Ratio Analysis (Compute and Discuss Four Financial Ratios)

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Financial ratios are computed to evaluate the existing financial statement. Financial ratios include profitability ratio, liquidity ratios, debit and asset management ratios and market value. The ratios are significant indicators used to reveal the company’s preference. In addition, they are significant tools for analyzing the present corporate financial situation since the ratios are objective and are easily understandable (Koijen, Philipson & Uhlig, 2016). The ratios are also used by various organizations in performance compared with other industries operating in the same setting.




Current ratio = 푇표푡푎푙 푐푢푟푟푒푛푡 푎푠푠푒푡푠

푇표푡푎푙 푐푢푟푟푒푛푡 푙푖a푏푖푙푖푡푦

194,235 /






Quick ratio

푡표푡푎푙 푐푢푟푟푒푛푡 푎푠푠푒푡푠 − 퐼푛푒푣푛푡표푟푦

푡표푡푎푙 푐푢푟푟푒푛푡 푙푖푏푖푙푖푡푦

194,235 – 7,078

156,381− 6,663

103,522 = 1.808


= 1.545

ea푟푛푖푛푔 푟푎푡푖표 푚푎푟푘et 푝푟푖푐푒 푝푒푟 푠ℎ푎푟푒 표푓 푐표푚푚표푛 푠







푒푎푟푛푖푛푔 푝푒푟 푠ℎ푎푟푒

푡표푡푎푙 푎푠푠푒푡푠 푡푢푟푛표푣푒푟 = net sale/

t표푡푎푙 푎푠푠푒푡푠

684,619/1,305,046 = 0.525

606,262/ 1,116,600 = 0.543

푎푣푒푟푎푔푒 푐표푙푙푒푐푡푖표n 푝푒푟푖표푑 푎푐푐표푢푛푡 푟푒푐푒푖푣푎푏푒

푛푒푡 푠푎푙푒/365

65,937 684,619/365

= 35.154


= 30.856

푎푣푒푟푎푔푒 푝푎푦푚푒푛푡 푝푒푟푖표푑

푎푐푐표푢푛푡 푝푎푦푎푏푙푒 푎푛푛푢푎푙 푝푢푟푐ℎ푎푠푒/365

32,572 142,793/365

= 83.259



= 56.209

Debt ratio = 푡표푡푎푙 푙푖푏푖푙푖푡푦/ 푡표푡푎푙 푎푠푠푒푡푠



= 0.475

510,338/ 1,116,600


푛푒푡 푝푟표푓푖푡 푚푎푟푔푖푛 = EACS/


106,428 17,606 = 6.43

99,568 29,347 = 4.103

푟푒푡푢푟푛 표푛 푡표푡푎푙 푒푞푢푖푡푦 = EACS/total equity


= 10. 87


= 9.89

Liquid Ratio

These are ratios used in measuring the organization’s capability of paying their debt requirements and safety margin through metric calculations comprising of quick, current and average operating ratios of cash flows. Contemporary liabilities are evaluated in connection with liquid assets so as to estimate the short-term debt coverage during an emergency (Koijen, Philipson, & Uhlig 2016). Mortgage originators and bankruptcy analysts apply ratios of liquidity in evaluating the changing concern issues, as the measurement of liquidity ratios designates the company cash flow position.

Current Ratio (Ca)

The current ratio is computed using the formula:

CA = Total current assets / total current liability After calculation, it was established that the current ratio increased from 1.614 to 1.876 during 2016-2017. Thus implying that current assets experienced rapid growth than the current liability, therefore, a shareholder or an investor should be excited since the company possesses more capital in the productive available assets.

Quick Ratio

It is evident that quick ratio increases from 1.545 to 1.808. The above quick ratio reflects the company capability to lay off all the existing short-term duties without depending on inventories net sale. It implies that the business significantly growing and it is easy to maintain all its operations, all its collection of revenues and payments are done quicker.

Average collection and payment period. It has been established that both the ratios have significantly increased from 2016 to 2017. For the increase in the average period of collection, it is evident that the business’s risks have increased since the reduction in the average period of collection indicates the company's necessity of poor communication channels with the customers and the debtors hence delay in debt payments (Koijen, Philipson & Uhlig 2016). Therefore, penalties should be enacted on late payments since the higher average value may imply that the debtors do not intend on paying their debts.

The Debt Ratio

This measures the capital of the company that is obtained from borrowing. If the debit ratio is greater than 1.0, it means that the net worth of the company is negative and the company is said to be bankrupt. For the cases of the Hospital the debt ratio is less than 1.0, hence, the hospital is safe financially.

Profitability Ratios

This indicates the performance of the organization’s management using the available resources in the organization. Profitability ratios indicate whether a business is making profits or not. These include the gross profitability, net profitability, return on assets, return on investment and earning per share. For the hospital the return on assets is 1.96 which means that the management of the hospital is efficient.

Efficiency Ratios

These ratios enable manager of a business to conduct their business in better ways. They help a company to determine the appropriateness of thee credit terms of the company. This include annual inventory turnover inventory holding period among others.

