Description
After reading the materials for this module, conduct additional research as necessary
within the Saudi Digital Library.
Consider a healthcare organization in Saudi Arabia and assume they have a debt to
equity ratio of 1.3.
Address the following requirements:
•
Is this good performance on this ratio?
•
Discuss which actions would improve (i.e., increase) this ratio.
•
Discuss some of the problems encountered when performing financial statement
and operating indicator analyses.
1 day ago
Reeham Fayoumi
Financial Analysis
COLLAPSE
Introduction
When it comes to private healthcare providers in Saudi Arabia, Healthcare Medical
Group (HMG) has the most experience and is widely recognized as the best in the Gulf
region.
When analyzing a company’s financial health, the debt-to-equity and Gearing ratios
are crucial metrics to consider. In the statement of financial case in the company’s
books of record, the ratio can be found as a proxy for the company’s capacity to satisfy
its debt commitments (Arhinful & Radmehr, 2023). Liabilities serve as the numerator
and shareholders’ equity serves as the denominator (Assets) in calculating the ratio. As
a result, a better rating would have a lower ratio, while a worse rating would have a
larger one (Boyte-White, 2024).
Debt to Equity Ratio
One important financial measure that sheds light on an organization’s capital
structure and financial health is the debt-to-equity ratio (Bintara, 2020). It calculates the
percentage of debt and equity financing used by a company to fund its operations and
investments. Stakeholders can evaluate an organization’s risks and leverage levels and
make well-informed decisions about its financial stability by looking at this ratio (Bintara,
2020). The total debt of the company is divided by the total equity to determine the debtto-equity ratio. Both short-term and long-term loans, as well as other types of debt
financing, are included in the organization’s total debt. However, after subtracting the
liabilities, total equity is the residual portion of the company’s assets (Bintara, 2020).
In the case of the healthcare institution in Saudi Arabia, it has a debt-to-equity ratio
of 1.3. This indicates that for every equity unit, the company has 1.3 units of debt. This
ratio must be compared to historical patterns and industry norms in order to determine
whether it represents satisfactory performance. When assessing whether the debt-toequity ratio is within an acceptable level, industry norms offer a point of reference
(Nyaga, 2021). The allowable levels of leverage vary by industry, and what is deemed a
decent ratio in one sector might not be suitable in another. Furthermore, while
assessing the debt-to-equity ratio, historical trends are crucial. It is possible to
determine if an organization’s financial management techniques have improved or
deteriorated over time by comparing its present ratio to its historical performance. An
improvement in the financial status can be indicated by a dropping ratio, which could
also mean a decrease in debt or an increase in equity (Nyaga, 2021).
Is a debt-to-equity ratio of 1.3 considered good performance?
The debt-to-equity ratio of 1.3 suggests that HMG is relying more on debt than on
equity for financing, which could indicate financial risk. This ratio reflects that HMG’s
stockholders’ equity is less than its long-term indebtedness, signaling that the company
may be over-leveraged (Al Rahhaleh et al., 2023). A lower ratio is generally preferred,
with 1.0 being considered an ideal benchmark across industries, including healthcare. In
the context of the healthcare sector in the Kingdom of Saudi Arabia, where the industry
standard is also 1.0, a ratio of 1.3 is seen as less favorable, implying that HMG’s
financial structure might be less stable or more risky. Therefore, this higher ratio could
indicate poor financial performance and a potential risk for investors and stakeholders
(Fernando, 2024).
Actions which would improve this ratio
To improve the debt-to-equity ratio and decrease the reliance on debt financing, the
healthcare organization in Saudi Arabia can consider the following actions:
a. Increase equity: The organization can strengthen its equity base by raising
additional capital through equity financing, such as issuing new shares or attracting
more investors. As the denominator (equity) increases, the debt-to-equity ratio will
reduce (Alzubi & Bani-Hani, 2021).
