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Cardinal Health - Case Study Example

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Cardinal Health
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Company Profile Cardinal Health Inc., founded in 1979, is a major distributor of pharmaceuticals, equipmentand other medical supplies. It is also involved in the provision of supply chain services like OTC drug distribution, generic and branded prescription courtesy of its pharmaceutical division. Additionally, the company has franchised retail pharmacies known as Medicine Shoppe. Under this platform, the company sells laboratory and surgical supplies, medical supplies and provides data management and logistical support services. Their clientele ranges from hospitals, retail pharmacies, nursing homes and general health care businesses. The company also has markets outside the U.S such as in China.
Company Analysis
The latest analysis of the company reveal that the company has over 30,000 employees, a sales revenue of just over $91 billion, a market value of $ 29 billion and income assets totaling 26, 033. Additionally, the sales growth is recorded at – 9.9 % while the employees growth rate is 1.2%. These figures have led to the analysis that the firm has a medium credit rating. In its last fiscal year, in June 2014, the company was ranked number 22 in the list of FORTUNE 500 companies, number 22 in the FORTUNE 1000 and number 465 in the FT Global 5000 category.
Therefore, the company is a trend setter in the healthcare sector and is the world’s top most provider of cost effective medical services to ambulatory service providers, hospitals and pharmaceuticals.
Financial Position of Company
For the last two fiscal years, the company has recorded constant growth in earnings per share and dividends given to the shareholders. For example, in 2013, the EPS was 0.97 while in 2014, it was 3.38. For dividends paid, the amount per share rose from $1.09 in 2013 to $1.25 in 2014. However, there was a marked overall decline in the total revenue from around $ 101 billion in 2013, to approximately $91 billion in 2014.
This suggests that the shareholders’ wealth has improved in the past two years even though they have recorded significantly lower revenue levels. Therefore, a hold recommendation is appropriate as the shares might yield more value in the following financial quarters. This position is backed further by the latest stock price value of the company. The share moved by 0.6 points and is currently selling at $ 89.03 which is a 0.68% increase.
The company’s operating margin percentage has risen from 0.99 in 2013 to 2.27 in 2014, an indication that the NOWC has increased. This signals to the company’s improved working capital. At 2.27, the company is not at risk of bankruptcy.
The company’s long term debt repayment placed at 0 %, improved the company’s long term debt to equity ratio from 0.65 in 2013 to 0.62 in 2014. By the end of the third quarter in 2014, the ratio stood at 0.56. Consequently, the company was ranked number 2 in the industry, number 6 in the sector and number 92 in the S&P category. The company is in a good financial position.
The low revenue decline of 10% in 2014, which exceeded the projected 15%, has been attributed to the increase in the levels of EBTDA and an increase in free cash flow. During 2014, the company recorded better figures in cash flow operations which was mainly due to the adoption of conservative financial policies. Additionally, the generic sourcing venture and the CVS contract extension have been instrumental in the company’s increased cash flow and healthy business risk profile.
It is projected that in the next fiscal years, Cardinal Health will increase its revenues so that it is at par with the industry standards to generate additional cash flow. Currently, the industry is flooded with pharmaceutical distribution services and many companies are recording low revenue levels as compared to previous years. It is advisable that all companies should diversify their portfolios to include other markets. However, as it is, the industry is unlikely to sustain high profit margins.
 
Jun-13
Jun-14
Revenue per share ($)
293.88
264.01
EBITDA per share ($)
4.05
6.79
EBIT per share ($)
2.9
5.46
Earnings per share ($)
0.97
3.38
Free Cash flow per share ($)
4.45
6.59
Dividends Per Share
1.09
1.25
Net Income $ million
334
1,116
Cash From Operations
2,524
1,727
Capital Expenditures
-249
-195
Free Cash flow ( $ billion)
2,275
1,532
S&P 500 ranking
  19
  22
Strengths and Weaknesses of Company
The company’s greatest strengths include:-
a. Its well-trained global staff.
b. Its use of innovative advertising strategies like the Pharmacy Health network.
c. Its considerable presence in the oncology sector.
d. Its vast distribution base in over 60,000 locations.
e. Its development of Pyxis MedStation.
However, the company has a few weaknesses which include-its damaged image due to the controversy surrounding the Oxycodone drug, and the decline of its cardinal health medical branch. Additionally, the company faces many threats in the form of rigid healthcare regulation, disruption of their services through natural disasters and the effects of the global financial crisis.
Recommendations
Despite the problems, the company can address these drawbacks by capitalizing on emerging opportunities in China. The acquisition of Yong Yu Company in China has given them an opportunity to tap emergent markets in Asia. Additional measures may include- acquiring Kinray in order to improve the company’s standing in the independent pharmacy market and adopting a new branding strategy, to gain a competitive advantage over the other firms in the pharmaceutical industry like McKesson Pharmaceutical.
Appendix
Free Cash flow= Cash from Operations -Capital Expenditures
N.OW.C=Operating Current Assets-Operating Current Liabilities
Works Cited
www.nasdaq.com/symbol/cah/revenue-eps
www.nasdaq.com/symbol/cah/stock-report Read More
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