Hospital Corporation of America (HCA)Staff AnalysisProblem StatementHCA, after following a conservative financial policy since its founding, entered the new decade preparing to make some changes in order to realign its financial strategy and capital structure. Since its inception, the HCA has often been used as a measure for the entire hospital ownership sector. Is it time for the market to realign its expectations for the industry as a whole? The HCA has target objectives that must be met to achieve future milestones. The question arises of which sector is a priority for the company. The HCA must decide how to address key components of its financial strategy and policy to achieve its future objectives. Background HCA has set target objectives in several areas and it is important to identify which objectives have priority: debt-to-GDP ratio, growth rate, ROE and bond rating. Debt-to-GDP Ratio: Currently, HCA is approaching an all-time high debt-to-GDP ratio of 70%, well above the established target ratio of 60%. The increase in the debt-to-GDP ratio has attracted the attention of rating agencies who have clearly stated that for HCA to maintain its A bond rating, HCA must return to the 60-40 capital structure. Now the question arises whether A rating should be sought or HCA should move to a less conservative position. Some investors believe that more aggressive use of leverage would present more opportunities in the future. Others believe that, with changes to the Medicare/Medicaid reimbursement structure on the horizon, the HCA should remain conservative. To decrease the debt-to-GDP ratio, HCA would either 1) decrease the growth rate (inadvertently decreasing ROE) or 2) decrease debt/increase equity. The debt-to-GDP ratio is important for many reasons, but it should not be the basis of a company's future. Ultimately the market will decide the value based on numerous facts, not just the bond's rating. Growth Rate: HCA would like to see the annual growth rate in the range of 25-30%, although it has also set a minimum of 13%. This would signal aggressive action by the company and with this growth rate HCA would see a dramatic increase in ROE and leverage. Why would HCA want to assume a debt-to-GDP ratio of 86% (see case attachment 1)?