Comparison of Financial Strengths and Weaknesses of the Hospital

Financial Strengths

The hospital has a number of financial strengths which can advance its operations. The hospital has strengths in its assets this is indicated by the rise of the value of the assets from $1,116,600 to $ 1,305,046 in the two-year comparison. The other strength is the revenue for operation and the support which increased from $774,662 to $829,005. The incomes from the services offered to patients also is part of the financial strengths. The collection form this rose from $716,687 to $773,154. The hospital also enjoys the financial strength of contribution, gifts and bequest. Finally, the hospital has investments which rose from $18,402 to $ 30453 in the consecutive years.

Financial Weaknesses

The hospital has a number of financial weaknesses which include: the liabilities which marked an increased from $ 96,897 to $ 103,522 over the two years. There is also long term debt which increases from $ 332,354 to $ 439,597. The hospital also aims at sourcing funds from the provision of doubtful accounts, however, this has experienced a decrease to $ 55,851 from $ 57,975 over the two years. Another financial weakness of the hospital is the decrease in the operation revenues from $293,334 to $27,055. The expenses of operations also increased from $704,577 to $764,766.

Overview of the Financial Health of the Hospital

The hospital has experienced a rise in the cash and equivalents over the two study years with the figure changing from $ 59,696 in 2016 to $ 82,815 in 2017. The limited assets as to use grew to $ 518,313 from $472,176. The hospital indicated an improvement by reducing the reliance on brokers shown by the reduction in the cash inflow for brokers. However, this could also mean that the hospital has lost a lot to the brokers. The hospital however not doing well in terms of debts as the long-term debts rose to $444, 219 from $338,262. In terms of the expenses the hospital is performing poorly as the overall expenses increased from $704, 577 to $764,776.

Explanation of the Financial Analysis

The financial situation of the hospital has undergone several changes some of which are positive and other negative. This include the rise in revenues and the income from the outside donors of the hospital. There has also been an increase in the expenditure of the hospital. This is a result of the accumulated expenses of the related operation activities in the hospital. The increase of the income from assets and investments is probably to the diversification of the source of funds for the hospital to support its various activities. The rise of the patients being served by the hospital can also lead to the rise of the cash inflow to the organization.

Strategies for Improving the Hospital’s Financial Position

Create Early Payment Incentives and Late Payments Penalties

For a variety of companies, invoicing is a tedious process that occasionally requires various approaches to manage (Manary, Staelin, Boulding, & Glickman, 2015). In situations where it is difficult to maintain. If you discover it tough to preserve your customers responsible and detest having to comply with the past due in disbursing, you can establish a significant moment of implementing specific penalties and incentives program.

For example, reductions can be carried out to any bank account paid on time or early, and hobby maybe brought to some bill that has been disregarded for a long time. Those movements always inspire clients and make them transact their payments thus significantly enhancing the company's cash flow position. Therefore, the organization will encounter multiple benefits since the customers will not pay on time or early but also the organization will save on the cost incurred for constant confirmation of payments.

Re-Negotiate Long-Term Contracts

Most companies utilize a variety of tools and equipment to ensure the smooth running of their operations. These tools and equipment are often supplied by long-term service providers who are bound to a given contract (Manary et al., 2015). Although with service provider organization where there is an already established rapport, there exists a possible opportunity of re-negotiating the existing contracts. If you have established potential companies that can be retained over a long time, the management is advised to approach them with a fresh and more cost-effective agreement. Variety of companies are often willing to operate with a potential long-term customer since there is an automatic renewal of monthly contracts. Therefore, the company cash flow can be improved by terminating all the unrequired services.

Replace Old Inventory and Equipment

Old equipment occupies large space although they are slow and inefficient in operation. For instance, printing devices often become incompatible and outdated with the modern technological advancements quickly. With many enterprises migrating from desktop storage devices to personal laptops, and further to mobile gadgets, the process of replacement is often frustrating (Manary et al. 2015). Therefore, managing, retaining and repairing various models and brands are expensive because each model and brand require specific ink cartridges or proprietary toner. In addition, there is an escalating need for employee training on specific usage and maintenance procedures for every new machine purchased. Hence, leasing devices are considered to be cost-effective since there is the availability of latest technologies at your disposal – the newer the technological devices, the more power efficient the devices. Therefore, it is advisable to replace or entirely eliminate old equipment, However, dealing with either equipment or inventory, obsolete, not work to provide space for the new ones. Selling the old equipment is also another way of boosting company cash flow and taxable gains. Inventory management system should be comprehensively updated so as to keep track on the condition of the available inventories and equipment.


Koijen, R.S., Philipson, T.J., & Uhlig, H. (2016). Financial health economics. Econometrica, 84(1), 195-242.

Manary, M., Staelin, R., Boulding, W., & Glickman, S.W. (2015). Payer mix & financial health drive hospital quality: Implications for value-based reimbursement policies. Behavioral Science & Policy, 1(1), 77-84.

January 19, 2024

Business Economics



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