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Financial Statement Analysis oof Ascencion

Paper Type: Free Assignment Study Level: University / Undergraduate
Wordcount: 3378 words Published: 30th Nov 2020

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Company Profile

Ascension is recognized as being the largest Catholic health system in the world, as well as the largest non-profit health system in the United States. It is a faith based healthcare organization devoted toward creating new methods and innovations in all aspects of care. Ascension’s goal is to promote healthier communities all over the United States by way of community outreach. It strives to find less costly ways to provide quality health care.

Ascension was formed in 2012, by Ascension Health, to extend its Mission of serving all patients needing care. It especially tries to assist those patients who are destitute and living in poverty. In its fiscal year 2017, Ascension provided more than $1.8 Billion towards caring for poverty stricken patients and funding community health improvement programs.

Corporate offices of Ascension are located in St. Louis, Missouri. The company’s Healthcare Division operates from more than 2,600 care locations. This includes 153 hospitals and more than 50 senior citizen living properties. This network spans across 22 states and the District of Columbia. Ascension includes 165,000 associates and over 40,000 aligned providers. Besides health care delivery, Ascension’s Solutions Division yields services such as doctor practice management, health clinic management, risk capital investing, finance management, biology and medical engineering, health information services, venture management, and contracting through Ascension’s own group purchasing consortium.

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Being a faith based organization, Ascension believes in delivering compassionate and personal care to all while giving special attention to those living in poverty.  During 207, Ascension provided 1.8 billion in care to people living in poverty through direct care and community benefit programs. Ascension believes in not only collaborating with local religious communities to improve the health and wellbeing of vulnerable populations, but also collaborating on a global level.

Industry Profile

Ascension health is part of the not-for-profit, community based healthcare systems.  Companies that fit into this model do not pay sales tax and only taxes such as FICA apply to them.  In exchange for these tax benefits the must display benefit to the community through outreach, education, charity, and research. Some key points that identify these entities include no private person or company being able to make profit, income about expenses going to improve community health, providing a complete spectrum of care, assets staying within the community, and boards of trustees serving without pay while balancing financial and community concerns.

The newest law to impact not-for-profit hospitals is the recent tax reform law passed in December 2017. First, the reform removed penalties for the individual mandate.  The congressional Budget Office estimates this will leave 13 million Americans without insurance.  The effect on healthcare providers will be potentially more bad debt as more people will be unable to pay their medical bills. Next, not-for-profits will get a new 20% excise tax on the top five earners if they make over $1 million per year. In a large, multi-unit tax exempt company, this may lead to restructuring or evaluating timing of compensation.  Finally, refunding of tax-exempt bonds will no longer be possible.  This will affect not-for-profits due to the number of people without insurance increasing, bringing on the need to create new capabilities to handle the losses; however, not being able to secure the financing to cover the new investments.  

Recent changes to the industry over 2017 include a surge in credit downgrades.  The ratio credit downgrades to upgrades were at a level higher than in the recessions of 2008 and 2009.  There were 41 downgrades to 12 upgrades total.  Hospitals are facing higher labor, pharmaceutical, and supply costs, while freestanding urgent care and imaging centers are also cutting into patient number leading to flat volumes.  These downgrades are more likely to impact rural or small to medium sized hospitals rather than large systems, and hospital officials are attributing the downgrades to making smart long-term decisions, but having negative short-term consequences as a result.  

One new products to come from not-for-profits is in house pharmaceuticals.  Hospitals have faced shortages and price hikes due to companies buying off-patent drugs, then drastically raising prices on them.   Several major hospital systems, including Ascension, are looking to combat bringing everything in house.  Details of how this will be done are not yet public due to concerns they might get shut out by competitors if they reveal their plans, but it is assumed they will either rely on 3rd party manufacturers, or make the drugs themselves.

There is currently a lawsuit against the US HHS by the AHA, and the AAMC to prevent cuts to hospitals participating in the 340B Drug Pricing Program.  The 340B program allows healthcare systems that deal with low income and uninsured patients to obtain some outpatient drugs from manufacturers at discounted rates.  The cuts would equal a 30% reduction to the 340B program.  The lawsuit alleges the cuts violate the Social Security Act, and a win would protect vulnerable populations and prevent future cuts to the program.  

Ratio Analysis

Liquidity ratios provide stakeholders information about a company’s ability to meet its short-term financial obligations. Healthcare organizations need a high amount of working capital to cover the obligations such as inventory. An example of a liquidity ratio would be the current ratio, which considers short-term liabilities as well as short-term assets and shows the important that companies need to have enough current assets to cover the liabilities in case of an economic downturn. A current ratio above 1 is the goal and Ascension actually saw a .003 decrease from 2016 to 2017, while Trinity is far above at 1.8. 

