Twenty-first centuries is known for the development of various businesses all over the world. With the increase in different businesses activities, it has been seen that various risk factors in the businesses are also increasing. For this reason, it is required for every business organizations to analyze and evaluate different risk factor affective the business operations of the companies. This aspects lead to the preparation of Risk Analysis Reports of the business organizations. The main objective of this report is to develop a business risk analysis report by taking into consideration various necessary factors. For this particular report, Sonic Healthcare Limited is taken into consideration. Sonic Healthcare Limited is one of the major ASX listed healthcare companies in Australia. At present, Sonic Healthcare is the third largest medicine companies in the world. The company operates in the health and medical diagnostics industry. Sonic Healthcare Limited was established in the year of 1987 and the headquarter of the company is at Macquarie Park, Sydney in Australia. The company has an employee base of 32000. Different parts of this study evaluate various aspects of the company for the development of risk analysis report. This analysis also includes PEST, SWOT and Porter’s Five Forces analysis. In addition, various financial ratios are analyzed in order to measure the financial performance of the company. Based on the whole analysis, a conclusion along with recommendations is drawn. Thus, it can be seen that this particular report has its importance in order to identify various risk factors in the health and medical diagnostic industry of Australia and in Sonic Healthcare Limited.
As per the earlier discussion, it can be seen that Sonic Healthcare Limited operates in the health and medical diagnostic industry. The major business operations of Sonic Healthcare Limited are to provide laboratory services, pathology services and radiology services. As per the annual report, Sonic Healthcare Limited has made investments in the innovative software tools. As per the latest cash flow statement of the company, Sonic Healthcare Limited has made severe investments for the purchase of property, plant and equipment for the business. Other investing activities of the company includes proceed from the sales of non-current assets; payments for investments, intangible assets; payments from loans and others. The annual report of Sonic Healthcare Limited states that proceed from the issues of equity shares and other equity securities is one of the major financing activities of the company. Other major financing activities of the company are incomes from borrowings, repayments of the term loans, transactions with non-controlling interests, dividend paid to the shareholders and others. According to the declaration of the board of directors of Sonic Healthcare Limited, all the financial reports of the company are prepared based according to the principles and standards of Accounting Standard AASB 1039: Concise Financial Reports. At the time of auditing the financial reports of Sonic Healthcare Limited, the company follows the standards of Corporation Act 2001. In case of auditor’s independence, Sonic Healthcare Limited follows the principles of APES 110 Code of Ethics for Professional Accountants.
Health and medical diagnostic industry of Australia is one of the major growing industries. As per the statistics for the year ended 2016, it can be noticed that this particular industry had a total revenue of $ 4 billion. From the financial year 2012 to 2016, this industry has been successful to register a growth of 5.7%. In Australia, more than 16500 people are employed in this industry. It needs to be mentioned that there has been a 75.4% increase in employment in this industry from the financial year 2010. In the health and medical diagnostic industry of Australia, 29.3% is the average business profit margin that is good. There are some key business players in this industry; they are Sonic Healthcare Limited, Primary Healthcare Limited, I-MED Radiology Limited and others. In this regard, it needs to be mentioned that health and medical diagnostic industry is one of the most important industries in Australia as the majority portion of Australian population use the services of this industries on a regular basis. For this reason, providing good quality of medical and diagnostic services is the key factors in this industry. However, the entry of various new competitors with superior technology is creating threats for the existing companies of this industry. On the other hand, the shift in economic condition is creating threats for the companies in this industry, as there is a chance to decrease the revenue and profitability of the companies. Most importantly, various regulations and legislations from the government end can pose threat for the companies in this industry.
