University of d

Faculty of Management
Business Management 3rd year

Financial Management
Ewelina Zarzycka, Ph.D.

Authors:
Piotr Bartenbach
Bartomiej Staszczyk
Dominik Wolski

HFG Report - Case Study

a)

Health
centre

Op. Profit
($000)

ROI

Residual
income

EVA

Ayetown
Beetown
Ceetown

396
441
703

23.02%
13.96%
18.40%

180
33
187

42.13
-123.17
-29.97

(i)

EVA

RI

ROI

Performance analysis based on: ROI, RI and EVA.

Assessing the performance of the health centres using ROI, we can see that the most
successful one was Ayetown with 23,02% ROI. However, ROI is not the best comparative
comparison tool and it does not tell us what the actual return (in numbers) was. In this case,
Ayetown achieved the highest ROI but they have also earned the lowest amount of money.

In terms of Residual income there are two Health centres that stands out - Ceetown (with
187 000) and Ayetown (with 180 000) of RI. The lowest performance was shown by Beetown
with only 33 000 of residual income.
Ayetown has the highest EVA among the three Health centres. It is worth mentioning that it
is also the only centre that has positive result in that measure.

(ii) 1)
Change in revenue
Revenue
2100000

Current situation
Op. profit
441000

ROI
13.96%

With increase in revenue

Revenue
Op. Profit
ROI
2361645
632001
20.00%

Our assumption was that variable costs are at the rate of: 567 000 / 2 100 000 = 27%. In
that case the revenue has to increase by 261645 (12,46%) and the VC will increase by: 0,27
* 261645 = 70644.
2)
Change in Total Costs
Current situation
Revenue
VC
Total costs
Op. Profit
ROI
2100000
567000
1659000
441000
13.96%
With change in Total costs
Revenue
VC
Total costs
Op. Profit
ROI
2100000
376000
1468000
632000
20.00%

Our assumption was that the change in Total costs will be cause only by
the change in Variable Costs (VC) so Fixed Costs remain the same. In order
to achieve growth in ROI, the costs have to drop. The required drop is 191
000 of VC (-33,69%) to 376 000. The Operating profit will because of this
increase to 632000.
3)
Change in Net Assets
Current situation
With change in Net assets
Op. profit
Net assets
ROI
Op. profit
Net assets
ROI
441000
3160000
13.96%
441000
2205000
20.00%
The level Net assets required to achieve ROI of 20% with the exacr same amount of
Operating profit (441 000) is measured: 441 000 / 0,2 = 2205000. The required drop in Net
assets is 955 000 (30,22%).
b)

Number of complaints may be a good indicator of level of quality of service given to the
customers. However, the total amount of complaints is misleading as it should be matched
up with the total number of served customers. Such calculation will give us information
about % of the complaints, which will be much more accurate and will provide more
information than pure number of complaints. Marketing Director should also think about
using more measures to more accurately monitor performance of the company.

cial Management
na Zarzycka, Ph.D.

WACC
13.67%

e that the most

e best comparative
bers) was. In this case,
est amount of money.

out - Ceetown (with

was shown by Beetown

rth mentioning that it

in revenue
ROI
20.00%

100 000 = 27%. In

C will increase by: 0,27

VC diff.
-191000
VC % diff.
-33.69%

VC / Revenue

27.00%
Revenue diff.

261645
Revenue % diff.

12.46%

n Net assets
ROI
20.00%

me amount of
e required drop in Net

ervice given to the

it should be matched
ve us information
provide more
d also think about
company.

NA diff.
-955000
NA % diff.
-30.22%