Business Proposal- Healthcare Accounting

Business Proposal- Healthcare Accounting

Background/History of the Organization

The selected healthcare organization for this business proposal is AbbVie Inc. AbbVie Inc. is an American multinational for-profit research-based company that engages in pharmaceutical products. The company has had a remarkable financial performance for almost ten years. Notably, it has operated since 2013 and is listed on the NYSE. In addition, AbbVie Inc. operates in over 75 countries, creating employment opportunities for more than 30,000 people. Despite the many countries of operation, its main office is in Lake Bluff, Illinois, in the Chicago area. The company produces numerous products, more than 30 of which are in variety. The products entail medical devices and drugs, accounting for billions that the company raises annually. However, the company’s Humira drug is the most common product and generates more than half of the company’s revenues. The drug treats conditions such as psoriasis, arthritis, and Crohn’s disease.

Operation Structure

AbbVie Inc. is a United States-incorporated company. As a result, it has a legal personality and can sue or be sued. As specified in the corporate governing structure, the operational structure is hierarchical. It is led by a CEO who directs the company’s strategic direction in collaboration with the board of directors. The director’s council makes significant decisions for the corporation, including appointing auditors. In terms of financial performance, the business has performed well since its inception in 2013. The company has generated a total shareholder return of 334.1% since its inception. Furthermore, the firm has achieved a 13.6% increase in adjusted net sales and a $135 billion gain in market capitalization.

Financial Analysis and Stability

Financial analysis is a crucial factor to consider for AbbVie Inc. It comprises evaluating a company’s health regarding revenue generation, profitability, viability, and sustainability. According to Grennan & Michaely (2021), financial analysis requires experts capable of processing financial statement information and other reports provided by a specific company. An effective financial analysis can provide firm stakeholders with insightful information about the financial performance of a business, allowing them to make different investment choices, such as acquiring the organization’s stock. Furthermore, financial analysis assists businesses in determining the risks they confront and how to enhance and develop their processes for more efficient operations.

The process of doing a financial analysis consists of four parts. The information needed for analysis is first collected. Annual reports of companies can be used to identify the required data. The income statement, cash flow statement, and statement of financial position are a few examples of reports. Second, a number of ratios are calculated to look into various areas of financial performance. The calculated ratios look at the company’s liquidity, profitability, solvency, market growth, and gearing position to assess its financial success. Third, a risk analysis is performed for the corporation based on the ratio analysis. Lastly, the organization’s value is established. The price of a company’s stock and its worth to investors are two examples of information showing its value. In the case of AbbVie Inc., the company has strong financial stability and is likely to grow due to its initiatives to increase its product lines. Fundamentally, this is its growth strategy, which includes less reliance on a few products and extending its portfolio, which can create more income. However, the company will do so in the face of stiff competition from established companies like Johnson & Johnson Plc.

Vertical and Horizontal Analysis

The vertical analysis compares elements within a fiscal period to determine their relationship. Horizontal analysis, on the other hand, analyzes data from several fiscal periods (Bussolo et al., 2018). For AbbVie Inc., the vertical and horizontal analyses of revenues, cost of goods sold, gross profit, and net profit margin are shown below, and they are all obtained from the company’s most recent statement of financial performance.

Vertical Analysis

The cost of goods sold, gross profit, and net income are all represented by a percentage of sales revenue in the vertical analysis above. Based on the analysis report, AbbVie Inc. spends 31.04% of its sales revenue on the cost of sales. Furthermore, the gross profit margin accounts for 68.96% of revenues, while the net income accounts for 20.54% of revenues.

Horizontal Analysis

The financial results for 2021 and 2020 are compared in the horizontal analysis. In terms of financial performance, AbbVie Inc. performed better in 2021 than it did in 2020. Essentially, this is particularly true because the business generated higher sales revenues, gross profits, and net profits in 2021 than it did in 2020.

