Introduction

In this financial analysis report, we attempt to perform the financial analysis for the given company for which, data has been provided in the excel spreadsheet for 2010, 2011 and 2012. We would be digging deeper than simply conducting a financial analysis and analyze all the relationships between the different items of the financial statements and the trends over the three-year period. We would be performing the analysis for the company by computing the common size financial statements for the three year periods and computing specific ratios to analyze the profitability, liquidity and the long term solvency position of the company. We would be examining the financial condition of the given company and then make short term, medium term and long term recommendations to the management of the company.

Analysis of the Financial Ratios

We would nowbe analyzing the financial statement ratios, looking at the trends of the ratios and the relationships between the financial statement items. We first begin with the analysis of the common size income statements and balance sheets for our company. These are discussed as follows:

Financial Health Assignment Harvard Case Solution & Analysis

Common Size Analysis

The common size computations have been performed for the income statement and the balance sheet of our company for the three-year period from 2010 to 2012 and we have also computed the average values for each item. First of all, if we analyze the common size income statement for our company and look at the trend of the total operating expense, then we can see that the operating expense, as a percentage of operating income, has been higher than 100% in 2010 suggesting a net loss for the company, however, it improved in 2011 and became 99.12% but again increased to 99.86% in 2012.

This ratio is important to analyze the trend of operating expenses for the company. The ratio trend is not static because the operating expenses of the company are not fixed and a higher number of expenses are variable for the company. If we dig deeper, then we can see higher variability in the salaries, employee benefits, purchase of health services, supplies and equipment, rent, staff development and many other operating expenses. There are also non-recurring expenses and this might be the cause of the higher operating expenses for the company. This is a threat for the company in terms of SWOT analysis.

After this, we analyze a second ratio which is the foster boarding home income as a percentage of the total operating income for the company. This is the single most important item as seen in the income statement which contributes the highest share of the income to the company. The average contribution to total operating income over the three-year period is 62.95%. In 2010 this was 65.22% but it now shows a declining trend for the company and this is quite alarming as this is the main income source of our company.This. is a weakness for the company in terms of SWOT analysis. The common size income statement is shown..............

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