Northern Healthcare Corporation is a large, investor-owned provider of outpatient and rehabilitative service. Over the years, it has expanded and proved to be a great source of income and money generation for investors who own Northern Healthcare Corporation. The company is following the right standards for preparing its financial statements. Its financial statements are rightly segregated by different segments the company operates in and its records are kept very aptly and efficiently. National Healthcare has blossomed into a large organization that operates more than 200 facilities and serves a large customer base.
In the recent years, however, there are signs of declining financial performance by the company. The cash balance was steadily declining despite the expansion of the company. There were also issues in the profitability of the company. The business was not as profitable as before, despite increasing revenue. The reason behind the declining performance of the company was the adoption of extremely unpractical discount granting policy of the company and some management issues. The management has lost its ability to control costs and other processes which are hurting the company badly.
The reason behind decline in the profitability despite the increases in the revenue is because the company has not managed to kept costs under control. This is a dangerous sign for any business and signals a slump in the efficiency and control process of the company. The management is not keeping a proper eye on the costs of the company, and they are rising faster than the increases in the revenue. Since, profit is calculated by subtracting costs from revenues, any increase in costs which is greater than the proportion of revenue increase is going to hinder the profitability of the company. The same thing is happening in the case of Northern Healthcare Corporation.
Another reason why profits are falling rapidly for Northern Healthcare Corporation is because of the fact that there have been large discount and write-offs given to customers. This means that a lot of customers who were treated in this hospital were allowed not to pay anything. The offering of discounts to some of the customers is another reason which is eroding the profitability of the company. The investors should be stricter about discount granting policy, if there is any. The company can frame a whole policy regarding which customers are entitled to discounts. It can also suggest a quota of the percentage of customers who will be given discount depending on the set criteria. This will help the leakage of money from the company and only the deserving customers will get the discount.
Another reason why this has occurred can be because the size of Northern Healthcare Corporation is very large. Sometimes, when a business becomes too large, it becomes extremely difficult to control. Keeping an eye on the costs becomes very difficult for the management and inefficiencies rise their head in the company. This phenomenon is called “Diseconomies of Scales”. This coupled with the discount granting policy of the company are eroding its profitability. Company should search for the scale of operations where it can maximize its profitability and earn maximum amount of profits, because the current size of operations of the company is eroding its profitability which is an extremely bad sign for the investors.
