Strong Earnings, Thin Cash: A Ratio Analysis of HCA Healthcare for a Community Hospital Weighing a Joint Venture
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Health Care Administration Program, Aspen University
HCA 125: Healthcare Finance
Instructor Name
Month Day, Year
Strong Earnings, Thin Cash: A Ratio Analysis of HCA Healthcare for a Community Hospital Weighing a Joint Venture
Financial ratios are only useful when they answer a question. This paper computes and interprets HCA Healthcare's liquidity, profitability, debt, and activity ratios for 2024 and 2025 from its annual report (HCA Healthcare, 2026), then applies them to a decision facing the board of Riverside Community Hospital, a composite not-for-profit hospital that has been invited to form a joint venture with HCA to build and operate a freestanding emergency department. The board's question is whether HCA is a financially sound partner for a 15-year commitment.
The Ratios
Table 1 presents the ratios. Figures are from the consolidated statements in the 10-K; EBITDA is income before taxes plus interest, depreciation, and amortization.
| Ratio | Formula | 2024 | 2025 |
|---|---|---|---|
| Current ratio | Current assets / current liabilities | 1.08 | 0.97 |
| Days cash on hand | Cash / (operating expenses less depreciation / 365) | 12.0 | 6.1 |
| Operating (EBIT) margin | (Income before taxes + interest) / revenue | 15.0% | 16.0% |
| Net margin to HCA | Net income attributable to HCA / revenue | 8.2% | 9.0% |
| Return on assets | Total net income / total assets | 11.2% | 12.8% |
| Debt to EBITDA | Long-term debt / EBITDA | 3.10 | 2.84 |
| Interest coverage | (Income before taxes + interest) / interest | 5.1 | 5.4 |
| Debt to assets | Long-term debt / total assets | 72.3% | 72.9% |
| Days in accounts receivable | Receivables / (revenue / 365) | 55.6 | 52.5 |
| Total asset turnover | Revenue / total assets | 1.19 | 1.25 |
Profitability: Strong and Improving
HCA's operating margin rose from 15.0 to 16.0 percent, and its net margin attributable to shareholders from 8.2 to 9.0 percent. Return on assets rose to 12.8 percent, meaning each dollar of assets produced nearly 13 cents of profit. These results came from revenue growing faster than labor and supply costs. By any common standard these are strong results for a hospital company, and they are rising rather than falling.
Debt: High but Well Covered
HCA carries a great deal of debt: long-term debt equals about 73 percent of total assets. Yet its earnings cover interest 5.4 times, and its debt is 2.84 times EBITDA, down from 3.10, because earnings grew faster than debt. High debt is a risk when earnings are weak; with earnings this strong and rising, HCA's debt is a financing choice rather than a sign of strain. As the previous analysis showed, much of that debt funded share repurchases, which also explains why equity-based ratios such as debt to equity are omitted here: HCA's equity is negative, so the ratio cannot be interpreted.
Liquidity: The Weak Spot
The liquidity ratios point the other way. The current ratio fell below 1.0, meaning current liabilities now exceed current assets, and days cash on hand fell from about 12 to about 6 as the cash balance nearly halved over the year. For a single not-for-profit hospital, six days of cash would be alarming. For HCA, it reflects a strategy of holding little cash and relying on strong operating cash flow, $12.636 billion in 2025, and access to credit markets. The risk is that this approach depends on continued access to borrowing; in a credit shock, a company with little cash has less room to absorb it.
Activity: Collecting Faster
Days in accounts receivable fell by about three days, and total asset turnover rose from 1.19 to 1.25, meaning the company generated more revenue from each dollar of assets. Both indicate efficient operations. Faster collection also freed cash that helped fund the year's large shareholder returns.
The Limits of Ratios
Ratios gain meaning only against a benchmark. One study developed twenty financial indicators for critical access hospitals from Medicare cost reports and gave each hospital its values beside medians for its peer group, and chief executives found the comparisons useful (Pink et al., 2006). This analysis compares HCA only with itself over two years. A complete assessment would compare it with other investor-owned hospital companies and with rating agency medians. Ratios also inherit the assumptions of the accounting behind them, and consolidated figures can hide weak markets inside a strong total (Reiter & Song, 2021).
A Simple Stress Test
Because the recommendation depends on HCA's earnings staying strong, it is worth asking what would happen if they did not. Suppose EBITDA fell by 25 percent, from $15.603 billion to about $11.702 billion, because of a payer cut or a sharp rise in labor costs, while debt and interest stayed at 2025 levels. Debt would rise to about 3.78 times EBITDA, and earnings before interest and taxes would cover interest about 3.6 times. Those figures are weaker but still manageable; the company could continue to pay its lenders. The more likely response to such a shock would be to cut share repurchases, which absorbed $10.067 billion in 2025, and possibly to sell or close weaker facilities. That second response is the one that matters to Riverside, and it is why the recommendation below focuses on contract terms rather than on HCA's ability to pay its bills.
Recommendation to the Board
HCA is financially strong enough to be a reliable joint venture partner for Riverside. Its profitability, coverage of interest, and operating cash flow are strong and improving, and it could fund its share of a freestanding emergency department many times over. The board should not, however, read HCA's strength as a guarantee. Its thin cash and high debt mean its corporate priorities can shift quickly if conditions change, and a joint venture partner that prioritizes shareholder returns may favor exiting or selling underperforming ventures. The board should therefore negotiate protections that do not depend on HCA's continued goodwill: a right of first refusal if HCA sells its interest, minimum service commitments, a clear process for dissolving the venture, and governance rights over pricing and charity care policy consistent with Riverside's mission. With those terms, the financial case supports proceeding.
Conclusion
HCA Healthcare's 2025 ratios show strong and rising profitability, high but comfortably serviced debt, efficient operations, and deliberately thin liquidity. For a community hospital considering a long partnership, those ratios support HCA as a capable partner while pointing to the contractual protections that would make the partnership safe.
References
HCA Healthcare, Inc. (2026). Form 10-K for the fiscal year ended December 31, 2025. U.S. Securities and Exchange Commission. https://www.sec.gov/Archives/edgar/data/860730/000119312526044769/hca-20251231.htm
Pink, G. H., Holmes, G. M., D'Alpe, C., Strunk, L. A., McGee, P., & Slifkin, R. T. (2006). Financial indicators for critical access hospitals. Journal of Rural Health, 22(3), 229-236. https://doi.org/10.1111/j.1748-0361.2006.00037.x
Reiter, K. L., & Song, P. H. (2021). Gapenski's healthcare finance: An introduction to accounting and financial management (7th ed.). Health Administration Press.
How this HCA 125 Module 4 example is structured
Aspen's catalog describes HCA 125 as covering financial evaluation, and the course page warns against formulas without interpretation and recommendations the numbers do not support. Aspen does not publish module deliverables, so check your classroom for the exact prompt. This example frames a decision, computes ratios with formulas, interprets each group, states limits and makes a recommendation grounded in the ratios.
HCA 125 Module 4 questions, answered
What does HCA 125 Module 4 usually ask for?
Work in this part of HCA 125 often asks for a ratio analysis of a healthcare company or case with an interpretation and recommendation. Aspen does not publish module deliverables, so your classroom's instructions govern.
Which ratios should a healthcare ratio analysis include?
Usually at least one ratio each for liquidity, profitability, capital structure and activity or efficiency, each with its formula, two or more periods and a benchmark where available.
What if a company has negative equity?
Leave out equity-based ratios such as return on equity and debt to equity, explain why, and use measures such as debt to EBITDA and interest coverage instead.
Write yours, or have the desk draft it
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