In: Finance
Determine the below ratios for 2011 and 2012 and compare the Hospitals financial performance year to year based on those ratios. Make sure you explain what each ratio measures
Current Ratio
Average Payment Period
Operating Margin
Total Margin
Return on Net Assets
Cash Flow to Debt
FINANCIAL STATEMENTS:
Cash Flows from Operating Activities:
2012
2011
Cash received from patient
services
$3783
$2590
Cash paid to employees and
suppliers
(3684)
(2541)
Interest
paid
(16)
(14)
Interest
earned
13
6
Net Cash from
Operations
$96
$41
Cash Flows from Investing Activities:
Purchase of Property and Equipment ($25) ($19)
Securities
Purchase
($35)
($15)
Net Cash from Investing
Activities
($60)
($34)
Cash Flows from Financing
Activities:
Contributions
10
6
Repayment of long-term
debt
(13)
(0)
Net cash from financing
activities
($3)
($6)
Net increase (decrease) in cash and
equivalents
($33)
($13)
Cash and equivalents, beginning of
year
$41
$28
Cash and equivalents, end of
year
$74
$41
Revenues
2012
2011
Patient Service
Revenue
$4042
$2687
Provision for bad debts
$46
$21
Net Patient Service
Revenue
$3996
$2666
Other operating
revenue
$27
$32
Total
Revenues
$4023
$2698
Expenses:
Salaries and
benefits
$2714
$1835
Supplies and
drugs
1042
675
Insurance
90
83
Depreciation
21
15
Interest
16
19
Total
expenses
$3883
$2627
Operating
Income
$140
$71
Non-operating Income:
Contributions
$10
$22
Investment
income
13
6
Total Non-operating
income
$23___
28____
Net income (excess of revenues
over
expenses)
$163
$99
ASSETS
2012
2011
Current Assets:
Cash and cash equivalents
$74
$41
Shor-term
investments
$147
$137
Accounts receivable,
net
727
476
Inventories
27__
22___
Total Current
Assets
$975__
$676__
Investments
125___
$100____
Property and Equipment:
Medical and office
equipment
$56
$54
Vehicles
70__
47___
Total
$126
$101
Less: Accumulated
Depreciation
(45)
(24)
Net Property
Equipment
$81
$77
Total
Assets
$1181
$853
LIABILITIES AND EQUITY
Current
Liabilities:
Notes
payable
$13
$13
Accounts
Payable
40
21
Accrued
expenses
496
337
Total Current
Liabilities
$541
$371
Long term
debt
$154__
$167_
Total Liabilities
$703
$538
Equity (Net
Assets)
$478
$315
Total Liabilities and
equity
$1181
$853
As per rules I will answer the first 4 subparts of the question
Current ratio 2012 = Current assets/ current liabilities =975/541 = 1.80
2011 = 676/371 = 1.82
The current ratio measures the ability of the business to pay its immediate liabilities. It has declined in 2012 meaning the liquidity of the firm has gone down but only slightly.
Average payment period 2012 = accounts payable*365/ Purchases
= 40*365/ 1042 = 14.01 days
2011= 21*365/675 = 11.36 days
The average payment period is the average time taken to pay off the creditors of the firm. This ratio has increased implying that the firm has been able to secure better credit terms.
Operating margin= Operating income/ Revenue
2012= 140/4023= 3.48%
2011= 71/2698= 2.63%
The operating margin is the ratio of operating income to revenues. Since it has improved in 2012, it means that the firm has had higher operating income.
Total margin= Net Income/ Revenue
2012= 163/4023 = 4.05%
2011= 99/2698 = 3.67%
This represents the ratio of net income to total revenues. Total margin ratio has improved thus meaning that the net income as compared to sales has gone up. This indicates better profitability.