Revenue, expense, and profitability ratios are the most important ratios looked at by financial analysts. They measure and evaluate the ability of an organization to generate income relative to revenue, balance sheet assets, operating costs, and shareholders’ equity. An example of this would be the operating margin which determines a company’s potential earnings.

Ascension has seen a 1.03% decrease from 2016 to 2017, but compared to Trinity they are earning more profit. Activity ratios measure the efficiency of an organization and how well/productively they are utilizing their assets. The higher the turnover ratio the more efficient the company is using its assets.  An example of an activity ratio would be the fixed assets turnover ratio which measures an organization's return on investment in property, plant, and equipment. Between 2016 and 2017 Ascension had a .0369 increase in fixed assets turnover ratio, indicating that Ascension utilized their equipment and ran more efficiently than the previous year. Ascension is utilizing their assets more efficiently than their competitor Trinity who is at 2.24. 

Capital structure ratios analyzes the amount of debt financing used by a business, which affects the risk and profitability of a business. An example of this would be the long-term debt to net assets ratio which creditors use to find out the amount of risk that they face. Ascension has been progressing and brought it down from 29.19% to 27.91 from 2016 to 2017, which in comparison to Trinity at 44.19% is prospering! 


Current Ratio: (Current Assets/Current Liabilities) 

•         Measures whether or not a firm has enough resources  to pay its debts over the next 12 months.

2016: $5,393,180/ $5,394,205 = .9998 2017: $5,167,867/$5,184,452= .99680

Trinity: ($8,141,733/$4,491,239)= 1.8128     

Acid-Test Ratio: (Cash + Marketable Securities)/ Current


•         Measures a company's short-term liquidity, the ability to use its immediate assets to pay its current liabilities.

2016: ($696,237 + $122,545)/ $5,394,205= .1517

2017: ($857,605 + $103,857)/ $5,184,452= .1854

Trinity: ($1,008,197+ $3,526,204)/$4,491,239= 1.0096

Average Payment Period: (Current Liabilities/ ((Operating Expenses- Depreciation)/365)

•         How long on average it takes an organization to pay its bills  2016: $5,394,205/ ((20,900,965-$2,737,244)/365)) = 108.396 days

2017: $5,184,452/ (($21,893,745-$2,780,838)/365))= 99.0077 days Trinity: $4,491,239/(($17,361,706-$870,289)/365))= 99.4033 days 

Days Cash on Hand: (Cash + Marketable Securities +Board Designated Funds/ ((Operating Expenses-Depreciation)/365)  •               Number of days that an organization can continue to pay its operating expenses, given the amount of cash available.

2016: ($696,237 + $122,545)/((20,900,965-$2,737,244)/365))= 16.453 days

2017: ($857,605 + $103,857)/(($21,893,745-$2,780,838)/365))= 18.361 days

Trinity: ($1,008,197+$3,526,204)/(($17,361,706-$870,289)/365)=100.35 days 

Days in Accounts Receivables/Days Sales Outstanding: (Net Patient AR/ (Net Patient Revenues/365))

•         How quickly a hospital is converting its receivables into cash

2016: $2,746,506/ ($21,301,133/365)= 47.06 days

2017: $2,758,554/ ($22,023,848/365)= 45.71 days

Trinity: $1,877,860/($15,747,094/365)= 43.5266 days       


Salaries & Benefits as % of Operating Expense: (Salary & Benefits/ Total Operating Expense) 

•         Percent of total operating expenses that are attributed to labor costs

2016: ($9,043,625 + $1,748,110)/ $20,900,965= .5163

2017:  ($9,301,057 + $1,829,642)/ $21,893,745= .5048

Trinity: ($7,594,863+ $1,510,144)/$17,361,706= .5244

Operating Margin: (Operating Income/Total Operating


•         Proportion of profit earned for each dollar of operating revenue

2016: ($753,203/$21,898,334)= .0343

2017:($552,694/$22,633,225)= .0244

Trinity: $266,139/$17,627,845)= .01509

Return on Total Assets: (Excess of Revenue over Expenses/

Total Assets) 

•         How much profit is earned for each dollar invested in assets

2016: ($461,384/$32,469,177)= .01420

2017: ($1,638,917/$34,320,425)= .04775

Trinity: ($1,291,224/$24,739,083)= .0521             

Return on Net Assets: (Excess of Revenue over Expenses/ Net Assets) 

•         How much income each dollar’s worth of fixed assets and capital has been generated 

2016: ($461,384/$18,593,040)= .0248

2017: ($1,638,917/$20,414,124)= .0802

Trinity: ($1,291,224/$11,985,427)=.1077


Total Asset Turnover Ratio: (Total Operating Revenues/Total Assets) 

