HCA Healthcare Financial Model

HCA does not report traditional product segments; instead, it reports consolidated revenue driven by patient volumes and acuity. The model should forecast revenue using the company's primary operating metrics:

• Total assets: Approximately $60.7 billion as of year-end 2025.
• Key asset categories: Property and Equipment (PP&E) is the largest component, representing hospitals and equipment.
• Goodwill & intangibles: Significant due to historical leveraged buyouts and continuous bolt-on hospital acquisitions.
• Working capital profile:
• Days Sales Outstanding (DSO): 45-55 days (receivables from Medicare, Medicaid, and commercial payers).
• Days Inventory Outstanding (DIO): 15-20 days (medical supplies and pharmaceuticals).
• Days Payable Outstanding (DPO): 50-60 days.
• Net working capital: Typically negative or slightly positive. The company uses its scale to delay payables while collecting receivables efficiently.
• PP&E: Consists of land, buildings, and equipment. Useful lives range from 10 to 40 years for buildings and 3 to 10 years for equipment.
• Right-of-use assets: Material, representing operating leases for medical office buildings and ambulatory centres.

• Capex as % of revenue: 6.0% to 7.0% (Actual 2025 capex was approximately $5.0 billion on $75.6 billion revenue).
• Maintenance capex vs. growth capex: Roughly 40% maintenance (IT, equipment replacement) and 60% growth (new bed capacity, new ASCs, freestanding ERs).
• Major capex programmes: Multi-year resiliency initiatives, new electronic medical record platform rollouts, and artificial intelligence investments.
• M&A pattern: Serial bolt-on acquirer of local hospitals and outpatient facilities to build market density.
• Typical acquisition multiple paid: 8x to 10x EBITDA before synergies.

• Total debt: $46.492 billion as of December 31, 2025.
• Net debt: Approximately $45.452 billion (Total debt less $1.040 billion cash).
• Debt/EBITDA ratio: Current leverage is approximately 2.9x ($45.45B / $15.56B). Target is typically 3.0x to 4.0x.
• Credit rating: Investment grade (typically BBB- / Baa3).
• Key debt instruments: Senior secured term loans, senior unsecured notes, and a large revolving credit facility.
• Interest rate profile: Predominantly fixed-rate bonds, with some floating exposure via term loans.
• Share repurchase programme: Highly active. Repurchased $2.558 billion in Q4 2025 alone. Board authorised an additional $10 billion programme in late 2025.
• Dividend policy: Quarterly dividend of $0.72 per share ($2.88 annualised), representing a yield of roughly 0.6% and a payout ratio of around 10%.

• Operating cash flow conversion: Very strong. OCF was $12.6 billion in 2025 compared to net income of $6.78 billion (approx 1.8x conversion).
• Free cash flow margin: 9.0% to 11.0% (OCF of $12.6B less Capex of $5.0B = $7.6B FCF on $75.6B revenue).
• Major non-cash items: Depreciation and amortisation ($3.4B+ annually), deferred income taxes, and stock-based compensation.
• Working capital cash flow impact: Generally a slight use of cash as the business grows, but highly efficient.
• Capex intensity: High absolute dollars ($5.0B+) but manageable relative to massive operating cash flow.
• Cash tax rate: Often lower than the GAAP effective rate due to accelerated depreciation on medical equipment and facilities.

1. Assumptions: Hardcoded drivers for volume (admissions), pricing (revenue per equivalent admission), cost ratios, capex, and capital returns.
2. Operating Model: Projects Equivalent Admissions, Revenue per Equivalent Admission, and calculates total Revenues.
3. Income Statement: Consolidated P&L from Revenues down to Net Income Attributable to HCA Healthcare, Inc.
4. Operating Expenses Schedule: Detailed build of Salaries and Benefits, Supplies, Other Operating Expenses, and D&A.
5. Balance Sheet: Assets, Liabilities, and Stockholders' Deficit (HCA operates with a negative equity balance due to massive historical buyouts and ongoing share repurchases).
6. Cash Flow Statement: OCF, CFI, and CFF, linking net income to the ending cash balance.
7. Debt Schedule: Tranche-by-tranche debt build, interest expense calculation, and mandatory repayments.
8. PP&E and Capex Schedule: Roll-forward of gross PP&E, accumulated depreciation, and capex.
9. Working Capital Schedule: Receivables, inventory, and payables driven by days outstanding assumptions.
10. DCF Valuation: Unlevered free cash flow build, WACC calculation, and terminal value.

