HCA, Inc. (A) Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

HCA, Inc. (A) Case Solution

Senior management of HCA pursing an LBO of the firm

There are several reasons because of which the higher management of HCA is pursuing the leveraged buyout in which the most important factor is the increasing number of uninsured patients that is increasing the bad debt expense. As compared to the previous year, the amount of bad debt expense has been increased due to which the management has lowered its forecast for the current quarter and also for the upcoming years as well.

Performance of HCA & challenges that the firm faces going forward without the LBO

As compared to the previous year, the revenue of HCA has increased by 4.1 percent, while its net income has increased by 16.67 percent. The expected earnings ratio of the company is around 0.78 dollars in the current quarter, however, the estimated earning per ratio of the management for the next quarter is 0.72 dollars. This shortfall in EPS will affect the annual result of the current year and next year.

The performance of HCA might decreasefurther due to an inefficiency and constant increase in the bad debts, which will affect the profitability of the company in a negatively. The expertise that the three equity firms will bring in HCA might beimportant and if the deal does not get finalized, then HCA might not be able to achieve that expertise, which will ultimately hinder the improvement of its performance.

The LBO creates the tax shield through which the interest paid generates the tax deduction, which reduces the tax paid and increase the cash flow. The leveraged buyout will also save the cost of additional accounting and disclosures which HCA would incur due to being public.

The maximum price that LBO firms should be willing to pay for HCA

The minimum price of the share using the discounted cash flow method is $47.41, which should be considered the minimum price to be offered by LBO firms to pay for HCA. While the maximum price is calculated using sensitivity analysis amounts $51.08 with a 4% risk free rate of return and 5% risk premium...............

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HCA, Inc. (A) Harvard Case Solution & Analysis