Quorum Health Corp. :QHC-US: Earnings Analysis: 2016 By the Numbers : April 14, 2017

Quorum Health Corp. reports financial results for the year ended December 31, 2016.

Highlights

  • Gross margins narrowed from 4.64% to 0.46% compared to the same period last year, operating (EBITDA) margins now 5.94% from 10.49%.
  • Change in operating cash flow of 89.06% compared to same period last year is about the same as change in earnings, likely no significant movement in accruals or reserves.
  • Earnings rose compared to same period last year, despite decline in operating and pretax margins.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2016 2015 2014 2013 2012
Relevant Numbers (Annual)
Revenues 2138.47 2187.34 2145.5 1947.62 1891.67
Revenue Growth (YOY) N/A N/A N/A N/A N/A
Earnings -347.69 1.34 7.8 -24.02 -7.3
Earnings Growth (YOY) -26105.09 -82.86 132.47 -229.29 N/A
Net Margin -16.26 0.06 0.36 -1.23 -0.39
EPS -12.24 0.05 0.27 -0.84 0.73
Return on Equity -281.21 7.6 151.77 N/A N/A
Return on Assets -16.21 0.06 0.33 N/A N/A

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Earnings Growth Analysis

The company’s year-on-year decline in earnings was influenced by a weakening in gross margins from 4.64% to 0.46%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 10.49% to 5.94% in this time frame. For comparison, gross margins were 4.64% and EBITDA margins were 10.49% in the previous period.

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

QHC-US‘s decline in gross margins were offset by some improvements on the balance sheet. The management of working capital, for example, shows progress. The company’s working capital days have fallen to 51.77 days from 52.62 days for the same period last year. This leads Capital Cube to conclude that the gross margin decline is not altogether bad.

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

QHC-US‘s year-on-year change in operating cash flow of 89.06% is around its change in earnings. This suggests that there are likely no significant movement in accruals or reserves for managing earnings this period.

Margins

Despite a decline in operating (EBIT) margins as well as a decline in pretax margins, the company’s earnings rose.

EBIT Margin History
PreTax Margin History

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Company Profile

Quorum Health Corp. is a holding company, which operates and manages general acute care hospitals and outpatient services. It operates through its subsidiary: Quorum Health Resources LLC, which provides hospital management and healthcare consulting services. The company was founded on July 27, 2015 and is headquartered on Franklin, TN.

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