Is Sunrise Senior Living Worth the Investment - Research Paper Example

?SUNRISE SENIOR LIVING (SRZ)....FIRM THAT'S NOT WORTHY INVESTMENT Executive Summary This paper is about an investment analysis of an organization. The name of the organization is Sunrise Senior Living Corporation. It is a US based service firm that provides senior care service in US and many other countries like UK, Canada etc. From the background review, it has been found that it is one of the old companies in this industry which has developed a large market penetration in more than 300 locations in US, UK and Canada. Industry analysis shows that this industry has been growing in Western countries like US and UK but it does not much presence in rest part of the world. The company operates in a high competitive market in US where Assisted Living Concepts Inc and Brookdale Senior Living Inc are two major competitors of it. Financial ratio analysis has shown that company is not at all profitable in terms of major profitability ratios. Though it has quite good asset turnover but capital structure of the company is very much unstable. Liability holds 90% of the totals assets and 10 times more than equity capital. Therefore, it operates with a huge amount of debt which indicates high possibility of bankruptcy in near future. By projecting key financial parameters for next financial year, it is identified that net profit would remain negative in next financial year. Profitability of the company would also remain very much weak compared to its competitors. The company is also much behind in terms of market share, profitability and operating efficiency than its competitors. From, detailed analysis of the company in financial and non financial perspective, it can be recommend that currently the company is not investment worthy. Introduction This paper deal with detailed analysis of Sunrise Senior Living Corporation, a US based multinational senior care service organization. The objective of this study is to analyze the company financial as well as non financial status with respect to industry trend and also comparative analysis with the competitors. The business process or profit making strategies of the company will also be included in this analysis. Aim of this business analysis is to support an argument that the company is not investment worthy. Background of the firm Sunrise Senior Living Incorporation is a healthcare service provider based in Virginia, United States. The company operates in healthcare industry and provides senior living services to the aged people. It operates through 300 locations in home country United States and also in Canada and United Kingdom. Sunrise offers independent living, Alzheimer’s care, assisted living and personal carte, short term stays and nursing and rehabilitative care. This healthcare organization specializes in assisted living for the old people along with Alzheimer’s care through skilled nursing. The company is listed in fortune 1000 company. Recently, Sunrise Senior Living Corporation has been acquired by the Health Care REIT. SSL was established in 1981 in Virginia by Paul and Terry at an aims of long term healthcare to look after the senior citizen of the society. This objective of the business was termed as assisted living. Within next few decades the company penetrated throughout the United States and expanded in United Kingdom as first foreign market. In 2001 the company expanded its foreign market into Canada. The company changed its name as Sunrise Senior Living from Sunrise Assisted Living in 2008. It closed down all centers in Germany in 2010. Currently, the company employees near about 31,000 employees to provide senior living services through healthcare centers in more than 300 retirement communities across the world. Industry overview and trend Sunrise Senior Living operates in healthcare sector and long term care industry. This industry has been growing in western countries like United Kingdom, United States and Canada. Increasing life expectancy among the people, falling of birth rate are the key drivers for growth of this industry. According to the report of WHO, 70% of the older people live in underdeveloped countries with low households income and savings. Therefore, there is huge opportunity of expansion of this industry in the developing and underdeveloped countries along with specific developed countries. Very few organizations operate in this industry specifically in three countries and that is why older people in the most of the countries are dependent on the informal and unprofessional personal care. Governments of UK, Canada and USA have concentrated on growth of this industry so that many new firms come up to serve most of the older people in the country. But, the existing leading firms in the healthcare sector mainly the large private hospital chains are not interested in this business as investment is high and risk of irregular cash flow is also high (Genworth Financial, p.1). This business has potential growth opportunity in the developed market where people have enough savings for living after retirement. But, in the developing and under developed countries, older people depend on the nonprofit organizations for minimum cost services (John and Bartlett Publishers, p.48) Major competitors Personalized assisted living service is a growing market in the western countries. There are many old as well as new firms offer this service and operate in long term care industry. Sunrise Senior Service is one of the old businesses in this industry and currently facing major competition from the firms in this growing market. Two major direct competitors of the company are Assisted Living Concepts Inc and Brookdale Senior Living Inc. ALC and its subsidiaries offer senior living residence with personal care in United States. The company offers basic services required to an old people like meals, healthcare, housekeeping and other personal care services. According to 2011 financial report, the company operates 211 senior living residences in 20 states of the country through more than 9325 units. BSL also operates many senior living residential care units in United States. It also offers similar basic services like SSL and BSL. It offers 24 hours assistance to the senior people for their daily activities. The company’s CCRCs offers living arrangement with best suitable for propel with different types of disabilities (Yahoo Finance 1, p.1). Key financial ratios Table 1: Key Financial Ratios of Sunrise Senior Living of last three financial years Ratios 2011 2010 2009 Profitability and Efficiency ratios       profit margin ratio -1.64% 7.20% -9.19% return on assets -1.93% 14.37% -14.66% return