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Heritage Medical Company Case Summary

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The company’s ROE is 22.47% compared to the industry average of 18.06%. This is saying that the company uses investments to generate wealth more than the industry. The company is more profitable in relation to shareholders’ equity and has more leverage. However, this is due to a higher amount of debt, which therefore results in a higher amount of equity. The Heritage Medical Supply Company in general is similar to the industry in terms of liquidity ratios, one of the most noteworthy differences is that Heritage has a slightly longer cash conversion cycle, meaning they are less aggressive with cash collection. They also have more inventory than the industry average, which can be dangerous. However, Heritage does have a slightly higher current ratio, which means they have more assets in comparison to their liabilities than the …show more content…

This is the section that differs the most from the industry averages. Heritage’s total debt ratio is significantly higher than the industry average, along with their current debt ratio. In addition, their equity multiplier is higher than the average, which means the company has been using more debt than equity to finance its assets. This is also shown in the significantly lower debt-to-equity ratio meaning that they do not have a lot of shareholders’ equity compared to the industry average. A concerning comparison is Heritage’s times interest earned being over 4 points lower than the industry average. This is a bad sign because considering how much debt Heritage has, this number shows that they will likely not be able to pay it off. This is in turn is shown in Heritage’s lower accounts payable turnover and higher amount of days they take to pay off their payables, another bad sign for the company. Some advice would be to not to borrow as much money, so that they are able to pay it off more easily and so they won’t have as much

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Their current ratio is 1.4% (total current assets/total current liabilities). According to the Risk Management Association of Financial Ratio Benchmarks, the current average ratio is 1.5%. In 2014, the current ratio for the firm was 1.46% while the average ratio in the industry (NAICS 311330) was 1.6%. The company’s net property and equipment in 2015 is worth 2.6 million dollars, a slight increase from 2014, which was 2.3 million. The company is considering taking on some debt to increase their production capabilities.

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2011 Financial Ratios Current Ratio = 0.8 = 59,308/71,724 Quick Ratio = 0.6 = (59,308-26,073)/71,724 Long Term Debt to Equity = 1.0 = 9,322/9,547

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