About the company
Founded in the year 1996, Capital Senior Living Corporation along with its subsidiaries, manages and operates senior living communities in the United States. Headquartered in Dallas, Texas, the company is the largest operator of senior living communities in terms of resident capacity which by December, 2013 counted to 14600 residents in 112 senior living communities in 26 states of the United States. The company provides health and living care services only to the elderly, while the range of services includes:
- Independent Living Services
- Assisted Living Services
- Home Care Services
Mission, overview and strategy
The primary mission of the company is to provide value to the senior residents and strategize to achieve that by providing their range of services at reasonable prices in addition to achieving a strong competitive position within its geographical operational presence and strong operational performance. The company overviews the growing demand for its services amid reduced reliance of elderly and ageing parents on their family for aftercare.
Present Performance of the Company
Referring to the financial statements of the company, we find that although by the end of December, 2013, the company has achieved an appreciable performance with revenue surging to $350.4 Million, recording an increase of 12.8% in comparison to the previous financial year, however high amount of expenses and interest expenses on debt borrowing are leading the company to net losses of $16.50 Million. Overall, the financial performance of the company is significantly poor.
Brief overview of the industry
The company operates in Senior Living Industry that provides range of services for person primarily 75 years or above. The industry is highly fragmented and includes many unorganized small operators that do not have a trained and professional staff and with limited assistance in comparison to organized operators such as Capital Senior Living Corporation and many other. In addition, many of the industry participants do not have residences built to provide assisted daily living; hence, the range of service varies from one operator to other.
Du-Pont Analysis
Now, in order to unfold the financial performance of the company, we will use the traditional tool of Du-Pont Analysis that will decode the Return on Assets(ROA) and Return on Equity(ROE) into profit margin, asset turnover and financial leverage. Below will analyze these ratio multiples for Capital Senior Living Corporation for past three years:
i)Return on Asset: (net income/sales) x (sales/total assets)
Here;
- (Net Income/ Sales ) represents profit margin
- (Sales/ Total Assets) represents asset efficiency
2011: (3025/263502)* (263502/462366)
= 0.114* 0.569
=6.50%
2012: (-3119/310536)*(310536/636942)
= -0.01* 0.48
=-0.48%
2013: (-16504/350362)* (350362/745549)
= -0.047* 0.46
=-2.16%
Analysis
Noted from the above calculations, we can infer that over the years the ROA multiple of the company has been declining consistently amid low profitability margins and declining asset turnover. Important to note, during 2011, the net margin of the company was 1.14% that declined to net loss of 1% and 4.7% during 2012 and 2013, respectively. Over the period of three years, the company did managed to successfully increase its revenue figures year-after year, however, the increasing expenses, both operating as well as non-operating, that surpassed the revenue figures, resulted in net losses and hence proved to be the major contributory factor towards declining ROA multiple.
Similar trend was witnessed in the asset turnover multiple that declined from 0.56 in 2011 to 0.48 and 0.46 during 2012 and 2013, respectively. As already discussed in brief, over the years the company did managed to increase their revenue figures, however, higher proportion increase in the asset base resulted in decline in Total Asset Turnover and a complimentary factor in declining ROA multiple.
ii)Return on equity: (net income/sales) x (sales/total assets)x(asset/ total equity)
Here;
- (Net Income/ Sales ) represents profit margin
- (Sales/ Total Assets) represents asset efficiency
- (Asset/ Total Equity) represents financial leverage
2011: (3025/263502)* (263502/462366)* (462366/169141)
= 0.114* 0.569* 2.73
=17.74%
2012: (-3119/310536)*(310536/636942)*(636942/168594)
= -0.01* 0.48* 3.77
=-1.81%
2013: (-16504/350362)* (350362/745549)*(745549/157950)
= -0.047* 0.46* 4.72
=- 10.20%
Analysis:
Referring to the above calculations, we can infer that just as ROA multiple, even the ROE multiple declined significantly over the years. During 2011, the ROE of the company was 17.74% that slumped to -1.81% and -10.20% during 2012 and 2013, respectively. In addition to the factors discussed above, the decline in ROE multiple was attributed to significant rise in financial leverage of the company. Taking it a critical view, one can assert that it was increasing financial leverage that magnified the decline in ROE multiple from 17.74% in 2011 to -10.20% during the latest financial year.
Works Cited
Capital Senior Living Corporation. (2012). Annual Report 2012. Dallas: Capital Senior Living Corporation.
Capital Senior Living Corporation. (2013). Annual Report 2013. Dallas: Capital Senior Living Corporation.
DuPont Analysis. (n.d.). Retrieved November 25, 2014, from Investopedia: http://www.investopedia.com/terms/d/dupontanalysis.asp