Equation: Debt to Equity Ratio = Total Debt / Total Equity
For example:
If the healthcare organization has total debt of SAR 12 million and total equity of SAR
9.3 million, the debt-to-equity ratio would be calculated as follows:
Debt to Equity Ratio = 12,000,000 / 9,300,000 = 1.30
b. Reduce debt: The organization can focus on paying down its debt through regular
principal payments. This will reduce the numerator (debt) in the debt-to-equity ratio and
improve the overall financial position (Maverick, 2024).
For example:
If the healthcare organization reduces its debt from SAR 12 million to SAR 9.3 million
while maintaining the same level of equity, the debt-to-equity ratio will become:
Debt to Equity Ratio = 9,300,000 / 9,300,000 = 1.00
c. Refinance or renegotiate debt terms: The organization can explore options to
refinance existing debt at more favorable interest rates or negotiate more favorable
terms with lenders. This can help reduce the financial burden associated with debt and
improve the debt-to-equity ratio (Al Rahhaleh et al., 2023).
d. Improve profitability: By enhancing operational efficiency, increasing revenue, and
controlling costs, the healthcare organization can generate higher profits. Increased
profitability can be used to reinvest in the business and strengthen the equity base,
thereby improving the debt-to-equity ratio (Bintara, 2020).
The problems encountered when performing financial statement and operating
indicator analyses
a. Inaccurate or unreliable financial data: Financial analysis relies on accurate and
reliable financial statements. However, problems can arise when economic data is
incomplete, inconsistent, or unprepared by accounting standards. This can lead to
incorrect analysis and misleading conclusions (Sembiring & Defi, 2022).
b. Lack of comparability: Comparing financial statements of different companies or
periods can be challenging due to differences in accounting policies, estimates, and
disclosure practices. These variations can make it difficult to draw meaningful
conclusions and benchmark performance accurately (Beaudouin et al., 2020).
c. Hidden or off-balance sheet liabilities: Some liabilities, such as contingent or offbalance sheet arrangements, may not readily appear in the financial statements. These
hidden liabilities can significantly impact an organization’s financial position and ratios,
challenging its proper financial health assessment (Hidden Liabilities Definition | Law
Insider, n.d.).
d. Subjectivity in operating indicator analysis: Operating indicators, such as key
performance indicators (KPIs), can be subjective and open to interpretation. Analysts
may use different methodologies or assumptions when calculating and interpreting
these indicators, leading to varying conclusions about the organization’s performance
(Al Rahhaleh et al., 2023).
e. External factors and business environment: Financial analysis is influenced by
external factors such as economic conditions, industry trends, and regulatory changes.
These factors can impact the interpretation of financial statements and operating
indicators, making considering the broader business environment essential (Finserv,
2024).
f. Limitations of financial ratios: Financial ratios provide valuable insights but have
limitations. Ratios are based on historical financial data and may not capture current or
future trends. Additionally, ratios should be interpreted with other qualitative and
quantitative factors to comprehensively understand the organization’s financial
performance (Bloomenthal, 2024).
Conclusion
Based on the discussion so far, it’s clear that a debt-to-equity ratio of parity is the
best possible financial condition for a company. However, it is possible to go above for
short periods of time, and if the average in the industry is greater, it will not affect the
companies. When the equity to debt ratio drops below zero, a company is considered
insolvent (Olayinka & Mustapha, 2023).
References
Al Rahhaleh, N. A., Al-Khyal, T. A., Alahmari, A. D., & Al-Hanawi, M. K. (2023). The
financial performance of private hospitals in Saudi Arabia: An investigation into the role
of internal control and financial accountability. PLoS ONE, 18(5), e0285813.
Alzubi, K., & Bani-Hani, A. (2021). Determinants of debt-to-equity and its impact on the
performance of industrial companies listed on Amman Stock Exchange. Journal of
Governance and Regulation, 10(4, special issue), 353–364.
Arhinful, R., & Radmehr, M. (2023). The impact of financial leverage on the financial
performance of the firms listed on the Tokyo Stock Exchange. SAGE Open, 13(4).
