carolina, areas” (“Walgreens and Novant health”, 2019). Hospitals are also competition for C.W. Community Health Center. Now that more patients have access to health insurance through the ACA, they have additional options available to them. As explained by the author, “Uninsured individuals now receiving Medicaid coverage can seek hospital-based services and hospitals are willing to treat the patients now that they are covered” (LaPointe, 2017).

Staff shortages and high turnover rates are serious issues in the health industry. The problem is not only finding qualified individuals, but it’s also getting them to stay long term working at their current jobs. If fact, the problem is forecasted to only get worse. For example, studies indicate “Nurses, the largest segment of the health care workforce will be in short supply – 1.2 million vacancies will emerge for RNs between 2014-2022” (Ginter, Duncan & Swayne, 2018, p. 72). With increased competition from other health centers, retail centers, hospitals, and rising demand for health services, finding ways to minimize this problem is critical. As health centers are increasing their focus on such aspects of health care as prevention and disease control, to name a few, they need the staff in place to keep up with this trend (Ginter, Duncan & Swayne, 2018, p. 72). Mental health issues are on the rise and patients need the care to deal with these problems. Professionals that are qualified to help these patients are more important than ever. As indicated in the article, “Changes at Community Health Centers, How Patients are Benefiting”, health centers are struggling to find mental health providers due to competition in their industry (Lewis, Getachew, Abrams, & Doty, 2019, p. 11). If C.W. Williams wants to remain competitive they need to find new ways to attract and retain qualified staff.

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