Southeast Home Care, Essay Example

Southeast Homecare, having two operating divisions generating moderately predicable sales and earnings, was founded in the year 1982. There is a need to increase an estimate for the company due to the increased expenditures on home healthcare. According to Gapenski (2007), the company cost of capital focuses on the cost of everlasting or long term capital. Southeast Homecare has a shared cost of 12.6%, while the equity cost calculation discloses a value of 13.8%, which reproduces positive financial soundness. In estimating the capital of the organization, short term debt is commonly not incorporated since it is used for seasonally or cyclical fluctuations. The company has invested in health care services and information systems divisions due to the 20% significant growth profit. The Health Care Company which has enjoyed prosperous growth for the past is now getting tough challenges from the board of directors on how it is being run. The cost of investment is a weighted average of equity and debt.

The debt for the cost of capital must be the company’s long term debt, while short term debt must only be used if it is a permanent factor of the company’s financing mix. Capital Asset pricing Module (CAPM), the Discount Cash Flow (DCF) model and the debt plus risk premium method, are the three primary means used to approximate the equity of a large investor-owned business. However, in order to move forward and continue to thrive, the health care organization must reevaluate its entire existence (Gapenski, 2006). The no accountability, cost control, revenue management and the market development are the steps which must be taken to correct very important issues within the health care organization. The organization is unable to manage the profit of $42.6, due to poor management and lack of planning. This comes in since the founders are not fond of using the short term debt during the growth period. But after all we should understand that strategic planning is necessary for growth and allowing the board members to see a less risky future (Gapenski, 2005).

References

Gapenski, L. (2005). Cases in Health Care Financing, Third Edition. Chicago, Health Administration Press.

Gapenski, L. (2007). Understanding healthcare financial management. Chicago: Health Administration Press.

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

Gapenski, L. (2007). Understanding Healthcare Financial Management. Health Administration Press.