1. Total Revenues = Equivalent Admissions x Revenue per Equivalent Admission
2. Equivalent Admissions = Inpatient Admissions x (Total Gross Revenues / Gross Inpatient Revenues)
3. Salaries and Benefits = Total Revenues x Salaries and Benefits Margin (historically 43-45%)
4. Supplies Expense = Total Revenues x Supplies Margin (historically 15-16%)
5. Other Operating Expenses = Total Revenues x Other Operating Margin (historically 18-20%)
6. Adjusted EBITDA = Total Revenues - Salaries and Benefits - Supplies - Other Operating Expenses
7. Depreciation Expense = Beginning Net PP&E x Depreciation Rate
8. Interest Expense = Average Total Debt x Weighted Average Interest Rate
9. Accounts Receivable = (Total Revenues / 365) x DSO
10. Accounts Payable = (Other Operating Expenses + Supplies / 365) x DPO
11. Free Cash Flow = Cash Flow from Operations - Capital Expenditures
12. Shares Outstanding = Prior Period Shares - (Share Repurchases / Average Share Price)

• The Assumptions sheet feeds the Operating Model and Operating Expenses Schedule.
• The Operating Model generates Total Revenues, which feeds the top line of the Income Statement and drives the Working Capital Schedule.
• The Operating Expenses Schedule feeds the operating costs on the Income Statement and the payables in the Working Capital Schedule.
• The Debt Schedule calculates interest expense, which flows to the Income Statement, creating a circular reference if interest expense reduces net income, which reduces cash, which increases revolver borrowing, which increases interest expense.
• The Cash Flow Statement pulls Net Income from the Income Statement, D&A from the PP&E Schedule, and working capital changes from the Working Capital Schedule.
• The ending cash balance from the Cash Flow Statement and ending debt from the Debt Schedule flow to the Balance Sheet.

• Revenues and operating metrics are positive.
• Expenses on the Income Statement (Salaries, Supplies, D&A, Interest) are positive numbers subtracted in subtotals.
• Assets are positive; Liabilities and Equity are positive (note that HCA's Retained Earnings/Total Equity is naturally negative, so it should be displayed as a negative number).
• Cash Flow Statement: Inflows are positive, outflows (Capex, dividends, share repurchases, debt paydowns) are negative.

• Medicaid Supplemental Payments: HCA receives hundreds of millions in state supplemental payments (e.g., from Texas, Florida, Tennessee). These can swing EBITDA significantly and must be modelled as a discrete benefit to revenue and margin.
• Negative Equity: HCA operates with a massive retained deficit and negative stockholders' equity due to aggressive share buybacks and historical LBOs. The builder must not force equity to be positive; the balance sheet balances with negative equity.
• Equivalent Admissions Math: The calculation of equivalent admissions is specific to hospital accounting. It scales inpatient admissions by the ratio of total revenue to inpatient revenue. The model must use the consolidated Equivalent Admissions metric to drive total revenue accurately.
• Hurricane Impacts: Historical data for Q4 2024 and Q1 2025 includes significant disruptions from Hurricanes Helene and Milton. The model should normalise these periods when calculating historical growth rates.
• Non-Controlling Interests: HCA has significant joint ventures. Net Income must be clearly split between "Net Income" and "Net Income Attributable to HCA Healthcare, Inc." to calculate EPS correctly.
• Share Count Reduction: HCA retires shares aggressively (over $2.5 billion in Q4 2025 alone). Failing to model the declining share count will severely understate future EPS.
• Gains/Losses on Facility Sales: These are frequent and distort operating margins. They must be excluded from Adjusted EBITDA.
• Wage Inflation: Salaries and benefits are highly sensitive to contract labour usage. A 100 bps error in the salaries margin assumption will swing EBITDA by over $750 million.

• "Adjusted EBITDA margin should be in the 20.0-21.0% range; flag if outside this band."
• "Capex as a % of revenue should be between 6.0% and 7.0% based on management guidance."
• "Debt/EBITDA should remain between 2.5x and 3.5x; flag if leverage exceeds 4.0x."
• "Operating Cash Flow to Net Income conversion should be >1.5x (HCA has exceptionally strong cash conversion)."
• "Total Assets = Total Liabilities + Stockholders' Deficit in every period."
• "Salaries and Benefits must remain the largest expense line, strictly between 43.0% and 46.0% of revenue."
• "Share count must decrease year-over-year given the active $10 billion repurchase authorisation."

• Filings: SEC EDGAR for HCA Healthcare, Inc. (10-K, 10-Q, 8-K).
• Investor Relations: investor.hcahealthcare.com for quarterly earnings supplements and guidance presentations.
• Key Peers: Tenet Healthcare (THC), Universal Health Services (UHS), Community Health Systems (CYH).
• Industry Data: Centers for Medicare & Medicaid Services (CMS) for rate updates, American Hospital Association (AHA) for admission trends.
• Proprietary Data: Definitive Healthcare or Trilliant Health for local market share and physician referral patterns.

• HCA Healthcare Q4 2025 Earnings Release and Financial Supplement
• HCA Healthcare 2025 Form 10-K
• Paul Keckley: Is HCA the Exception or the Rule? (February 2026)
• Fierce Healthcare: HCA Healthcare raises 2025 guidance (October 2025)
• Hospitalogy: HCA Q1 25 Breakdown (April 2025)