Beaudouin, V., Bloch, I., Bounie, D., Clémençon, S., D’Alché-Buc, F., Eagan, J.,
Maxwell, W., Mozharovskyi, P., & Parekh, J. (2020). Flexible and Context-Specific AI
Explainability: a multidisciplinary approach. SSRNElectronic
Journal.
Bintara, R. (2020). The effect of working capital, liquidity and leverage on
profitability. Saudi Journal of Economics and Finance, 04(01), 28–35.
Bloomenthal, A. (2024). Financial Ratio Analysis: Definition, types, examples, and how
to use. Investopedia.
Boyte-White, C. (2024). Gearing ratios: What is a good ratio, and how to calculate
it. Investopedia.
Fernando, J. (2024). Debt-to-Equity (D/E) Ratio Formula and how to
interpret it. Investopedia.
Finserv, B. (2024). External factors of business environment. www.bajajfinserv.in.
Hidden Liabilities Definition | Law Insider. (n.d.). Law Insider.
Maverick, J. (2024). Strategies Used To Reduce a Company’s Debt-toCapital Ratio. Investopedia.
Nyaga, N. N. (2021). Leverage and Financial Performance of Companies Listed in the
Energy and Petroleum Sector of the Nairobi Securities Exchange [Thesis, University of
Nairobi].
Olayinka, A. A., & Mustapha, S. (2023). Analysing financial performance of listed
cement industries in Nigeria: Financial Ratio Approach. Annals of Management and
Organization Research, 3(4), 231–244.
Sembiring, M., & Defi, T. M. (2022). THE EFFECT OF COMPANY SIZE, DEBT POLICY,
AND PROFITABILITY ON COMPANY. MORFAI JOURNAL, 2(1), 61–74.
1 day ago
RASHED ALQAHTANI
Financial Analysis
COLLAPSE
Financial Analysis
Financial analysis is a critical tool for evaluating the performance and stability of any
organization, especially in the healthcare sector, where financial health directly impacts
the quality of care provided. One key metric used in this analysis is the debt-to-equity
ratio, which offers a snapshot of the organization’s capital structure and financial risk.
Research indicates that different types of debt can have varying impacts on profitability.
For example, some studies find a negative relationship between debt and return on
assets (ROA), while others highlight a more complex relationship with return on equity
(ROE) (Ahmed et al., 2024).
In this context, we examine a healthcare organization in Saudi Arabia with a debt-toequity ratio of 1.3. This ratio signifies that the organization utilizes 1.3 riyals of debt for
every 1 riyal of equity, indicating a heavier reliance on borrowed funds than on
investments from owners. A thorough analysis of this ratio, alongside other debt metrics,
is essential to understanding the organization’s financial health and risk profile.
Determining whether a debt-to-equity ratio of 1.3 represents good performance requires
a nuanced understanding of various factors. These include industry norms, the
organization’s growth stage, its risk tolerance, and the unique characteristics of the
Saudi Arabian healthcare landscape. Generally, a lower debt-to-equity ratio is preferred
as it suggests lower financial risk and greater financial stability. However, in capitalintensive sectors like healthcare, where significant investments in infrastructure and
technology are essential, a higher ratio may be justifiable if the organization generates
sufficient returns to cover its debt obligations comfortably. This aligns with research
findings indicating that while increasing debt can initially boost performance, it may lead
to negative consequences if not carefully managed (Ulbert et al., 2022). Furthermore, in
Saudi Arabia, where government funding and support play a significant role in the
healthcare sector, a higher debt-to-equity ratio might be more common.
To improve its debt-to-equity ratio, the organization has several strategic options. One
effective approach is to increase equity through actions such as issuing new shares,
retaining a larger portion of earnings, or attracting new investors. These measures
strengthen the organization’s financial foundation and reduce its dependence on debt.
