Annual Report Currently, Our Economy Is Recovering Essay

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Annual Report

Currently, our economy is recovering from one of the worst recessions to occur since the early 1930's. Unemployment is roughly 8.6% in the midst of a favorable holiday season. Banks are decreasing their provisions for loan losses in the event a consumer doesn't pay a predetermined amount. 74% of the S&P companies recorded earnings better than expectation and the Fed has pledged holding the federal funds rate near its historic low until mid-2013. Simply put- the economy is getting mending itself, albeit at a slow pace. Emeritus, in regards to its business operations, is a company not as susceptible to the natural vicissitudes of the market. Its business of providing high quality senior service is rivaled by few. No matter what the prevailing economic conditions are, individuals will still need elderly care. In fact, as the baby boomer generation ages, they too will need more care further compounding this fact. As such, it is my contention, through the use of both an external environmental scan and an internal competitive analysis, that Emeritus is a viable company.

First, I will begin with the external environmental analysis. As I alluded to earlier, the American economy is recovering. However, it is not at the point it was prior to 2007. Many consumers are still reluctant to spend due in part to uncertainty regarding unemployment. Additionally, businesses are disinclined to hire due primarily to weak demand for their product offerings. Because of these divergent paths and beliefs, the economy seems to simply tread water as it creeps back into recovery. Emeritus, however has been quite successful navigating the macro economic environment in which it operates. First is has diversification in regards to location. Currently Emeritus operates 492 locations in 42 states across the nation. This may pose problems in the short run macroeconomic sense as each state has its own healthcare regulations.

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As such, it may be difficult to acquiesce to each demand imposed by each state. By being so large, it must stay flexible to deal with a changing regulatory environment without sacrificing its overall quality and service. However in the long run, it helps Emeritus to not be as susceptible to regional trends that its competitors may.

Another external environmental factor is the interest rate environment in which Emeritus operates. Interest play a significant role to Emeritus as it is currently growing by acquisition. In order to grow, these acquisitions must be funded through debt, equity, or cash. In many instances equity finance may adversely affect the company as it dilutes shareholder ownership, while also being very costly. Cash is a great alternative, as the opportunity cost is low due to the low interest rate environment. If cash cannot be deployed at the desired interest rate, then it should be used either for dividends or capital expenditures to create more future earnings. Emeritus however, does not have a significant cash balance to effective acquire rival firms. The only other option is debt financing which is very cheap at the current rates. This is advantageous to Emeritus as it can acquire more firms cheaply and more effectively. However, if interest rates suddenly increase, the acquisition spree will halt thus decreasing shareholder wealth in the long run.

Internally Emeritus is growing through acquisition. These acquisitions generate what is called, "economies of scale." By growing capacity, the cost to service each individual yet decreases as more units are added. In essence, Emeritus is spreading its fixed costs amount more units thus achieving economies of scale. Depending on how well Emeritus accomplishes this, it will be difficult for competitors to mimic. A great example of this occurs with Wal-Mart and its distribution network. In order to….....

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