Finance Company Has to Maintain Term Paper

Meanwhile, HFMA's revenue in 2005 is 22 million as compared to 2004's 19 million. Net increase is 3 million or 14% as compared to prior year.

Expense of HCA Inc. In 2005 was 22 billion as against 2004's 21 billion or a 3% increase. HFMA's expenses in 2005 and 2004 are 19 million and 17 million, respectively, or 9% increase.

Interlinking the current assets, liabilities and income statements account in the analysis, we can initially assess that HFMA seems to be performing better than HCA. HCA's increase in cash by 23% in 2005 was attributable to cash receipts of $1Billion due to its issuance of common stock. Meanwhile, HFMA's increase in cash by 3% was attributable to sale of its investment, generating $1Million cash receipts. HFMA's revenues in 2005 increased by 14% as compared to last year's while HCA only performed an increase of 4%. HFMA's liquidity is further strengthened by its decrease in receivables by 210,000 or 20%. This may indicate that accounts receivables are collected and their clients/customers are availing their services and pays in cash. Meanwhile, despite HCA's increase in revenue, the Company also increased its receivables by 7%. This shows that although there is an increase in revenue, some of its clients/customers avail their services "on account" which may be paid at a later date, maximizing their credit limit and term, thus, the Company is not being able to maximize its fund.

To further strengthen our basis, below is the computation of both Company's Cash and Operating Cycle:

HCA

HFMA

Days Inventory Outstanding

4.90 Days

22.25 Days

Days Sales Outstanding

47.87 Days

19.37 Days

Less: Days Payable Outstanding

9.40 Days

191.36 Days

43.37 Days

149.74 Days

The time lag between the both Company's purchases or expenses to create sales/revenue, and collection of cash for sales/revenue is referred to as operating cycle. Meanwhile, the time lag between payment of purchases and collection of cash sales is referred to as cash cycle. The smaller the number of days cash ties up with the business, the better.

When we look at the illustration above, we can say that HFMA has better working capital management because it has a total of -150 days cash and operating cycle. Meanwhile, HCA has cash and operating cycle of 43 days. HFMA is performing better because…