Another viable strategy is to focus on debt reduction by prioritizing repayment,
negotiating favorable terms with creditors, or exploring consolidation options.
Additionally, enhancing profitability can result in increased retained earnings, further
bolstering equity and contributing to a healthier debt-to-equity ratio. While a high debtto-equity ratio may offer growth potential, it also poses greater risks to investors and
lenders (Arhinful & Radmehr, 2023). Therefore, implementing strategies to optimize this
ratio is crucial for ensuring long-term financial stability and success.
While financial statement and operating indicator analyses provide valuable insights,
they are not without challenges. Access to accurate and timely financial data can be
limited, particularly for private healthcare organizations. Variations in accounting
standards and practices can also complicate comparisons across different
organizations. Furthermore, the healthcare sector is influenced by unique factors, such
as regulatory changes, technological advancements, and evolving patient needs, all of
which can significantly impact financial performance. Broader economic and political
conditions in Saudi Arabia, such as inflation and government policies, must also be
considered, as these macroeconomic factors can affect an organization’s financial
outcomes.
In conclusion, a debt-to-equity ratio of 1.3 for a healthcare organization in Saudi Arabia
necessitates a comprehensive evaluation of its specific circumstances, industry
dynamics, and the broader economic context. While a lower ratio is generally desirable,
the organization’s ability to manage debt obligations and generate sufficient returns is
paramount. By strategically increasing equity, reducing debt, and improving profitability,
the organization can enhance its financial position and ensure long-term sustainability.
However, it is crucial to acknowledge the inherent challenges of financial analysis and
interpret the results with caution, considering the unique characteristics of the Saudi
Arabian healthcare sector.
References
Ahmed, F., Rahman, M. U., Rehman, H. M., Imran, M., Dunay, A., & Hossain, M. B.
(2024). Corporate Capital Structure Effects on corporate performance pursuing a
strategy of innovation in manufacturing companies. Heliyon, 10(3).
Arhinful, R., & Radmehr, M. (2023). The impact of financial leverage on the financial
performance of the firms listed on the Tokyo Stock Exchange. Sage Open, 13(4).
Ulbert, J., Takács, A., & Csapi, V. (2022). Golden Ratio-based capital structure as a tool
for boosting firm’s financial performance and market acceptance. Heliyon, 8(6).
The process of policy development and implementation is one in which an idea is
conceptualized, developed, adopted, and evaluated. Policy development is rarely a
linear process; instead, the domains of the policy cycle overlap or occur out of order.
Ideally, a problem is defined, potential policy solutions are identified, analyzed, and
prioritized, and then the best solution is implemented.
Based on what you learned this week, address the following requirements:
•
Describe the process of policy development, implementation, and modification.
•
Discuss transition from policy to a legislative proposal.
1 day ago
•
•
RASHED ALQAHTANI
The Policy Development Process
•
•
•
COLLAPSE
The Policy Development Process
Effectively managing the complex process of policy creation and implementation is
fundamental to good governance. Understanding the stages of policy development is
essential for crafting policies that address societal needs while fostering continuous
improvement. Each phase, from identifying problems to implementing solutions, requires
a strategic approach, collaboration, and ongoing evaluation to ensure the desired outcomes
are achieved.
•
The initial stage in policy development involves identifying and defining a pressing
problem or challenge. This “problematization” phase lays the foundation for the issue to
gain prominence and enter the policymaking agenda. Following this, the policy formulation
phase begins, requiring an in-depth investigation and evaluation of potential solutions. This
complex stage includes brainstorming, research, and rigorous analysis to identify policy
options that are practical, effective, and aligned with guiding principles. Each policy option
is meticulously assessed for its potential impact, resource requirements, and ethical
considerations (Sheaff, 2023).
•
Policy implementation is a pivotal stage where approved policies are translated into
actionable measures and tangible outcomes. Successful implementation requires
meticulous planning, efficient resource allocation, and clear stakeholder communication.
