Question

Explain how the below ratio could be affected if there was an increase in Publicly traded hospital costs or supply chain disruptions occurred for materials including equipment, medications and other supplies? And explain how these ratio can affect the Publicly traded hospital financial statement

Increase in costs

a. Debt service coverage ratio (Net Income/Debt Service)

b. Profit Margin Ratio (Net Income/Net Sales)

c. Return on Assets (Net Income/ total assets)

Supply chain disruptions

a. Current Ratio (Current Assets/Current Liabilities)

b. Inventory turnover (Net Sales/ Average Inventory)

c. Debt to total assets (debt/total assets)

d. Return on assets (Net Income/ total assets)

Answer 1

Question : Explain how the below ratio could be affected if there was an increase in Publicly traded hospital costs or supply chain disruptions occurred for materials including equipment, medications and other supplies? And explain how these ratio can affect the Publicly traded hospital financial statement

a.) Debt service coverage ratio (Net Income/Debt Service) Answer : Increase in cost will reduce the net income and hence reduce the Debt Service Coverage Ratio. The hospital will not be able to service its debt i.e. pay off its debt amount and interest adequately.

b.) Profit Margin Ratio (Net Income/Net Sales) Answer : Increase in cost will reduce the net income. Because of disruption in supplies, net sales will also be reduced but comparatively less than the reduction in net income. So overall Profit Margin Ratio will decline.

c.) Return on Assets (Net Income/ total assets) Answer : This ratio will also decline because of reduced net income.

Supply chain disruptions

a. Current Ratio (Current Assets/Current Liabilities) Answer : Supply disruptions will reduce the equipment and inventory, thus reducing the current assts. Current laibilities will remain the same. So, the Current Ratio will also decline.

Hence, all these ratios which are impacted negatively will reflect a poor picture of the financial statements of the publicly traded hospital.