At the time to carry on the business operations, Sonic Healthcare Limited has to comply with different kinds of regulations. According to the annual report of Sonic Healthcare Limited, the company has to comply with the regulations and standards of Australian Accounting Standard AASB 1039 Concise Financial Reports. At the time of presenting the financial statements, Sonic Healthcare Limited follows the principles of Accounting Standard AASB 101. In addition, Sonic Healthcare Limited complies with the regulations of Corporation Act 2001 for the audit operations of the company. The remuneration report of the directors of Sonic Healthcare Limited is prepared based on the principles and regulations of Corporation Act 2001 section 300A. In this regard, it needs to be mentioned that Australia has a stable political condition that supports the business operations of Sonic Healthcare Limited. In addition, the companies in the heath and diagnostic industry of Australia have to comply with various regulatory and legislative restrictions. For this reason, Sonic Healthcare Limited has to comply with the regulations and legislations of Australian Government. Thus, based on the above discussion, it can be seen that various regulations and legations are the important factors in the health and diagnostic industry.
It can be seen that there are some major external environmental factors that have large effects on the business operations of the companies. There is not any exception of this fact in case of Sonic Healthcare Limited health and diagnostic industry of Australia. Some major tools are there for the analysis of the effects of external environmental factors on companies; they are PEST Analysis, Porter’s Five Forces Analysis and SWOT Analysis. All these factors are discussed below:
The major factors of PEST analysis are as follows:
Figure 1: Factors in PEST Analysis
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Political Factors: Australia has a stable political condition that supports the growth of all the businesses in the country. Some of the major results from the stable political condition of the country are stable business environment, skilled employees, strategic time zone and others. In case of the health and diagnostic industry of Australia, the political situation of the country is a major political influence. The Government of Australia has taken various steps in order to harmonize the healthcare and diagnostic industry of Australia.
Economic Factor: Deep effect of global economic crisis can be seen on the economy of Australia. Still, in this situation, the Government of Australia has taken some major steps in order to increase the amount of spending on the healthcare and diagnostic industry of Australia. Due to the global economic downturn, reduction has been noticed in the per capita income of Australians. This aspect has affected the revenue and profitability of the companies of healthcare and diagnostic industry. For this reason, the healthcare and diagnostic companies are forced to reduce the price of their products and services.
Social Factors: The increase in the ageing population of Australia is creating business opportunities for the companies of healthcare and diagnostic industry. Thus, it is needed for Sonic Healthcare Limited to capitalize these business opportunities. The expectations and demands of the patient parties have been increasing due to the increase in different kinds of diseases. This can be considered as the business opportunities of the healthcare and diagnostic companies of Australia.
Technological Factors: Australia is well known for the technological developments in different business sectors. In case of Sonic Healthcare Limited, the use of advanced technologies will help to create more business opportunities. Thus, it can be said that technological development has positive effects on the business operations of Sonic Healthcare Limited.
Porter’s Five Forces analysis is the most important tool in order to gain insight about the competitiveness of a particular industry or country. There are five major factors in the Porter’s model. They are discussed below:
Figure 2: Porter’s Five Forces Analysis
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Existing Rivalry among companies: In the healthcare and diagnostic industry of Australia, it has been observed that there are some major competitors of Sonic Healthcare Limited like Primary Healthcare Limited, I-MED Radiology and many others. It can be seen that all these companies are of almost same size and power. For this reason, massive competition can be seen in this industry. Thus, this threat is high.
Threat of New Entrants: Huge amount of capital is needed in order to establish business in the healthcare and diagnostic industry, as the new companies need to expenses a huge amount of money for the development of research and development facilities. On the other hand, the new companies have to comply with different kinds of government rules and regulations for the establishment of new business. Thus, this threat is low here.
Bargaining Power of the Buyers: As there are not many companies in healthcare and diagnostic industry of Australia, the buyers do not have much power. They are forced to go to these centers when they fall sick. Thus, this risk is low.
Bargaining Power of Suppliers: Limited number of suppliers can be seen in the healthcare and diagnostic industry. The types of facilities, equipments and medicines that healthcare and diagnostic companies need are not possible for everyone to supply. For this reason, suppliers in this industry enjoy high power. Thus, the risk is high.
Threat of Substitute: There are not any substitute products of healthcare and diagnostic services and products. People take these facilities whey they fall ill when they need it. Thus, there is not any substitute products of these. Hence, this risk is low.
