Nursing Temps, Essay Example

Nursing Temps, founded in 1985 by Tiffany Radcliff in Albuquerque, NM grew rapidly to the Southwestern states then eventually all across America. The initial financing of the company was conducted through using free and available cash to pay the existing debts off. The recent decline has said to caused by the decline of the healthcare market and due to the fact competition from others in the market have been feeling the strains with their financial marketing debt management plans. To benefit her shareholders the following data has produced from a recent study: If company X (Nursing Temps) financed approximately 75% of their current debt the financing would lower costs of produced at a rate of approximately 10.8% yielding a ROE of 42%. This structure would double the equity as compared to the equity produced under the old structure. According to Gapenski the ROE will be much higher with this kind of structuring plan (2006). The anticipated stock price would rise from $1.20 to $1.60 per share. It appears from the facts shows this new capital structure would be most advantageous for Tiffany to achieve her goals of getting out of debt. To compensate for competition Tiffany proposes borrowing of funds to invest in stock options since the net worth of the company is currently at $12 million. This restructuring plan poses the least amount of risk yielding a 24% ROE and an equity increase of 9%. The EPS would increase from $0.18 to $0.23. The return appears to be higher and less risky but does not appear to be the most feasible for Nursing Temps.

Corporal structure is the basis for long-term debt reduction, preferred stock and net worth increase. Stock options appear to increase with relation to debt amount. If the debt amount is increased to 10,000,000 the stock per share would increase by $1.42. If debt amount increased to 12,500,000 the price per share of stock would decline to $1.37. This structure appears to generate profits as it expands.

Equity financing appears to be the definitive principle by which most decisions have been based for Nursing Temps. Gapenski reports that this appears to be a low risk action however the downside it that the company is exposed to hostile takeovers (2006).

EBIT influences the optimal debt level and with that at $3 million the highest risk is associated at a 50% probability factor. The rate of return for a business should be a highly considered factor. A company should keep in mind that there needs to be a balance with debt distribution because increasing debt also increases risks. It is extremely important to thoroughly evaluate all risks associated with restructuring and financing.

Hospitals demand the use of skilled temporary nurses in the medical field often. The company hopes to gain market feasibility by financing a loan and allowing the purchase of stock options by freeing available cash assets. Net revenues might be impacted as a result of increased liabilities to the company. Further a reduced net income equates to less assets. Companies must possess larger amounts of capital than debt than it is required to pay–if not it will create its own demise. The financial manager of Nurse Temps must provide the stockholders with an anticipated restructuring plan and gain their approval prior to implementation due to risks and associated legal implications. It would be wise to incorporate risk assessment into the scheme of things before making a decision to borrow any money for restructuring. This assessment is conducted to determine the debt capacity that a business can feasibly handle.

References

Gapenski, L. (2006). Cases in healthcare finance. Chicago, IL: Health Administration.

Brigham, E.F. & Ehrhardt, M.C. (2008). Financial Management Theory and Practice. 12th Ed. [p. 130]. Mason, OH: South-Western Cengage Learning.

Gapenski, L.C. (2006). Cases in Healthcare Finance. 3rd Ed. Arlington, VA: AUPHA Administration.

Gapenski, L. C. (2007). Understanding healthcare financial management (5th ed.). Chicago: FACHE/ Health Administration Press. ISBN: 9781567932645

Gapenski, L. C. (2006). Cases in healthcare finance (3rd ed.). Chicago: FACHE/Health Administration Press. ISBN: 9781567932447 Retrieved November 6, 2009 from,
http://www.ache.org/pubs/classroom/gap3stud_models.cfm

Gapenski, L. C. (2007). Understanding Healthcare Financial Management. 5th Edition. Health Administration Press.