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Growing Revenues and Declining Profits Challenge Cardinal Health in 2011

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Summary Cardinal Health Inc. (NYSE:CAH) ranks amongst the industry leaders in the medical supply market. However, recent financial performance suggests challenges for Cardinal Health. In addition to the recently passed Patient Care and Affordability Act, Cardinal Heath underwent significant changes in fiscal 2010. An analysis of several key financial ratios offers mixed results. Highlighting these changes was the divesture of Care Fusion, Inc. and the acquisition of pharmaceutical companies bolstering Cardinal's portfolio. During difficult economic times, Cardinal Health was able to grow revenues 3%, increase inventory turns, and maintain an industry leading cash conversion cycle. However, profit margins continue to decline amid declining earnings. Efficiency ratios indicate how well a company is using its assets. This efficient use of inventory leads to resourceful cash conversion especially significant in a low margin industry. The favorable use of inventory benefits Cardinal Health as they face certain pricing pressure in 2011. Cardinal Health continues to rank among the industry leaders of the medical supply industry with an inventory turn ratio of 14.0 up from 13.5 in fiscal year 2009 (financial.morningstar.com). In comparison, competitors McKesson Corporation's 2009 inventory turns were 11.5, while AmerisourceBergen inventory turns were 14.8. An inventory to sales ratio of 6.5 and an asset turnover ratio of 4.4 further supports the effective use of inventory and assets as compared to major competitors (advfn.com). Adding to the efficiency of cash use, Cardinal Health maintains a receivable turnover rate of 18.2 in fiscal year 2010 down only slightly from 18.7 in 2009 (advfn.com). Compared with their closest competito... ... middle of paper ... ...emographics, and additional insured people bode well for the future of Cardinal Health. Controlling costs and bolstering sales of high margin product will allow Cardinal Health to increase profits and grow shareholder return. Works Cited Advfn.com. Retrieved December 1, 2010 from http://www.advfn.com/p.php?pid=financials&btn=s_ok&mode=company_data&symbol=NYSE%3Aomi Financials.Morningstar.com. Retrieved December 2, 210 from http://financials.morningstar.com/ratios/r.html?t=MCK Mueller, J. (2010). How Well Do You Use Cash Cardinal Health? Retrieved December 1, 2010 from http://www.fool.com/investing/general/2010/08/23/how-well-do-you-use-cash-cardinal-health.aspx Ross, S., Westerfield, R., & Jordan, B. (2010). Fundamentals of Corporate Finance. New York: McGraw Hill. Yahoo.com. Retrieved December 3, 2010 from http://finance.yahoo.com/q/ks?s=CAH+Key+Statistics
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