The SWOT analysis of Sonic Healthcare Limited is shown below:
|
Strengths |
Weaknesses |
|
· Over the year, Sonic Healthcare Limited has been able to deliver quality services to the people of Australia. · The use of advanced technology in various dimensions of business is one of the major strengths of Sonic Healthcare Limited. · Well-qualified, experienced and efficient employees of the company are strength of Sonic Healthcare Limited. |
· In the process of delivering high-level of quality services in lower prices, Sonic Healthcare Limited sometimes has to face high cost that reduces that reduces the profitability of the company. · Sometimes, it is not possible for the people from middle-class families to afford the services of Sonic Healthcare Limited. This can be considered as a weakness. · Little access to some of the major healthcare services is a weakness of the company. |
|
Opportunities |
Threats |
|
· Healthcare and diagnostic industry of Australia gets good support from the government of the country and it helps to create business opportunities for Sonic Healthcare Limited. · Recent economic development of Australia has been a major force behind the increase of disposal income of Australian people. This aspect creates business opportunities for Sonic Healthcare Limited. |
· The research and development cost of this industry s very high and this can be a major threat in the near future for Sonic Healthcare Limited. · It is the responsibility of the government to develop the infrastructure of primary health services. |
Apart from the above discussed factors, the worldwide economic downturn works as the major external factors for the business operations of the healthcare and diagnostic industry of Australia. In the recent years, it has been seen that Australia has registered low inflation rate that is a good signal for the businesses of the country.
According to the recent reports of Australia healthcare and diagnostic industries, massive development can be seen in this industry.
From the above figure, it can be seen there has been a massive rise in the healthcare and diagnostic in dustry of australia. For this reason, growth can also be seen in for Sonic Healthcare Limited. From the annual report of Sonic Healthcare Limited, it can be seen that the company does not have anu present intentaion to expand their diagnostic busines outside australia as the current fcus is to acquire the australian helthcare and diagnostic industry. It needs to be mentioned that the company has a international expansion strategy for the long-term basis. From the earlier discussion, it can be observed that Sonic Healthcare Limited complies with all govermental and financial regulations at the time of their busiess operations. In case of accounting, Sonic Healthcare Limited has adopted the latest accounting regulations. The used information technology by Sonic Healthcare Limited is latest and there is not any risk in it. Thus, based on the above discussion, it can be said that Sonic Healthcare Limited has well complied with all the governmental and accounting regulations and thus, there is not any risk involved in it.
In order to measure the performance of Sonic Healthcare Limited, some major ratios of the company along with its main competitor, Primary Healthcare Limited is done. They are shown below:
Portability Analysis
From the above charts and diagrams, it can be seen that the gross profit margin of Sonic Healthcare Limited is almost same with the gross profit margin of Primary Healthcare. In case of Sonic Healthcare Limited, decrease in gross profit margin can be seen in 2015 when compared to 2014. However, the company has become able to increase its gross profit margin in 2016. In case of net profit margin, consistency can be seen in Sonic Healthcare Limited than Primary Healthcare Limited. Sonic Healthcare Limited has become able to improve its net profit margin in 2016 when compared to 2015. From the ratio analysis, it is prominent that Sonic Healthcare Limited has been able to fetch more return from equity than Primary Healthcare.
Liquidity Analysis
From the above table and graphs, it can be seen that liquidity position of Sonic Healthcare Limited is better than that of Primary Healthcare. It can be seen that, in the year 2015, Sonic Healthcare Limited has the suitable liquidity position, as the current ratio is almost same as industry average that is two. As per the time interest earned ratio analysis, it is prominent that Sonic Healthcare Limited has been able to fetch interest more times than Primary Healthcare.
Stability Analysis
From this analysis, it can be observed that Sonic Healthcare Limited has more dependency on debts in order to raise capital. However, the debts structure of Sonic Healthcare Limited is mostly consist of equity shares that are a good sign for the company. In both of the cases, Sonic Healthcare Limited has more financial stability than Primary Healthcare Limited.
