Introduction
Teladoc Health Inc. is a United States-based company providing healthcare services in America and other parts of the world. Its main area of operation is offering medical consultations and opinions ("Teladoc Health, Inc. (TDOC) Income Statement - Yahoo Finance", 2020) . The purpose of the paper is to examine the financial performance Teladoc Health Inc. through financial ratios, focusing on the last three financial years from 2019.
The current ratio is a liquidity proportion used to assess the capacity of an organization to pay its short-range financial commitments as they fall due, especially liabilities falling due within twelve months. The ratio tells investors how the company utilizes the current assets in the balance sheet to meet current liabilities. For the current ratio, a figure of between 1.2 to 2 is preferred. A figure below one specifies that the organization does not have sufficient current assets to cover its current liabilities. A higher figure of more than 2 is a sign of the company's inefficient utilization of current assets and difficulties in the management of working capital.
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Teladoc Health has a current ratio of 4,9 and 7 in the three years 2017,2018 and 2019 respectively. The ratio is too high and could be an indication of the company's inability to utilize short term financing and current assets efficiently. The company maintains a high account receivables figure as compared to total sales of 10 percent in each of the three years under review, which is high for a company with annual revenues of $500 thousand. The inefficient management of account receivables is contributing to higher current assets that are contributing to a higher current ratio.
Debt to equity ratio is a financial leverage ratio used to assess how a company has financed its operation through either debt capital or equity capital. The ratio shows in proportion, amount of debt capital, and equity capital used to finance a business. It is used as an indicator of how equity capital can cover the debt in case of company liquidation. A higher debt ratio is desirable because it shows that a company has the capability to services its debts as they fall due and has efficiently applied debt to increase returns for the equity stockholders. A desirable debt to equity ratio ranges between 1 and 1.5 though it is an industry dependent ratio since some industries employ debt funding than others.
Debt to equity ratio for Teladoc Health remains at a constant figure of 0.5 for two periods 2017 and 2018 and afterward drops by less than a percentage point to close the year 2019 at 0.6. Teladoc's ratio of below one shows that the company has its capital structure financed in the largest portion using equity financing than debt financing.
Earnings per share ratio is a profitability ratio that determines how much money a company makes for each share in a given period. Investors use this ratio to determine the profitability of accompanying and are willing to pay a higher price for a company with higher earning power. A higher ratio is better since it indicates high profitability, especially when compared with other companies within an industry. Earnings per share are allocated a rating of between 1 to 99 with the latter indicating that the company's earning power has gone beyond 99 percent of all public traded companies.
The earning price per share of Teladoc is negative, ranging from a negative figure of 1.38 in 2019 to 1.98 in 2017. To an investor, this is not a potential stock for investment because it is losing money. Teladoc has a negative net income for all three years under review, making its earnings per share indicate losses.
The price-earnings ratio is an efficient method to determine whether a stock is overvalued or not. This ratio is the ratio used by investors in making decisions on where to invest since it shows how much a company's share is worth. A growing price-earnings ratio is an indicator that the investors are paying much more than the earning power of a company
The price-earnings ratio of Teladoc is a negative figure of 24 and 34 and 126, respectively, for the period under consideration. A company with negative earnings such as Teladoc has no price-earnings ratio since negative earnings are zero earnings. Therefore, in the absence of denominator, the company remains without a price-earnings ratio. As the market price of Teladoc shares increases, the price-earnings ratio deteriorates. The market price increases from $ 34.85 in 2017 to $83.72, in 2018. meanwhile, the price-earnings ratio drops further from a loss of $24 to $61 due to the continued net income losses.
The return on equity ratio is used to indicate the financial prowess of a company, how efficiently a company is employing the resources provided by shareholders to generate income. It is also a profitability ratio derived by dividing the annual net income levels with shareholders' equity. A ratio of between 15 – 20 percent is considered ideal, while a negative return on equity ratio is an indicator that equity stockholders are losing money.
Return on equity for Teladoc is a negative return implying that equity shareholders are losing money as a result of the persistent losses the company recorded for all three years under review. Though the trend shows, the ratio is reducing as the company increases its revenues resulting in reducing levels of losses from year to year.
Net profit margin is a profitability ratio used to assess the percentage of sales revenues left after a company has deducted operating expenses. A higher net profit margin indicates higher efficiency levels and a ratio of 10 percent being regarded as average, while 20 percent is considered high, with 5 percent regarded as low. Teladoc has a negative net profit margin of 46 percent,23 percent, and 18 percent, respectively. This net loss is as a result of the negative net earnings occasioned by high expenses than earrings. The trend shows the ratio is declining and may turn positive in the future.
Free cash flows refer to the left-over cash after the company has catered for its operating expenses and capital expenses. The remnant cash can be paid as dividends or used to expand operations. Negative free cash flows are indicative of a company that is not generating adequate cash to support its operations. Teladoc has negative free cash flows of $574 thousand in 2019 and $1.1million in 2018 and $554 thousand in 2017. The causes of negative cash flow for Teladoc could be the accounts receivables are taking too long to clear their accounts.
Teladoc Health Inc.is the second biggest health services provider in terms of fixed asset worthiness in 2019. The largest company is Health Management company whose assets are more than $129 million in 2019. The industry reveals a growing trend in the number of assets held by each company within the three years under review except Health Management Ltd that shows a declining trend. Teladoc grew its assets by 85 percent in the year 2017, while Health Management Ltd recorded a decline of 10.41 percent in total assets. The company dropped its assets by a further 6.2 percent in 2018 to close the year at $129million worth of assets.
In conclusion, Teladoc Health Inc. is a company in distress, as shown by all critical profitability, liquidity, and efficiency ratios. The company has to strategize on ways to expand its sales revenue and increase efficiency by cutting down on operating expenses. Besides, the company should impose strict credit control measures by adopting a strict credit policy where only trustworthy and creditworthy customers are granted credit. Moreover, aggressive collection efforts can help remedy the situation.
References
Teladoc Health, Inc. (TDOC) Income Statement - Yahoo Finance . Finance.yahoo.com. (2020).
Retrieved 1 June 2020, from https://finance.yahoo.com/quote/TDOC/financials?p=TDOC .
