Question

Memorial Hospital calculated certain performance measures from their 2017 financial statements listed below.

The same performance measures for 2016 are listed for comparison.

Please indicate if the increase or decrease from 2016 to 2017 in these performance measures is beneficial to the organization or not and explain why.

This questions is asking for the increase or decrease of each individual performance measure to be analyzed (positive or negative contribution to the organization) and explained.

It is NOT asking for an overall analysis of the numbers. Please list if the performance measure increasing or decreasing is good or bad for the organization and why

	2017	2016
Total margin percentage	7.2	7.5
Operating margin percentage	4.14	5.15
Nonoperating revenue %	5.76	5.42
ROE percentage	9.02	9.94
Current liquidity	1.88	1.61
Days in Accounts Receivable	31	28
Days cash on hand	45	36
Equity financing percentage	52.46	54.30
Long term debt to equity %	64.2	54.8
Cash flow to debt %	9.65	22.71
Times interest earned	6.63	10.81
Total asset turnover	0.66	0.72
Fixed asset turnover	1.52	1.75
Current asset turnover	4.41	5.14

Answer 1

The following table shows change in ratios and if they are good or bad for the company.

Ratio	2017	2016	Remarks
Total margin percentage	7.2	7.5	Total margin % (Net Profit/ Sales) has reduced. Company has become less profitable. This is a negative for company
Operating margin percentage	4.14	5.15	Operating margin % (EBIT or EBITDA / Sales)has reduced by 1% point. Company has become less profitable at operating level. This is a negative for company
Nonoperating revenue %	5.76	5.42	Non operating Revenue % (Non operating Rev/ Sales) has increased and this is good for the company. This could be considered as additional revenue
ROE percentage	9.02	9.94	ROE % (Net profit/ Total Equity) has come down. Companies seek to increase it. Shareholder is getting lesser return than previous by almost 1% . This is a negative for companies shareholder
Current liquidity	1.88	1.61	Current Liquidity (Total cash & holdings / Net liabilities) has improved. Company has become more likely to payoff its liabilities. This is good for company
Days in Accounts Receivable	31	28	Days in account receivables (Account Receivables/ Average Daily Sale) has gone up. The average credit period has increased. Company will get payment from creditors in 31 days instead of 28 days earlier. This is not good for company
Days cash on hand	45	36	Days cash on hand has improved. 'Days cash on hand' is number of days that an organization can continue to pay its operating expenses, given the amount of cash available. Larger the value, better for company
Equity financing percentage	52.46	54.3	A decrease in equity finance percentage can neither be negative or positive here, upto 50%, although a decrease in this % will lead to dependence on debt, which beyond a level is not good. Company needs to keep this level for future years
Long term debt to equity %	64.2	54.8	Long term debt to equity % has increased. Companies want to keep this ratio low, as a higher debt would increase chances of bankruptcy. On the other hand cost of debt is lesser than cost of equity, so debt is preferred. A level of LTD to equity of below 1, is preferable
Cash flow to debt %	9.65	22.71	A high Cash flow to debt % ratio indicates that the company is better able to pay back its debt, and is thus able to take on more debt if necessary. A reduction is negative for company
Times interest earned	6.63	10.81	Higher the Times Interest Earned (EBIT/ Interest payment), the less likely the company is going to default on loans. Lenders, seek a ratio of minimum 4. Higher the better. A reduction is not good here.
Total asset turnover	0.66	0.72	Total Asset turnover (Sales/ Total Assets) has come down. This is not good for company. Higher the ratio, more efficiently company is utilizing its assets in sales
Fixed asset turnover	1.52	1.75	Fixed Asset turnover (Sales/ Fixed Assets) has come down. This is not good for company. Higher the ratio, more efficiently company is utilizing its fixed assets like equipments, plant, buildings etc. to generate sales
Current asset turnover	4.41	5.14	Current Assets Turnover Ratio indicates that the current assets are turned over in the form of sales more number of times. A high current assets turnover ratio indicates the capability of the company to achieve maximum sales with the minimum investment in current asset. A fall in ratio is not good for company