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05/08/2012

A Comprehensive analysis of the financial statement of Sonic Healthcare Limited


Sonic healthcare is one of the largest medical diagnostic companies in the world which provides laboratory and radiology services to medical practitioners, hospitals, community health services, and their collective patients. The company was listed on the Australian Securities Exchange (ASX) in 1987. After the reconstitution of the Board in 1992, the company has experienced exceptional growth with annual revenues rising from A$25 million in 1993 to A$3 billion.

Analysis of Financial Information of Sonic Healthcare Limited

            Financial analysis is a process which involves reclassification and summarization of information through the establishment of ratios and trends. Financial statement information is used by both external and internal users, including investors, creditors, managers, and executives. Analysis of financial statement refers to the examination of the statements for the purpose of acquiring additional information regarding the activities of the business. The users of the financial information often find analysis desirable for the interpretation of the firm’s activities. These users must analyze the information in order to make business decisions.

            The overall objective of financial statement analysis is the examination of a firm’s financial position and returns in relation to risk. This must be done with a view to forecasting the firm’s future prospective. Several methods of performing financial statement analysis exist.

Horizontal Analysis

            This technique is also known as comparative analysis. It is conducted by setting consecutive balance sheet, income statement or statement of cash flow side-by-side and reviewing changes in individual categories on a year-to-year or multiyear basis. The most important item revealed by a comparative financial statement analysis is trend. A comparison of statements over several years reveals direction, speed and extent of a trend. The horizontal financial statements analysis is done by restating amount of each item or group of items as a percentage. Such percentages are calculated by selecting a base year and assign a weight of 100 to the amount of each item in the base year statement. Therefore, the amounts of similar items or groups of items in prior or subsequent financial statements are expressed as a percentage of the base year amount.

            The horizontal analysis compares specific items over a number of accounting periods. For example, accounts payable may be compared over a period of mounts within a fiscal year, or revenue may be compared over a period of several years. These comparisons are performed in one of two different ways.

·         Absolute Dollars – this is a method of horizontal financial statement analysis that compares the absolute dollar amounts of certain items over a period of time. For example, this method would compare the actual dollar amount of operating expenses over a period of several accounting periods. This method is valuable when trying to determine whether a company is conservative or excessive in spending on certain items. This method also aids in determining the effects of outside influences on the company such as increasing gas prices or a reduction in the cost of materials.

·         Percentage – this compares the percentage difference in certain items over a period of time. The dollar amount of the change is converted to a percentage change.

Vertical Analysis

            The vertical analysis compares each separate figure to one specific figure in the financial statement. The comparison is reported as a percentage. This method compares several items to one certain item in the same accounting period. Users often expand upon vertical analysis by comparing the analyses of several periods to one another. This can reveal trends that may be helpful in decision making, An explanation of Vertical analysis of the income statement and vertical analysis of the balance sheet follows:

·         Income statement – performing vertical analysis of the income statement involves comparing each income statement item to sales. Each item is then reported as a percentage of sales.

·         Balance sheet – performing vertical analysis of the balance sheet involves comparing each balance sheet item to total assets. Each item is then reported as a percentage of total assets.

Ratio Analysis

            A ration is the mathematical relationship between two quantities in the form of a fraction or percentage. Ratio analysis is essentially concerned with the calculation of relationships which after proper identification and interpretation may provide information about the operations and state of affairs of a business enterprise. The analysis is used to provide indicators of past performance in terms of critical success factors of a business. This assistance in decision-making reduces reliance on guesswork and intuition and establishes a basis for sound judgment.

Financial Statement of Sonic Healthcare Limited

Income Statements (Consolidated Group)

 

Notes

2009

$’000

2008

$’000

Revenue from operations

 

 

3

 

2,995,605

 

2,365,014

Other income

 

 

4

 

18,126

 

15,313

Total revenue

 

 

 

3,013,731

 

2,380,327

Labor and related costs

 

 

5

 

1,314,637

 

1,054,236

Consumables used

 

 

 

524,205

 

395,265

Operating lease rental expense

 

 

5

 

141,443

 

116,254

Impairment of New Zealand pathology intangibles

 

16c

 

120,100

 

Restructuring costs – New Zealand pathology

 

5

 

22,772

 

Depreciation and amortization of physical assets

 

5

 

93,087

 

75,909

Borrowing costs expense

 

 

5

 

86,625

 

73,909

Transportation

 

 

 

91,042

 

71,595

Utilities

 

 

 

66,719

 

53,512

Repairs and maintenance

 

 

 

65,240

 

48,902

Amortization of intangibles

 

5

 

8,296

 

5,906

Fair value adjustment to investment properties

15

 

 

Other expenses from ordinary activities

5

 

230,030

 

153,086

Profit from ordinary activities after income tax expense

 

 

249,608

 

331,867

Income tax (expense) benefit

 

7

 

(77,053)

 

(81,461)

Profit from ordinary activities after income tax expense

 

 

172,555

 

250,406

Net (profit) attributed to minority interests

 

 

(1,195)

 

(5,290)

Profit attributable to members of Sonic Healthcare Limited

30(b)

 

171,360

 

245,116

 

Balance Sheet (Consolidated Group)

 

Notes

2009

$’000

2008

$’000

Current Assets

 

 

 

Cash and cash equivalent

41(a)

557,932

63,865

Other financial assets

8

 

4,710

Receivables

9

374,481

314,151

Inventories

10

51,872

41,342

Other

11

28,019

23,775

Total current assets

 

1,012,304

447,843

Non-Current Assets

 

 

 

Receivables

12

5,365

3,872

Other financial assets (investments)

13

22,423

11,618

Property, plant and equipment

14

476,446

424,966

Investment properties

15

16,510

16,500

Intangible assets

16

3,191,282

2,700,231

Deferred tax assets

17

35,256

22,259

Other

18

1,660

1,712

Total non-current assets

 

3,748,942

3,181,158

Total assets

 

4,761,246

3,629,001

 

 

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