Mednax Financial Health Analysis

Mednax is a national medical services company that is highly specialized in the industry. According to the Mednax (2013) website “MEDNAX, Inc., is a national medical group that comprises the nation's leading provider of neonatal, maternal-fetal and pediatric physician subspecialty services as well as anesthesia services.” The following ratio analysis will measure the health of the Company; however, it should be noted that the ratio analysis falls under the umbrella of a service-based mission.

Liquidity ratios are used to measure the ability for a company to meet its short term debt obligations by using its current liquid assets. The table below shows the current and quick ratios for Mednax:

(Table omitted for preview. Available via download)

• The current ratio is holding strong at the threshold of this ratio. A value of 1 indicates that short term debts are exactly equal to current assets. This means that debt obligations can be met without difficulty. As the company’s current ratio increases between 2010 and 2012 and breaks through the value of 1 to 1.34, this is a positive indicator of financial health.

• In addition, the quick ratio shows the same trend. This shows each dollar that is positioned as a liquid asset against current liabilities. A value over 1 indicates that the Company is able to meet its short term liabilities.

Leverage is a fancy word for debt or the healthcare financing that a company uses to operate. The following ratios are an indication of how well Mednax uses its debt financing to produce results for its shareholders. The following table shows how debt is being used for the Company:

(Table omitted for preview. Available via download)

• The total debt to total assets simply compares the overall value of debt and assets for a company. Mednax shows strength in this area as the assets far out-value the debt. This gives the company more flexibility than a company that has more debt in terms of servicing its debt as well as acquiring additional leverage if the opportunity arises. This measure has remained consistent across the previous 3 years and that is also a good indicator of strong financial management.

• Debt to equity is an indicator of the tools used by the company to experience growth. A high debt to equity value can show a company that is using debt to position strategic growth. Mednax is positioned very well in regards to debt currently and have drastically improved that margin, especially from 2010 to 2011.

• The equity multiplier is the calculation used to show how a company uses leverage to finance the assets. The ratio gives the value of Mednax’s assets versus stockholders’ equity. It also shows what method the Mednax is using in terms of its use of debt or investment to finance any assets. Mednax has a high value for the equity multiplier, which means that the company uses debt to secure growth instead of selling stock.

The following table shows the turnover ratios important to assess the health of Mednax. Turnover ratios focus on the balance sheet line items. These indicators are good for showing the efficiencies or lack of efficiency within a company:

(Table omitted for preview. Available via download)

• The accounts receivable turnover ratio is a value of how well the company has been extending credit to customers. This value has declined, which is a concern. This ratio simply shows the average number of times the accounts receivable line item has turned over during the year. As they receivables turnover has decreases, this shows a sliding performance in collecting on receivables.

• The average collection period is a measure of the length of time it takes, on average, to collect on accounts receivable. This ratio has increased over the previous 3 years, but only by a few days. This isn’t of major concern in the medical industry; however, it should be routinely followed and the pattern reversed.

• Asset turnover is a calculation that shows the value of revenues for assets owned by the company. This is a valuable measure of how a company is using its assets to create revenues. However, in the service industry such as this, it is really the asset of human capital that is being used to create revenues so asset turnover has limited value here.

• Again, fixed assets are important to gauge the health of a company, but play a different role in the service industry. The values for fixed assets seem consistent and healthy. The fixed assets owned by Mednax will be in the form of owned property for office space and company vehicles.

(Table omitted for preview. Available via download)

• The gross margin, which is calculated by taking total revenues and subtracting the COGS, is high and consistent across the years. A gross margin of 34% in a highly specialized medical services industry is respectable.

• The COGS appears high; however, it should be remembered that securing highly professional and highly educated staff comes at a high price in a medical service industry. COGS have risen by an apparent 1%; however, that should be ruled as immaterial as it may be something as simple as a rounding issue.

• The net margin for the company is also strong at 14% for 2010-2011, with a slight drop to 13% for 2012. This is a healthy indicator for the company.

In conclusion, the overall health of Mednax is strong. The Company has performed strong in nearly all measurable functional areas of performance. The only criticism would be to strongly manage receivables turnover and aggressively secure debt. In addition, strong credit management tactics should be engaged within the economic recession. For the future, it is advisable to carefully watch the Affordable Care Act as it is unveiled, or not unveiled, and respond accordingly. The bad news is that nobody really knows the direction of the medical field in the long run due to the national health care debate known as Obamacare. Given this uncertainty, it appears as if Mednax has positioned itself to be flexible in terms of financing and operations for whatever Obamacare brings to the United States.

Reference

Mednax. (2013). Welcome. Retrieved from http://www.mednax.com