Introduction
Vertical and horizontal Analysis of a company’s financial statements gives precise positioning of the company in terms of the company growth and the financial health of the company. This Analysis is important to the company as it is used as a benchmark basis against its market peers. Moreover, the results of the Analysis are essential to investors as it helps them make informed investment decisions. The financial ratio analysis also helps evaluate the company’s solvency, liquidity, profitability, and efficiency. Moreover, vertical and horizontal Analysis makes it easy to compare similar parameters across different companies over a certain period. This paper evaluates the general performance of Ascension Health based on the vertical and horizontal analyses of its consolidated balance sheet (Mayes, 2020).
Ascension Health growth
The horizontal and vertical Analysis of Ascension health for the financial years 2020 and 2021 indicates the organization is growing. The vertical Analysis shows a reduction in the proportion of current assets to total assets from 15.19% in 2019 to 12.05% in 2020. This decline can be attributed to the decrease in account receivables from 2019 to 2020. This shows that the company has successfully collected its maturing dues and effectively utilized the current assets in business operations.
The Analysis also shows an increase in the share of long-term investments from 29.82% in the 2019 balance sheet to 51.07% in the 2020 balance sheet, which indicates company growth. The Analysis further shows that the company prefers long-term debt financing to fund its assets. There was a slight decrease in the company’s total liabilities and net purchases from 17.02% in 2019 to 16.26% in 2020 (Ginting, 2021).
The horizontal analyses show a decrease in the cash and cash equivalents and an increase in the shoer-term investments in 2020 from 2019. Moreover, the horizontal Analysis shows a growth in the organization’s inventory by 22.85 in 2020 from 2019. This indicates that the organization needs additional resources to meet the growing organization’s demand. However, the total current assets declined by 16.84%. Total assets increased by 4.87%. This is attributed to long-term investment, property, and equipment growth over the same period, which is also an indication of organizational growth.
Largest-percentage increases and/or decreases
The cash ad cash equivalents were among the line items that registered the most significant decrease at a 30.18% decrease. Also, the total due from brokers decreased by 66.59%, while the total owed to brokers decreased by 83.78%.
On the increase side, the Analysis shows that inventories recorded the most significant percentage increase at 22.85%. Other assets recorded a 31.59% increase in 2020 compared to 2019, while other liabilities recorded a 46.58% increase in the same period. In addition, the total liabilities increased by 23.9%, mainly due to the 41.52% increase in pension and other postretirement liabilities (Ross, 2022).
Financial impact on the company’s financial viability
The other importance of vertical and horizontal Analysis is that the clear presentation and comparison help the management of the organization to precisely interpret the financial parameters and their implications to the organization. Ascension health uses cash to fund various investments and repay the interests accrued by long-term debt, reducing the organization’s short-term liquidity. Also, the decrease in account receivables in 2020 from 2019 signifies a potential decline in the organization’s current ratio. Moreover, the recent asset reduction and the current liabilities in 2020 compared to 2019 will likely increase the liquidity pressure on the organization in the coming future.
Concerning capital growth, it can be hypothesized that the organization’s increasing investments in long-term assets is a strategy to improve the organization’s profitability which will reflect through changes in performance ratios such as return on assets, return on invested capital, and return on equity. It is also important to note that Ascension Health’s strategy to fund its operations through equity significantly lowers its risks to moderate levels. The reduction in the organization’s short-term debt in 2020 proves its ability to service its maturing dues (Ginting, 2021).
Conclusion
The vertical and horizontal Analysis shows that Ascension has a solid financial performance. However, organizations need to look at a few financial aspects to ensure the future sustainability of the business. The organization will need to improve its efficiency and reevaluate short-term investments to ensure it can meet its short-term obligations in the future. Nevertheless, steady organizational growth and financial health guarantee a promising future for the organization.
References
Ginting, E. S. (2021). Ratio-Based Financial Performance Analysis of PT. Mustika Ratu, Tbk. Enrichment: Journal of Management, 11(2), 456-462.
Mayes, T. R. (2020). Financial analysis with microsoft excel. Cengage Learning.
Ross, T. K. (2022). Baker’s Health Care Finance: Basic Tools for Nonfinancial Managers. Jones & Bartlett Learning.
write