Financial ratios are valuable tools used by healthcare organizations to assess their financial health and make informed decisions. These ratios provide insights into various aspects of the organization’s financial position, performance, and efficiency. In this assignment, we will calculate several key financial ratios based on the given information and financial statements.
Total Current Assets / Total Current Liabilities:
This ratio helps determine the organization’s ability to meet its short-term obligations. It reflects the liquidity of the organization and its ability to cover its current liabilities with its current assets. To calculate this ratio, we divide the total current assets by the total current liabilities. The formula is as follows:
Total Current Assets / Total Current Liabilities = Current Assets / Current Liabilities
Cash / (Total Operating Expense / 365 days):
This ratio, also known as the cash conversion cycle, measures how many days it takes for the organization to convert its operating expenses into cash. It provides insights into the efficiency of the organization’s cash flow management. To calculate this ratio, we divide the cash by the total operating expenses and then multiply the result by 365 days. The formula is as follows:
Cash / (Total Operating Expense / 365) = Cash / (Operating Expense / 365)
Accounts Receivable / (Net Patient Service Revenue / 365):
This ratio, known as the accounts receivable turnover, measures how many times the organization collects its outstanding accounts receivable in a year. It helps assess the efficiency of the organization’s collection process. To calculate this ratio, we divide the accounts receivable by the net patient service revenue and then multiply the result by 365 days. The formula is as follows:
Accounts Receivable / (Net Patient Service Revenue / 365) = Accounts Receivable / (Patient Service Revenue / 365)
Accumulated Depreciation / Depreciation Expense:
This ratio reflects the organization’s total accumulated depreciation relative to its depreciation expense. It provides insights into the age and value of the organization’s assets. To calculate this ratio, we divide the accumulated depreciation by the depreciation expense. The formula is as follows:
Accumulated Depreciation / Depreciation Expense = Accumulated Depreciation / Depreciation Expense
[Long Term] Debt / Net Assets:
This ratio, also known as the debt-to-equity ratio, measures the proportion of debt to total net assets. It indicates the organization’s leverage and financial risk. To calculate this ratio, we divide the long-term debt by the net assets. The formula is as follows:
[Long Term] Debt / Net Assets = Long Term Debt / Net Assets
[Long Term] Debt / Total Assets:
This ratio, known as the debt ratio, measures the proportion of debt to total assets. It provides insights into the organization’s financial leverage and ability to repay its debts. To calculate this ratio, we divide the long-term debt by the total assets. The formula is as follows:
[Long Term] Debt / Total Assets = Long Term Debt / Total Assets
Net Patient Service Revenue / Gross Patient Service Revenue:
This ratio, known as the net revenue rate, measures the organization’s ability to collect revenue from patient services after deducting discounts, allowances, and returns. It indicates the organization’s effectiveness in generating revenue. To calculate this ratio, we divide the net patient service revenue by the gross patient service revenue. The formula is as follows:
Net Patient Service Revenue / Gross Patient Service Revenue = Net Patient Service Revenue / Gross Patient Service Revenue
Gain or (Loss) from Operations / Net Patient Service Revenue:
This ratio, known as the operating margin, measures the organization’s profitability and efficiency in generating income from patient services. It provides insights into the organization’s ability to cover its operating expenses and generate a profit. To calculate this ratio, we divide the gain or loss from operations by the net patient service revenue. The formula is as follows:
Gain or (Loss) from Operations / Net Patient Service Revenue = Gain or (Loss) from Operations / Net Patient Service Revenue
In conclusion, these financial ratios serve as important tools for assessing the financial health and performance of healthcare organizations. By applying these formulas to the given information and financial statements, we can gain valuable insights into the organization’s liquidity, efficiency, leverage, and profitability.
