HCA Healthcare (HCA) FY2025 Earnings Quality Report

Grade: F — Major Red Flag on Debt Coverage

Framework: Schilit *Financial Shenanigans* + Beneish M-Score + forensic accounting principles

Data: SEC EDGAR 10-K (Filed 2026-02-10) + Yahoo Finance

Auditor: Ernst & Young LLP — Clean opinion (2 critical audit matters: revenue contractual adjustments/implicit price concessions; professional liability reserves)

One-line verdict: HCA's F grade is driven almost entirely by one critical check — cash of $1.04B covers only 2% of its $48.7B debt pile — combined with a negative $6.03B stockholders' equity balance. The rest of the screening is surprisingly clean: DSO improved 3 days, CFFO/NI ratio is 1.86, free cash flow hit $7.69B, and accruals are deeply negative. HCA is the textbook case of a buyback-financed capital structure: the company returned $10.07B to shareholders through repurchases in FY2025 alone, mechanically driving equity negative while the cash flow engine keeps running. This is an earnings-quality report on a financially aggressive but operationally healthy hospital operator.

The Largest Private Hospital Operator in the US

From the 10-K: "HCA Healthcare, Inc. is one of the leading health care services companies in the United States. At December 31, 2025, we operated 190 hospitals, comprised of 179 general acute care hospitals, seven behavioral hospitals, and four rehabilitation hospitals. In addition, we operated 121 freestanding ambulatory surgery centers (ASCs) and 31 freestanding endoscopy centers. Our facilities are located in 19 states and England."

FY2025 revenues of $75.6B made HCA the largest investor-owned hospital operator in the country. The business is concentrated in high-growth Sun Belt markets — Florida alone accounts for 47 hospitals with 13,384 beds, per the state-level breakdown in Item 1.

Revenue grew 7.1% in FY2025, operating income grew 13.3%, and net income grew 17.7% — classic operating leverage as fixed costs get spread over higher volumes. Gross margin expansion of 90 basis points is a healthy sign that pricing and cost management are working together.

Revenue Mix: Almost Entirely Third-Party Payers

From the 10-K: "Our general, acute care hospitals typically provide a full range of services to accommodate such medical specialties as internal medicine, general surgery, cardiology, oncology, neurosurgery, orthopedics and obstetrics, as well as diagnostic and emergency services."

Revenue comes through a complex mix of Medicare, Medicaid, managed care, and commercial insurance. EY's first critical audit matter focuses on this complexity: "For the year ended December 31, 2025, the Company's revenues were $75.600 billion. As discussed in Note 1 to the consolidated financial statements, revenues are based upon the estimated amounts the Company expects to be entitled to receive from patients and third-party payers. Estimates of contractual adjustments under managed care and commercial insurance plans and government payor programs are based upon the payment terms specified in the related contractual agreements or provided by government payor programs."

The Balance Sheet: Buyback-Financed Capital Structure

The defining feature of HCA's balance sheet is the deliberate choice to return virtually all earnings to shareholders. From the Liquidity and Capital Resources section: "During 2025, we had a net increase of $3.287 billion in our indebtedness, paid dividends of $679 million and paid $10.067 billion for repurchases of common stock."

Over three years the pattern has been relentless:

The consequence is visible in the balance sheet:

From the 10-K risk factors: "As of December 31, 2025, our total indebtedness was $46.492 billion. As of December 31, 2025, we had availability of $5.779 billion under our senior unsecured credit facility (after giving effect to all issued and outstanding letters of credit and our intention to maintain a minimum available borrowing capacity equal to the aggregate amount outstanding under the commercial paper program ($2.207 billion as of December 31, 2025))."

HCA's first-listed risk factor is its own indebtedness: "Our indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, expose us to interest rate risk to the extent of our variable rate debt and prevent us from meeting our obligations."

Cash Flow: The Operating Engine Keeps Humming

From the 10-K: "Cash provided by operating activities totaled $12.636 billion in 2025 compared to $10.514 billion in 2024 and $9.431 billion in 2023. The $2.122 billion increase in cash provided by operating activities for 2025, compared to 2024, was related primarily to the combined impact of a $1.319 billion increase in net income, excluding gains on sales of facilities and depreciation and amortization, positive changes in working capital of $524 million and a decline in income taxes paid of $104 million."

Capex guidance is aggressive: "Planned capital expenditures are expected to approximate between $5.0 billion and $5.5 billion in 2026. At December 31, 2025, there were projects under construction which had an estimated additional cost to complete and equip over the next five years of approximately $7.1 billion."

The 18-Point Screening

Revenue Quality

All three revenue-quality checks pass. DSO improved by 3 days, AR grew only 1.1% while revenue grew 7.1%, and CFFO grew three times faster than revenue — a textbook sign of healthy revenue quality.

