Question

11. Comment on Wynn Memorial's liquidity. Cite at least one meaningful ratio to support your observations.

12. Comment on Wynn Memorial's efficiency in its use of assets. Cite at least one meaningful ratio to support your observations.

13. Comment on Wynn Memorial's profitability. Cite at least one meaningful ratio to support your observations.

14. Comment on Wynn Memorial's capital structure. Cite at least one meaningful ratio to support your observations.

Nursing Home Financial Ratios-Industry Median

Current ratio 1.98

Acid test ratio 0.20

Days in accts receivable 67.19

Average payment period 56.13

Total asset turnover 1.02

Fixed asset turnover 2.20

Operating margin 0.02

Return on total assets 0.04

Long-term debt to net assets 0.62

Net assets to total assets 0.53

Answer 1

Answer to Question 11 - Liquidity

Wynn Memorial has a high degree of liquidity. The Current ratio which is 1.98 supports this. The Current ratio shows that for every $1 of Current Liability Wynn memorial has $2 of Current assets which is almost the double of its current liability. Hence, it has a high degree of liquidity and it doesn't have any issues in meeting it's current obligations or liabilities.

Answer to Question 12 - Efficiency in use of it's assets.

Wynn Memorial is using it's assets very efficiently. The Fixed asset turnover ratio which is 2.20 supports this. The ratio indicates that for every $1 of Fixed assets Wynn Memorial holds is generating a sales of $2.20 which shows that the assets are being effectively used by Wynn Memorial.

Answer to Question 13 - Profitability

Wynn Memorial has a very low profitability. The Operating Margin which is 0.02 i.e., 2% supports this. Wynn Memorial is earning a operating profit of only 2% hence it indicates it is operating with very minimal operating profit.

Answer to Question 14 - Capital Structure

Wynn Memorial has a very balanced capital structure which means that it has been funded by equity and external debts almost equally. The Net assets to total assets which is 0.53 or 53% supports this.  

Net Assets means Total Assets - Total Liabilities which represents the equity. Wynn Memorial has a Net Assets to Total Assets ratio of 53% which shows that 53% of capital structure comes from equity and the balance 47% is funded through external debt. Any Net Assets to total assets ratio of greater than 50% signifies that the organization has more assets than it's liabilities which is favorable and preferred by external lenders.