Financial Ratios

Financial ratios evaluate an organization’s financial performance in terms of several factors, including liquidity, profitability, market growth, and capital structure. The financial performance is assessed by contrasting the performance across various financial periods and with other market players (Kimmel et al., 2019). The current ratio and net profit margin ratios are chosen for examination in the case of AbbVie Inc. The measures evaluate the company’s financial health with respect to profitability and liquidity, as shown in the analysis below.

Current ratio. The current ratio evaluates the ability of a firm to meet its short-term maturing obligations as and when they fall due (Hakimov et al., 2018).

Current Ratio

AbbVie does not portray a good financial performance based on the above analysis and is likely to face liquidity challenges. Notably, this means that the company’s current assets cannot be used to fully pay for current liabilities. The ratio has reduced across the two years in value, showing a declining liquidity position. Additionally, the ratio is less than two, which is the industry-recommended value for the current ratio.

Net profit margin. The profitability of a firm is evaluated using the net profit margin.

Net Profit Margin

The above net profit margin analysis indicates an improvement in AbbVie Inc.’s financial performance over the two financial years. Notably, this shows AbbVie Inc’s good financial performance.

Recommendation for Leadership

In order to strengthen its credit and avert major solvency issues, AbbVie Inc. should enhance its liquidity position. Fundamentally, reducing the organization’s current liabilities should be one of the main strategies to accomplish this. When considering current assets, the percentage of liabilities in the balance sheet is quite high. Particularly, this approach can assist the organization in acquiring short-term loans to support its working capital requirements.

Conclusion

The information presented in this business proposal evaluates aspects of financial analysis. AbbVie Inc. healthcare organization is used as a case study for the analysis. AbbVie Inc. is an American multinational company that has been in operation since 2013 and is listed on the NYSE. The company’s performance is assessed by this business proposal and established to be stable and solid. However, there are areas of improvement that the company’s leadership should consider. One of the areas of improvement is the company’s liquidity position. It is recommended that the company establish mechanisms to reduce its current liabilities and improve current assets to enhance working capital requirements.

References

Bussolo, M., Krolage, C., Makovec, M., Peichl, A., Stockli, M., Torre, I., & Wittneben, C. (2018). Vertical and horizontal redistribution: the cases of Western and Eastern Europe. World Bank Policy Research Working Paper, (8657).

Grennan, J., & Michaely, R. (2021). Fintechs and the market for financial analysis. Journal of Financial and Quantitative Analysis, 56(6), 1877-1907.

Hakimov, B., Yunusov, M., & Holmirzayev, U. (2018). Elaboration of The Balance Sheet Liquidity Analysis-Requirements of The Period. International Finance and Accounting, 100.

Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2019). Accounting: Tools for business decision making (7th ed.). Wiley.

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Some information about the Week 5 assignment:

It can be a for-profit or non-profit organization.
You need to obtain their annual report, and you need at least two consecutive years. It needs to be with the last 10 years.
No Made-up Company.
There is a min. Word count.
Make sure you show your calculations.
Do not retype what is in their annual report; I need to see your thoughts and suggestions.
It does not have to be a hospital but in the medical field.
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Business Proposal- Healthcare Accounting

Over the last 4 weeks, we have reviewed foundational concepts related to business operations and accounting. You have learned inventory concepts and some basic terms, such as assets, liabilities, expenses, and revenues. In addition, you have learned the regulatory agencies’ expectations on auditing and reporting, including the benefits of internal and external controls to prevent financial fraud.

Leadership’s role is to continually assess the financial stability and long-term viability of the organization using financial ratios and horizontal and vertical analysis. Whether assessing the financial health of an organization for investment purposes or for benchmarking an organization against another, it is important to understand the course concepts to conduct a rudimentary analysis. This process will also allow you to analyze consolidated financial statements to make business decisions in health care and practice your auditing skills.

Preparing for the Assignment:
You have been recognized as a financial analysis expert. As such, you have been hired to conduct a review of a for-profit organization’s latest consolidated financial statement and make recommendations to leadership based on your findings. The business proposal requires the use of 3 scholarly sources to support your work.

Select 1 consolidated financial statement from a for-profit healthcare organization of your choice.