•         Overall efficiency of the organization's assets in producing revenues 

2016: ($21,898,334/$32,469,177)= .67443

2017: ($22,633,225/$34,320,425)= .65946

Trinity: ($17,627,845/$24,739,083)= .7125

Fixed Assets Turnover Ratio: (Total Operating Revenues/ Net

Fixed Assets)

•         How productive the fixed assets of the organization are in generating operating revenues

2016: ($21,898,334/$9,020,005)= 2.4277

2017: ($22,633,225/$9,182,978)= 2.4646

Trinity: ($17,627,845/7,853,456)= 2.2437


Long-term Debt to Net Assets Ratio: (Long-Term Debt/ Net Assets) 

•         Proportion of assets financed by debt relative to the proportion not financed by debt  2016: ($5,427,616/$18,593,040)= .2919

2017: ($5,699,440/$20,414,124)= .2791

Trinity: ($5,296,862/$11,985,427)= .4419

Net Assets to Total Assets Ratio: (Net Assets/Total Assets) 

•         Proportion of total assets financed by equity 

2016: ($18,593,040/ $32,469,177)= .5726

2017: ($20,414,124/ $34,320,425)= .5948

Trinity: ($11,985,427/$24,739,083)= .4844

The volume intake during 2016 and 2017 are shown above in this table:

Strengths and Weaknesses vs. Trinity Health



●        Repaying debt quicker

●        Paying less in salaries and benefits as % of operating expenses

●        Earning more per dollar in operating revenue

●        Fixed assets generating higher operating revenues

●        Less assets financed by long term debt, more solvent

●        More assets financed by equity vs. loans, more available funds

●        Less resources to pay debt

●        Not as much cash or quick assets to pay current liabilities, higher chance of going bankrupt

●        Far less days with cash on hand

●        Converting receivables to cash slower (2 days)

●        Earning less per dollar invested in assets

●        Not using assets to generate profit as efficiently

●        Revenues being generated relative to the value of assets is lower


There is always room for improvement and after evaluating the ratios above and comparing it with a competitor we can definitely see the strengths and weaknesses Ascension and the potential growth it has in the industry. Financial indicators show the performance the company can have and how they are coping from month to month. When we see higher margins and more free cash flow it shows a stronger financial position. One of the things that need to be worked on is current liabilities being paid back sooner which will increase the current ratio. The reason we want to see this happen is it would be easier to make payments on services and operational expenses when receiving payments in a timely manner. A way this can be done is by implementing payment systems example of Free for Service (FFS) or pre-paid capital system. These programs are very organized and assure quality of care is being delivered as everything is detailed laid out on what occurred during their visits so when it is time for payments to be made physicians and insurance companies can look at this to handle the dispute over cost or making sure payments are being made on time. Which will overall help the hospital make their payments in time. Another option that could be explored is to sell unneeded equipment or equipment that is outdated and has no use in the hospital this would increase the Acid test having more cash available which can be used and put in good use in other areas. Also, another way to raise more cash on hands would be to sanction spending cuts on departments or to have more high-profile cases that is more innovative so more patients would be more intrigued to get help from this hospital as they are available to provide more resources to patients. With being a nonprofit hospital, it would be good to host a fundraiser like a gala and reach out to new donors especially those who live in the proximity of the hospital as they are the ones who would want to invest in their facility they will be using. One way to decrease accounts receivable would be to make patients pay their co pays before having a scheduled appointment either being with a physician or receiving lab work up and a policy should be placed in that there should not be an unpaid balance on a patient's account. Also, with elective services especially those that are not covered by insurance should be screened making sure patients are able to pay for it either up front or with a tight structured payment plan. With new equipment always coming out and making huge payments every year for the equipment it might be a better way to lease equipment than purchasing a new one as the uptake can add an extra cost. It is important to use the space that is given in an efficient way and if there is space available you could lease the space out especially when revenue is not being generated or not as much. With these recommendations it would improve the return on total assets. One other way to improve this is to make sure inventory levels are sufficient and that the hospital is not being over supplied. Fixed assets in a hospital setting include the building, equipment payments, fixtures, insurance, etc. It is important to remain making payments and these are only the purchases being made as it will improve Return on Net Assets as the less we spend more of a revenue will be shown. If possible try to pay for fixed assets in 6 months or a yearly payment as discounts are received when making large payments. Lastly, another recommendation that could be implemented is to ensure payments are being collected on time is having reminders and implementing policies that new appointments cannot be made unless there is no balance on the account and give a shorter time period for payments to be made so patients have an incentive to make the payments when they are there. This will increase the Total Asset Turnover Ratio.  These are just a few recommendations that could be considered to make the hospital run as efficient as possible. 


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