Chapter 6 Problem 14
a. What were HCA's liabilities-to-assets ratios and times-interest-earned ratios in the years 2005 through 2009?
b. What percentage decline in EBIT could HCA have suffered each year between 2005 and 2009 before the company would have been unable to make interest payments out of operating earnings, where operating earnings is defined as EBIT?
c. How volatile have HCA's cash flows been over the period 2005 - 2009?
d. Calculate HCA's return on invested capital (ROIC) in the years 2005 - 2009.
e. HCA is the largest private operator of health care facilities in the world with hundrd of facilities in over 20 states. In 2006, private equity buyers took the company private in a $31.6 billion acquisition. In broad terms how costly do you think financial distress would be to HCA if it began to appear the company might be having difficulty servicing its debt? Why?
f. In late 2010 HCA announced an intended dividend recapitalization in which it would pay a $2 billion dividend to shareholders financed in large part by a $1.53 billion bond offering. At an interest rate of 6 percent, how would the added debt have affected HCA's times-interest-earned ratio in 2009?
g. Please comment on HCA's capital structure. Is its 2009 debt level prudent? Is it smart to add another $1.53 billion to this total? Why, or why not?
	HCA INC
	ANNUAL INCOME STATEMENT
	($ MILLIONS, EXCEPT PER SHARE)
	Dec09	Dec08	Dec07	Dec06	Dec05
Sales	$ 30,052	$ 28,374	$ 26,858	$ 25,477	$ 24,455
Cost of Goods Sold	24,826	24,023	22,480	21,448	20,391
Gross Profit	5,226	4,351	4,378	4,029	4,064
Depreciation	1,425	1,416	1,426	1,391	1,374
Operating Profit	3,801	2,935	2,952	2,638	2,690
Interest Expense	1,987	2,021	2,215	955	655
Non-Operating Income/Expense	188	256	661	179	412
Pretax Income	2,002	1,170	1,398	1,862	2,327
Total Income Taxes	627	268	316	625	725
Minority Interest	321	229	208	201	178
Net Income	$ 1,054	$ 673	$ 874	$ 1,036	$ 1,424
	ANNUAL BALANCE SHEET
ASSETS	Dec09	Dec08	Dec07	Dec06	Dec05
Cash & Equivalents	$ 312	$ 465	$ 393	$ 634	$ 336
Net Receivables	3,692	3,780	3,895	3,705	3,332
Inventories	802	737	710	669	616
Other Current Assets	1,771	1,319	1,207	1,070	931
Total Current Assets	6,577	6,301	6,205	6,078	5,215
Gross Plant, Property & Equipment	24,669	23,714	22,579	21,907	20,818
Accumulated Depreciation	13,242	12,185	11,137	10,238	9,439
Net Plant, Property & Equipment	11,427	11,529	11,442	11,669	11,379
Investments at Equity	853	842	688	679	627
Other Investments	1,166	1,422	1,669	1,886	2,134
Intangibles	2,577	2,580	2,629	2,601	2,626
Deferred Charges	418	458	539	614	85
Other Assets	1,113	1,148	853	148	159
TOTAL ASSETS	24,131	24,280	24,025	23,675	22,225
LIABILITIES
Long Term Debt Due In One Year	846	404	308	293	586
Accounts Payable	1,460	1,370	1,370	1,415	1,484
Taxes Payable	-	224	190	-	-
Accrued Expenses	2,007	1,912	1,981	1,868	1,825
Total Current Liabilities	4,313	3,910	3,849	3,576	3,895
Long Term Debt	24,824	26,585	27,000	28,115	9,889
Deferred Taxes	-	-	-	390	830
Minority Interest	1,008	995	938	907	828
Other Liabilities	2,825	2,890	2,612	1,936	1,920
TOTAL LIABILITIES	32,970	34,380	34,399	34,924	17,362
Preferred Stock	147	155	164	125	-
Common Stock	1	1	1	1	4
Capital Surplus	226	165	112	-	-
Retained Earnings	(9,213)	(10,421)	(10,651)	(11,375)	4,859
Common Equity	(8,986)	(10,255)	(10,538)	(11,374)	4,863
TOTAL EQUITY	(8,839)	(10,100)	(10,374)	(11,249)	4,863
TOTAL LIABILITIES & EQUITY	$ 24,131	$ 24,280	$ 24,025	$ 23,675	$ 22,225