on equity -22.31% 83.92% -605.59% fixed asset turnover 342.55% 400.72% 503.74% total asset turnover 117.33% 199.65% 159.57% Liquidity and Financial structure ratios       current ratio 1.14 1.17 0.60 quick ratio 1.14 1.17 0.60 debt ratio 0.91 0.83 0.98 debt to equity ratio 10.57 4.84 40.30 Above table shows profitability, efficiency, liquidity and financial structure ratios of Sunrise Senior Living. Profit margin ratio indicates profit making efficiency i.e. how much cost effective the company is. The company incurred loss in 2009 and 2011 and in 2010; it was able to generate only 7.21% of revenue as net profit of the company. Therefore, shareholders earnings per share are negative and it determines that the company is not at all a worthy investment. Return on asset and return on equity is also negative in 2011. These two indicates that operating cost of the company is very much high. For this reason, it has negative ROA despite of its huge asset turnover. These factors also support that the company is not investment worthy. Current ratio and quick ratio indicate liquidity position of the company. Current ratio shows that current assets are nearly equal to the current liabilities which not good liquidity position. Quick ratio indicates that it does not depend on inventory for paying liabilities which is a strong liquidity signal. Debt ratio indicates that it has liability of 90% of its asset which is very poor capital structure. Debt to equity ratio indicates that the company is very much dependent on its creditors that the equity shareholder as debt amount is nearly 10 times more than the equity capital. Therefore, from the indication of most of the key financial ratios, it can be summarize that the company is not investment worthy (Sunrise Senior Living 2, p.49). Recent news on the firm Recent important news on the firm is that Sunrise Senior Living Inc. has been acquired by Health Care REIT Inc. for price of $14.50 per share or total $845 million. The purchase price was 60% premium on the closing price of Sunrise before the acquisition deal was announced Penton Media Inc, p.1). Financial analysis and future projection No of Years 2011 2010 2009 CAGR future projection (2012) Total Revenue $1,312,213 $1,400,486 $1,452,991 -$0.05 $1,247,024.66 Cost of Revenue $719,159 $831,008 $949,331 -$0.13 $625,934.01 Earnings Before Interest And Taxes -$375 $47,305 -$98,875 -$0.94 -$23.09 Net Income -$21,557 $100,826 -$133,515 -$0.60 -$8,661.99 Basic net earnings per share -$0.39 $0.56 $2.06 Total Current Assets $383,069.00 $349,496.00 $288,438.00 $0.15 $441,457.88 Total Assets $1,118,368.00 $701,458.00 $910,589.00 10.82% $1,239,412.58 Total Current Liabilities $337,037.00 $299,966.00 $481,951.00 -16.37% $281,847.98 Total Liabilities $1,021,741.00 $581,307.00 $888,542.00 7.23% $1,095,651.03 Total Stockholder Equity $96,627.00 $120,151.00 $22,047.00 109.35% $202,289.34 Trend analysis of key financial statements has been done by evaluating compounded annual growth rate of those financial figures. Projected next year values of those key financial statements have been evaluated through the past three years’ growth rate and last year values of the key statements. The company has negative revenue growth rate. Again, sum of cost of revenue and operating expenses is much higher than revenue which leads to net loss in 2011. Therefore, future revenue and net profit in 2012 is expected to be negative based on the past three years’ trend. Shareholders’ earning per share has also declining trend and negative in 2011. Financial position of the company is quite good than its profit making efficiency. Growth rate of liability is lower than assets and much lower than equity. This indicates positive signal in terms stronger capital structure and financial position of the company. Though current and expected future financial position is quite good but profit making power is very much poor due to higher cost of revenue and operating cost. This indicates that the company is not investment worthy as investment is done only for positive return on investment which is negative. Comparative financial analysis with major competitors From the comparative analysis of income statements of the firm with its two competitors i.e. Assisted Living Concepts Inc and Brookdale Senior Living Inc, it can be said that ALC has much better profit making efficiency than other two firms, though it has lower revenue than Sunrise and much lower than BKD. Size and market share of BKD is highest among the three competitors and ALC has lowest. But, except ALC, rest two firms are not able to generate profit for the shareholders and it is the basic criteria for becoming investment worthy. Business process The company takes fees for long term care service from their patients or their family members. They also collect price for the services from the insurance companies of their clients. Most of these service seekers have monthly money back after retirement plans from where they pay to the company for assisted personal care services for long terms. Work Cited Genworth Financial, Inc. Compare Cost of Care Across the United States. 2012. Web. October 30, 2012. < http://www.genworth.com/content/non_navigable/corporate/about_genworth/industry_expertise/cost_of_care.html?>. John and Bartlett Publishers. The Long-Term Care Industry. 2008. Web . October 30, 2012. < http://samples.jbpub.com/9780763774035/74035_CH03_5368.pdf>. Medicare. Medicare and Long-Term Care. 2012. Web. October 30, 2012. < http://www.medicare.gov/LongTermCare/Static/Home.asp>. Penton Media Inc. Health Care REIT to Acquire Sunrise Senior Living. 2012. Web. October 30, 2012. < http://nreionline.com/property/seniorhousing/healt_care_sunrise_08272012/>. Senior Housing News. Sunrise Senior Living’s Management Company Business Acquired for $130 Million. 2012. Web. October 30, 2012. < http://seniorhousingnews.com/2012/09/16/sunrise-senior-livings-management-company-acquired-for-130-million/>. Sunrise Senior Living 1. A preliminary proxy statement relating to a merger or acquisition. 2012. Web. October 30, 2012. < http://www.sunriseseniorliving.com/corporate-info/investor-relations.aspx>. Sunrise Senior Living 2. Sunrise Senior Living 2011 Form 10-K. 2012. Web. October 30, 2012. . Sunrise Senior Living. About the Company. 2012. Web. October 30, 2012. < http://www.sunriseseniorliving.com/corporate-info/about-the-company.aspx>. Yahoo Finance 1. Competitors of Sunrise Senior Living Inc. 2012. Web. October 30, 2012. < http://in.finance.yahoo.com/q/co?s=SRZ>. Yahoo Finance. Long-TermCareFac. 2012. Web. October 30, 2012. < http://finance.yahoo.com/q?s=%5EYHOh793>. Appendices Appendices 1 Appendices 2 Read More