Bupa provides several health solutions including but not limited to; health insurance and other health funding products, primary care centres and hospitals, home healthcare, chronic disease management, workplace health services and care services which comprises of nursing homes, retirement villages and resident homes. Bupa has approximately 12 million customers spread across over 190 countries in the world as at 2012. The business of Bupa is divided into five major market units; United Kingdom, International PMI, international development market, Spain and Latin America domestic, and Australia and new Zealand. In the United Kingdom Bupa manages Bupa Health and Wellbeing, Bupa Care Service UK, Bupa Home Healthcare and Bupa Cromwell Hospital. In the UK alone, Bupa has around 2.8 million customers as at 2012. International PMI, which comprises of Bupa International and Bupa Latin America, has a client-base of 0.7 million customers. International Development Markets comprises of Bupa Arabia, Max Bupa in India, Bupa China and Health Dialog in USA. Spain and Latin America Domestic comprises of Sanitas Seguros, Sanitas Dental, Sanitas Residential, and Sanitas Hospitales and New Services. Australia and New Zealand comprises of Bupa Australia, Bupa Care Services Australia and Bupa Care Services New Zealand.
Return on Assets = Profit after Tax/Total Assets: Return on assets is a performance measure that shows the profit after tax (PAT) relative to the asset base of the company.
The return on assets declined significantly between 2010 and 2011 by 3.82 per cent. However, the return on assets increased between 2011 and 2012 by 3.17 per cent. However, the return on assets is still very low.
Return on Equity = Profit after Tax/Total Assets: Return on assets is a performance measure that shows the return on every pound invested in the firm.
The return on assets declined significantly between 2010 and 2011 by 8.37 per cent. However, the return on assets increased between 2011 and 2012 by 7.09 per cent. However, the return on assets is still very low.
- Asset Growth
Between 2010 and 2011, the total assets of Bupa declined by 4 per cent. Bupa made positive profits in both 2010 and 2011. Therefore, the negative growth of assets is inconsistent with expectation. Between 2011 and 2012, the total assets grew by 17 per cent.
Capitalization is used to obtain the market value of a firm by multiplying the number of outstanding shares with the prevailing market price. The outstanding number of shares of Bupa is 200,050,000. The market price and the close of 19th of July 2013 was £102.36. Therefore, the market value of Bupa = 200,050,000*102.36 = £ 20,477,118,000
- Debt Load and Liquidity
Liquidity ratios indicate a company’s ability to meet its short-term and maturing obligations as they fall due. Liquidity ratios are based on the current assets and current liabilities of a firm.
Current asset ratio = Current Assets/Current Liabilities: This ratio shows the extent to which the current liabilities can be settled with the current assets of a firm. The ratio is a measure of the short term solvency of a firm.
The current ratio of Bupa was below 1 in 2010. This indicates that Bupa was unable to settle its short-term maturing obligations using current assets. The net working capital was negative since the current liabilities exceeded the current assets between the years 2010. In 2011 and 2012, was above 1 but below 2. This indicates that Bupa was able to settle its short-term maturing obligations using current assets in 2011 and 2012. However, the recommended current ratio is 2. Therefore, Bupa faces a high short term solvency risk.
Acid Test ratio = (Current Assets – Inventory)/Current Liabilities: This ratio shows the extent to which the current liabilities can be settled with the most liquid assets of a company. The ratio measures the short term solvency of a company. The current ratio of Bupa was below 1 in 2010. This indicates that Bupa was unable to settle its short-term maturing obligations using the most assets. In 2011 and 2012, was above
1. This indicates that Bupa was able to settle its short-term maturing obligations using current assets in 2011 and 2012. However, the recommended current ratio is
2. Therefore, Bupa faces a high short term solvency risk.
Gearing ratios indicate the extent to which a company has borrowed fixed charge capital to acquire resources of the entity.
Debt/Equity Ratio = Debt/Equity: This ratio measures the pounds of debt for every pound of equity used to finance the assets of an entity. It measures the extent to which a firm is geared.
The Debt/Equity ratio is above 1 in all the three years. This implies that for every pound of equity there was more than one pound of debt. Bupa is highly geared which creates a high bankruptcy risk.
Debt Ratio = Total Debt/Total Assets: Debt ratio measures the proportion of assets financed by debt capital. It is given as a percentage. It ascertains the extent to which the company assets are financed by debt.
The Debt/Equity ratio was above 50 per cent in all the three years. This implies that Bupa finances more half of its assets using debt. Bupa is highly geared. Therefore, it has a high solvency risk.
- Reasons for Investing in China
Investment in China will significantly increase the revenue of Bupa thus maximizing shareholders. China presents a unique opportunity to increase revenue due to various reasons. First, China has the largest population in the world of approximately 1 billion. This huge population provides an opportunity of increasing the client base significantly. In addition, China has a bulging middle-class that is highly educated. China has enjoyed an average economic growth rate of 10 per cent in the last decade which led to an increase in the middle class with high purchasing power. This creates a significant portion of the huge population that has the ability to afford the services of Bupa. Besides, China has a favourable business climate due to the open door policy adopted in China.
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Bupa. (2012, December 31). Bupa Annual Report 2012. Retrieved July 21, 2013, from http://annualreport.bupa.com: http://annualreport.bupa.com/_assets/downloads/Bupa_Annual_Report_2012.pdf
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PwC. (2011, April 5). Doing Business in China. Retrieved July 22, 2013, from http://www.pwc.es: http://www.pwc.es/es/publicaciones/economia/assets/doing-business-in-china.pdf