Using Exhibits 3.1 and 4.1 (ATTACHED), calculate the 11 ratios for both years: 2014 and 2015. For each calculation, compare your answer to the benchmarks provided in the linked template document below and determine whether your figures are favorable, unfavorable, or approximately the same. Note that the terms differ slightly between the lecture material and the Gapenski text, so I am providing the formulas to avoid confusion:
- Common Liquidity Ratios
- Current ratio = Total Current Assets in Balance Sheet / Total Current Liabilities in Balance Sheet
- Days Cash on Hand = Cash and Cash Equivalents from Balance Sheet / [(Total Expenses – Depreciation – Provision for Bad Debts in Statement of Operations) / 365]
- Days in A/R = Net Patient Accounts Receivable in Balance Sheet / (Net Patient Service Revenue in Statement of Operations / 365)
- Common Profitability Ratios
- Operating margin = Operating Income from Statement of Operations / Total Revenues in Statement of Operations
- Return on total assets = Net Income in Statement of Operations / Total Assets in Balance Sheet
- Return on net assets = Net Income in Statement of Operations / Net Assets (Equity) in the Balance Sheet
- Common Capital Structure Ratios
- Debt to capitalization = Long-term Debt in Balance Sheet / Long term debt + Net Assets in Balance Sheet
- Times interest earned = (Net Income + Interest) in Statement of Operations / Interest in Statement of Operations
- Debt service coverage = (Net Income + Interest + Depreciation) in Statement of Operations / Interest + Principal Payments ($10 million assumed for this assignment)
- Common Activity/Productivity Ratios
- Fixed asset turnover = Total Revenues in Statement of Operations / Net Property and Equipment
- Salary and benefits as a % of net patient revenue = Salaries and Benefits in Statement of Operations / Net Patient Service Revenue in Statement of Operations
Download the Ratio Analysis Worksheet (ATTACHED).
Each correct calculation will be worth 1 point.
Once you have completed the calculations, write a memo to the organization’s senior management and board of directors explaining the financial strengths and weaknesses based upon your analysis. The liquidity, profitability, and capital structure will be assessed and communicated to the leaders of the organization. Your memo should be no more than 250 words in length and should be written in plain English for a lay audience.
All sources, including course materials, must be cited in text in APA style. Remember that course materials need not be included in your references page, but all other references must be.