Expense Quality

Cash Flow Quality

C4 is the critical failure driving the F grade. At $1.04B of cash against $48.70B of total debt, coverage is just 2%. However, the context is important: HCA has $5.78B of availability under its senior unsecured credit facility per the 10-K disclosure, and $2.21B of that capacity is used to backstop commercial paper. The 2% coverage looks extreme but reflects a deliberate cash management strategy for a company generating $12.6B of CFFO.

Operating cash flow quality is excellent everywhere else: CFFO/NI of 1.86 is well above 1.0, FCF of $7.69B covers dividends and then some, and accruals ratio of -9.6% is deeply conservative.

Balance Sheet

Debt/EBITDA of 3.1x ($48.70B debt against $15.60B EBITDA) is within the range typical for large hospital operators. The goodwill line is reported as zero in the data — unusual for a company of HCA's size, but reflects its mostly organic growth and limited recent large acquisitions.

M&A Risk

From the 10-K: "We expended $397 million, $266 million and $635 million for acquisitions of hospitals and health care entities during 2025, 2024 and 2023, respectively." Small tuck-in acquisitions only.

Beneish M-Score

Key Risks from Item 1A

1. Leverage and refinancing risk (the #1-listed risk). From the 10-K: "We have significant indebtedness and may incur further indebtedness in the future. Our indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, expose us to interest rate risk to the extent of our variable rate debt and prevent us from meeting our obligations." The 10-K warns: "We cannot guarantee we will maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness."

2. Government reimbursement risk (Medicare, Medicaid, and the 2025 Federal Budget Act). HCA's forward-looking statements call out: "possible reductions or other changes in Medicare, Medicaid and other state programs, including Medicaid supplemental payment programs, Medicaid waiver programs and state directed payment arrangements, any of which may negatively impact reimbursements to health care providers and insurers and the size of the uninsured or underinsured population." The 10-K also flags "the expiration at the end of 2025 of enhanced premium tax credits (EPTCs) for eligible individuals purchasing insurance coverage through federal and state-based health insurance marketplaces" — a direct hit to the exchange-covered patient base.

3. Labor cost and staffing regulation. The 10-K discusses mandatory nurse-staffing ratios: "We operate in states that have adopted mandatory nurse-staffing ratios or mandate staffing committees to develop staffing plans. If these states reduce, or if additional states in which we operate adopt or the federal government adopts, mandatory nurse-staffing ratios or related measures, our compliance with such measures could significantly affect labor costs and have an adverse impact on revenues or our results of operations if we are required to limit admissions, hire additional personnel or pay higher rates."

4. Revenue recognition estimation (the first critical audit matter). EY flagged revenue recognition as complex: "Auditing management's estimates of contractual adjustments and implicit price concessions was complex and judgmental due to the significant data inputs and subjective assumptions utilized in determining related amounts." The exposure is large because hospitals recognize revenue net of estimated contractual adjustments and price concessions that are only settled months or years later.

5. Professional liability reserves (the second critical audit matter). From the auditor's report: "At December 31, 2025, the Company's reserves for professional liability risks were $2.044 billion and the Company's related provision for losses for the year ended December 31, 2025 was $651 million." The estimation requires actuarial judgment about claim frequency, severity, and settlement timing.

Altman Z-Score and F-Score

The Altman Z-Score of 0.87 is in distress territory. However, this is entirely driven by the negative stockholders' equity — a direct consequence of the buyback strategy, not operational deterioration. A company generating $12.6B of annual CFFO that deliberately drives equity negative through buybacks is not what Altman was designed to flag. The Z-Score accurately captures the balance-sheet leverage but mischaracterizes the overall financial health. The F-Score of 0.65 confirms low misstatement risk.

Summary

Grade: F. A single critical fail (Cash vs Debt) combined with negative stockholders' equity overwhelms fifteen passing checks.

HCA's F grade is almost entirely a function of its capital-return strategy. The company generates $12.6B of operating cash flow annually and has chosen to return $10.07B of that to shareholders through buybacks (FY2025 alone), funded by incremental borrowing. Fifteen of the eighteen screening checks pass — revenue quality, expense discipline, accruals, leverage, goodwill, and cash flow all clean. The only critical failure is the mechanical one: $1.04B of cash against $48.70B of debt produces a 2% coverage ratio that trips the screening threshold, even though $5.78B of undrawn credit capacity provides real cushion.

The real earnings-quality signals are positive: DSO tightened by 3 days, CFFO grew 20% on 7% revenue growth, FCF expanded 36% to $7.69B, gross margin widened 90 bps. This is an operationally healthy business. The F grade flags the financial engineering, not the underlying hospital operations.

**Disclaimer**: This report is based on HCA Healthcare's FY2025 10-K (SEC EDGAR) and public financial data. This is NOT investment advice.

Data: SEC EDGAR 10-K (Filed 2026-02-10) + Yahoo Finance

Auditor: Ernst & Young LLP (Unqualified opinion, 2 critical audit matters)