Ensuring the availability of adequate resources, workforce, and infrastructure is vital to
achieving policy objectives. Capacity building also plays a critical role in this stage,
equipping implementing agencies and personnel with the necessary skills and knowledge.
Training programs, workshops, and knowledge-sharing initiatives enhance stakeholders’
ability to carry out their responsibilities effectively (Sheaff, 2023).
•
Rather than following a straightforward sequence, policy development is an iterative
process involving continuous learning and adaptation. The evaluation phase, the final step
in the policy cycle, is essential for assessing the effectiveness of implemented policies and
identifying areas for improvement. This stage involves collecting and analyzing data,
followed by making recommendations to refine the policy. Such evaluations provide
valuable insights to inform future policy decisions, ensuring policies remain relevant,
effective, and aligned with societal needs (Sheaff, 2023).
•
Transforming legislative concepts into impactful healthcare policies is a challenging
process requiring careful attention to resource availability, political dynamics, and
evidence quality. Policymakers can enhance the likelihood of creating successful and
sustainable policies by following a five-step framework: engaging stakeholders, navigating
the legislative process, defining clear policy objectives, developing a legislative strategy,
and drafting precise legal documents (Pollack Porter et al., 2018).
•
In conclusion, the policy development process is a dynamic and iterative system that
integrates problem identification, solution formulation, and rigorous implementation.
Continuous evaluation and stakeholder engagement are crucial for ensuring that policies
remain effective and adaptable to changing societal needs. By employing structured
frameworks and focusing on resource optimization, policymakers can create impactful and
sustainable policies to address complex challenges.
•
•
• Reference
Pollack Porter, K. M., Rutkow, L., & McGinty, E. E. (2018). The importance of policy
change for addressing public health problems. Public Health Reports®, 133(1_suppl).
Sheaff, R. (2023). Using a stages model to reveal the politics in the health policy process
comment on “modelling the health policy process: One size fits all or horses for
courses?” International Journal of Health Policy and Management, 12, 8066.
1 day ago
KHALIL AL SHAHRI
The Process of Policy Development, Implementation, and Modification
COLLAPSE
Policymaking is a multifaceted process involving conceptualization, formulation,
implementation, and evaluation of actions designed to address societal challenges. It is
inherently dynamic, with overlapping stages and feedback loops ensuring adaptability to
changing conditions and stakeholder needs. Below, the processes of policy
development, implementation, and modification are discussed in detail, followed by an
examination of the transition from policy to legislative proposals.
Policy Development, Implementation, and Modification
Policy Development
Policy development begins with the identification and definition of a societal problem.
This initial stage is crucial because how a problem is defined shapes the solutions
considered. Policymakers, stakeholders, and experts collaborate to frame issues in
ways that resonate with the public and align with governmental priorities. For instance,
public health crises such as the opioid epidemic necessitate defining the issue not just
as a medical problem but also as a socio-economic challenge. Framing is critical in
securing political and financial support (Pilar, n.d.).
Once the problem is defined, the process shifts to formulation, where policymakers
develop potential solutions. This involves evaluating the feasibility, cost, and impact of
various options using tools such as cost-benefit analysis, stakeholder surveys, and
modeling. Evidence-based research is crucial at this stage, enabling the creation of
policies grounded in data. For example, education policies aimed at reducing dropout
rates might draw on longitudinal studies showing the effectiveness of targeted tutoring
programs (Skivington et al., 2021).
Implementation
After a policy is developed and approved, it must be translated into actionable steps
during the implementation phase. This phase often involves multiple actors, including
governmental agencies, private entities, and community organizations. Implementation
success relies on factors such as resource allocation, administrative capacity, and
coordination between federal, state, and local governments.
For example, the Affordable Care Act (ACA) required significant interagency
collaboration to establish state-level insurance exchanges, expand Medicaid, and
enforce individual mandates. Implementation challenges such as technical glitches in
online enrollment platforms illustrate the importance of logistical planning and adaptive
management (Kominski et al., 2017).
