Yes, Titus Lake Hospital is clearly a good financial partner for General Practice Affiliates. From the analysis of the quick ration, it is apparent that the hospital is clearly in a good position for meeting its short term obligations. The most suitable metrics that can be used to measure the liquidity of a firm is by using the quick ratio and the current ratio stand (Corbett and Smodis). It relates to the amount of the assets and cash which can be converted into quick through giving a company to meet its short term financial obligation. By analyzing the hospital’s assets and current and current liabilities, it is evident that the quick ratio as of 2011 stood at 4.75, whereas of 2012, the ratio was at 3.41.
Another critical element that can be used in determining the financial ability of a firm, and its ability to pay its debts an ongoing bias is the company’s solvency (Susanti and Restiana). On stability, the firm’s debt to equity ratio indicates the long term suitability since it is a measure of the debt over the shareholder’s equity. As of 2011, the total liability over the shareholder equity was at a debt to equity ratio of 1.83, whereas in 2002, the ratio stood at 1.69. The company in both years had a low D/E ratio, meaning that the operations of the hospital got financed more by the stakeholders than the creditors. The statistics show that the rates have been on a downward problem, which is an illustration of the hospital being funded by the shareholders, an indication that it is financially stable.
On the other hand, profitability is critical in determining the financial stability of any given firm. The ratio of profitability measures the amount of income an institution has, where low profits mean that the company cannot obtain debt or have equity financing (Sultan, 2014).Profitability ratios also affect the capacity of a company to grow and its liquidity. By analyzing the income statement of the hospital, it is apparent that there is a positive net cash flow of $61,600 throughout 2012, an indicator that the hospital is suitable in the proposed partnership.
There may be an incurring of adoption costs as a result of the whole new technologies which involve implementing new organization forms, learning new skills, and the development of complementary investments. By adopting the technology a firm needs to bear the overall costs and the benefits of the original equipment of making sure that the new technology undertakes the expected operations (Susanti and Restiana). For this scenario, the General practice affiliates will incur $175,000 in terms of investment costs as a way of acquiring a new health record system. It will also bear an additional $100,000, which will be used for training staff and converting the existing patients’ records. This will amount to $275,000 for the entire health record system and transfer of the patients’ records. This will be a good venture for the two parties since it will enable growth in overall productivity and also improve the quality of health services provided by Titus Lake Hospital.
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Financing any given project depends on the proportion of both equity and debt. The two form a long term capital of a company. There is a need for the capital structure to stand out as a long term source funding to support the growth of the firm with its assets (Wille, Hoffer and Miller). Any profitable company will, by all means, find the relevant capital required as a way of funding a project regardless of whether the capital structure is in debt. General Practice Affiliates has $530,630 in debt and equity. The project costs of acquiring a new record system are about $275,000. This shows that equity financing is an option for purchasing the system. The firm has also been able to attract and retain some investors. This means that it is in a better position of providing the much-needed source of capital that finances the new medical record system.
Considering the current economic environment, the return on investment for the General practice Affiliates would be relatively higher as compared to the inflation rates. In most events, the equity investors expect a performance that is equal other foregone options of investments. Maximizing the return on investments is the goal of each organization in order to serve the stakeholders and owners in the case of the profit firms and also fund charitable activities in the event of the nonprofit organizations. Given that the rate of inflations stands at 3%, General practice affiliates should have a return on investment or approximately 5%.
Several risks are associated with the physician lease agreement model with Titus Lake Hospital. Leasing companies mostly have a limited cover over how the lease decides to use a given asset. In this case, General Practice Affiliates LLP has limited control over how the hospital will use the newly acquire health record systems. Lack of control provides them with the risks of the agreement getting breached by the hospital since the hospital has the way of choosing the system in the way they deem appropriate (Paterson, 2014). In the event, the leasing company is faced with legal issues, the parties that are likely to suffer from having their businesses disrupted are the leases. In this case, Titus Lake hospital will get affected in the vent that the leasing company faces any legal hurdles. This factor will reduce the healthcare quality provided by the hospital.
Rejecting a potential lease agreement which seems to be contradictory is one of the ways of minimizing the risks associated with agreeing to a lease. There is a need for the General Practice Affiliates LLP to be keen before signing any contract that would violate the set aside terms and conditions. Another mitigation of risk is by negotiating for a fair deal as a way of making sure that the terms of an agreement are not at risk (Paterson, 2014). There also is a need for the two parties to have a team with enough expertise, who will negotiate on the contract thoroughly and develop best measures of averting any potential risks.
Corbett, T. P. and S. Smodis. “Buy-side liquidity risk management best practices. .” Journal of Risk Management in Financial Institutions (2018): 11(3), 207-217.
Paterson, M. A., (2014). Healthcare Finance and Financial Management: Essentials for Advanced Practice Nurses and Interdisciplinary Care Teams. DEStech Publications, Inc
Sultan, A. S. (2014). Financial Statements Analysis-Measurement of Performance and Profitability: Applied Study of Baghdad Soft-Drink Industry. Research Journal of Finance and Accounting, 5(4), 49-56.
Susanti, N. and N. G. Restiana. “What’s the Best Factor to Determining Firm Value?” Jurnal Keuangan dan Perbankan (2018): 22(2).
Wille, D., A. Hoffer and S. M. Miller. “Small-business financing after the financial crisis–lessons from the literature.” Journal of Entrepreneurship and Public Policy (2017).