Code of ethics and core values of Sonic Healthcare Limited drives the buusiness towards excelllence. Five major ethical core values of company are Committing to Service Excellence; Treat each other with Respect & Honesty; Demonstrate Responsibility & Accountability; Be Enthusiastic about Continuous Improvement and Maintain Confidentiality. It can be seen that the management of Maintain Confidentiality use specific risks for the reduction and management of business risks. The processes are to define different types of business risks, to establish and develop policies for the management of risks; to review the risk management policy on the regular basis and to provide training to the employees regarding the management of risks. Sonic Healthcare Limited has a well-developed human resource policy that prohibits several aspects like child labor, forecd labor and others. In this regard, it needs to be mentioned that Sonic Healthcare Limited follows all the rules and regulations regarding the compensation and employee condition. The company has a strong commitment towards maintaining workplace healthy and safety at the workplace. Commitment towards diversity is another major human resource policy of Sonic Healthcare Limited.
Conclusion
From the above discussion, it can be seen that there are some major external environmental factors that have become major risk factors for the companies. From the PEST analysis, it is evident that stable political condition of Australia is creating business opportunities for Sonic Healthcare Limited. At the same time, the global economic crisis is creating negative impact on the business operations of the company. For this reason, it is required for Sonic Healthcare Limited to develop effective business stratgies. According to Porter’s Five Forces Analysis, intense competition among the existing companies is creating threats for Sonic Healthcare Limited. From the financial analysis with its major competitors, Primary Healthcare, it can be seen that the financial performance of Sonic Healthcare Limited is better than its competitors. However, the company needs to develop more suitable buusiness strategy in oredr to improve its financial performance. From the SWOT analysis, it can be seen that Sonic Healthcare Limited needs to cut some of its costs in oreedr to increase its profitability and to get the necessary competitive advantage. Thus, based on thhe whole analysis, it can be concluded that Sonic Healthcare Limited needs to develop more effective business stratgies in oredr to minimize the above-discussed business risks.
References
“Annual Report 2016”. investors.sonichealthcare.com, 2017. Online. Internet. 4 Sep. 2017. . Available: https://investors.sonichealthcare.com/FormBuilder/_Resource/_module/T8Ln_c4ibUqyFnnNe9zNRA/docs/Reports/AR/sonic-healthcare-limited-2016-annual-report-online-e.pdf.
“Annual Report 2016”. Primaryhealthcare.com.au, 2017. Online. Internet. 4 Sep. 2017. . Available: https://www.primaryhealthcare.com.au/irm/PDF/2643_0/AnnualReport2016.
“Australia joining low inflation world”. ABC News, 2017. Online. Internet. 4 Sep. 2017. . Available: https://www.abc.net.au/news/2016-04-29/australia-joining-low-inflation-world/7372032.
“Bankwest – Find Bank Accounts, Credit Cards and Loans”. Bankwest.com.au, 2017. Online. Internet. 4 Sep. 2017. . Available: https://www.bankwest.com.au/personal.
“Labour Standards and Human Rights Policy | Sonic Healthcare Investor Centre”. Investors.sonichealthcare.com, 2017. Online. Internet. 4 Sep. 2017. . Available: https://investors.sonichealthcare.com/corporate-responsibility/?page=labour-standards—human-rights-policy.
“Sonic Healthcare”. Sonichealthcare.com, 2017. Online. Internet. 4 Sep. 2017. . Available: https://www.sonichealthcare.com/about-sonic/overview/.
“Sonic Healthcare”. Sonichealthcare.com, 2017. Online. Internet. 4 Sep. 2017. . Available: https://www.sonichealthcare.com/about-sonic/our-history/.
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“Sonic Healthcare”. Sonichealthcare.com, 2017. Online. Internet. 4 Sep. 2017. . Available: https://www.sonichealthcare.com/about-sonic/foundation-principles/.
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