Monitoring and Evaluation
Policies are not static and require continuous monitoring and evaluation to determine
their effectiveness. Evaluation involves assessing whether the policy achieved its
intended outcomes and identifying areas for improvement. Tools such as performance
metrics, program audits, and stakeholder feedback are commonly used. For instance,
environmental regulations may be modified based on annual emissions data and
technological advances (Pant et al., 2022).
Policy Modification
Modification occurs when policies are adjusted to respond to implementation feedback,
changing societal needs, or emerging challenges. Policymakers may revise policies
based on new evidence, political shifts, or advocacy efforts. For example, Social
Security reforms in the United States have been iterative, adapting to demographic
changes and financial sustainability concerns over decades (Doamekpor, 2004).
Transition from Policy to Legislative Proposal
The transition from policy to legislation involves transforming conceptual ideas into
legally binding frameworks. This process is often complex and requires significant
collaboration among policymakers, legal experts, and stakeholders.
Drafting the Legislative Proposal
Once a policy concept gains traction, it is translated into a legislative draft. This involves
legal experts ensuring the proposed bill aligns with existing statutes and regulations.
Policymakers work with drafters to articulate the policy’s goals, operational
mechanisms, and enforcement provisions in clear legal terms. For instance, climate
change policies may require drafting detailed provisions for carbon pricing, renewable
energy subsidies, and emissions reduction targets.
Building Support
Effective policymaking requires consensus-building among stakeholders, advocacy
groups, and legislators. Policymakers often engage in negotiations and make efforts to
align interests and build coalitions. This is particularly important for contentious issues,
such as healthcare reform or gun control, where opposing viewpoints must be
reconciled to ensure legislative success.
Public consultations and stakeholder engagement further enhance the proposal’s
legitimacy. For example, public hearings on infrastructure development allow community
members to voice concerns and influence project outcomes.
Legislative Review and Enactment
After a legislative proposal is introduced, it undergoes scrutiny in committees and
plenary sessions. Legislators evaluate the proposal’s merits, cost implications, and
alignment with broader policy goals. The process often involves amendments, debates,
and compromises to address concerns raised by opposition parties or interest groups.
For example, the bipartisan negotiations that shaped the 2021 Infrastructure Investment
and Jobs Act highlight the importance of collaboration in advancing complex legislation.
Conclusion
The policy cycle from development to legislative enactment is a dynamic and iterative
process influenced by political, economic, and societal factors. Successful policies
emerge from robust problem identification, comprehensive solution evaluation, and
adaptive implementation strategies. The transition from policy to legislation underscores
the importance of consensus-building and meticulous drafting to ensure that policies
achieve their intended outcomes.
References
Doamekpor, F. (2004). An introduction to the policy process: Theories, concepts, and
models of public policy making. PUBLIC ADMINISTRATION REVIEW, 64(1), 113–
117.
ue&db=edswss&AN=000187666300011&site=eds-live
Kominski, G. F., Nonzee, N. J., & Sorensen, A. (2017). The Affordable Care Act’s
Impacts on Access to Insurance and Health Care for Low-Income Populations. Annual
Review of Public Health, 38, 489–505.
Pant, I., Patro, L., Sedlander, E., Chandrana, S., & Rimal, R. (2022). Monitor to innovate
with feedback loops: Process evaluation protocol for an anemia prevention intervention.
Gates Open Research, 6, 13.
Pilar, P. (n.d.). Policy capacity mechanisms for addressing complex, place-based
sustainability challenges.
Skivington, K., Matthews, L., Simpson, S. A., Craig, P., Baird, J., Blazeby, J. M., Boyd,
K. A., Craig, N., French, D. P., McIntosh, E., Petticrew, M., Rycroft-Malone, J., White,
M., & Moore, L. (2021). Framework for the development and evaluation of complex
interventions: Gap analysis, workshop and consultation-informed update. Health
Technology Assessment (Winchester, England), 25(57), 1–
132.
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