# Ratio Analysis in Decision Making for Health Care Organization

Submitted By marciekl
Words 845
Pages 4
Ration analysis Financial statements paint a picture of financial health of an organization. Important aspects of the financial statement of a health care organization are ratios. Analysis of ratios show how two numbers relate or compare to one another. Ratios are a way for organizations to make comparison. These comparisons not only encompass what is happening presently but can also be used to make comparisons about numbers and ratios over time. Ratios are a way for organizations to compare themselves with competitors and the industry. (Finkler, Kovner, and Jones, 2007). There are four major ratios that financial statements analyze 1) liquidity 2) activity 3) leverage and 4) profitability. The financial statement for Mayo Health System for the year 2011 will analyze each area to determine the health of the organization.
Liquidity
Liquidity ratio looks at an organizations assets and liabilities is an indicator of the organizations ability to pay off debts (Investopedia, 2012). The two main ratios for liquidity are current ratio and the quick test ratio. Below are the calculations for these ratios.
I. Liquidity ratios
1. Current ratio
Current Assets/Current Liabilities
= \$10,128.9/5,399.5 = 1.88
Interpretations:
a) Current assets are more than enough to pay for current liabilities.
b) The company has the ability to pay short term obligations.
2. Quick/acid-test ratio
Formula: Cash & equivalents + short term investments + accounts receivable)/liabilities
= (1,422.4+4,237.4+141.3)/4099.5 = 1.42
Interpretations:
a) This ratio is a better indication of liquidity and shows the organization is liquid and can pay short term debts.
Activity
The activity ratio is the ability of the company’s balance sheet to be converted to revenue (Investing Answers, 2012). The two ratios analyzed in this area were average collection period and accounts receivable…...

### Similar Documents

#### Value of Ratio Analysis in Decision Making for Health Care Organizations

...Organizational Change Plan – Part II Cindy Keshavarz HCS/587 June 21, 2014 Laura Rainey The role of the traditional physician, clinician, and patient is changing to incorporate the increased use of technology in the delivery of health care. Home health care is no exception. Patients today are fully informed consumers and insist on participating in their health care and being fully knowledgeable of all options available. Physicians need the most time effective and accurate measures to help care for their patients. Home health care must be able to maintain the competiveness, maintain financial security and deliver quality patient care. These are some of the factors motivating our current change of implementing the Tele health Program. Monitoring the Implementation of the Tele health Program Monitoring the implementation of the telehealth program begins with the training and education of nurses and physical therapists so that they may acquire the skills required for hands on use of the new system. All current and newly employed clinicians will need to complete the learning modules on the use of the telehealth program system. Practice monitors will be made available and kept in the office classroom for those who wish to practice with the unit. Team managers will also be trained as an additional resource persons for those......

Words: 1471 - Pages: 6

#### Methods of Financial Analysis

...METHODS OF FINANCIAL ANALYSIS Dorothy E Vincent-Greene ACC 281 Accounting Concepts for Health Care Professionals Professor James Bell 26 MAY 2014 The process of restating and summarizing data by establishing ratios and trends is known as a financial analysis. The financial statement analysis is the process of examining and identifying the relationships among financial statement elements and making comparisons with relevant information. The analysis is a powerful tool used by a variety of people like creditors, investors, and managers, etc. who all have different reasons for learning about the financial circumstances of an organization (Financial Statement Analysis, 2014). There are a variety of tools that can be used to evaluate the financial statements data. The three most commonly used tools are the ratio analysis, horizontal analysis, and vertical analysis. In this paper I plan to evaluate these three methods and discuss how the financial information is used to make certain business decisions, while giving an example that may be seen in the health care arena. The ratio analysis is a method of analyzing data to determine the overall financial strength of a business. The broad method by which the financial data is converted into simple mathematic ratios for comparison makes it easy very user friendly. An advantage to this method is that it can be used by anyone with access to organizations public financial statements since the data is widely available.......

Words: 912 - Pages: 4

#### Safe Staffing

...Nurse-to-Patient Ratios Primary health care organizations such as New York Presbyterian (NYP) are impacted by low nurse-to-patient ratios. The recent implementation of the Patient Protection and Affordable Care Act (ACA) has required organizations such as NYP to explore many approaches to improve quality and patient outcomes that contain costs. “Numerous studies reveal an association between higher levels of experienced RN staffing and lower rates of adverse patient outcomes” (www.nursingworld.org, 2015, para. 1). For this reason, nurse-to-patient ratios is an issue that needs to be addressed at NYP in order to improve quality healthcare within their organization. The acuity of the unit in which patient care is being provided, should determine the acceptable nurse-to-patient ratio. According to the American Nurses Association (ANA), factors that influence the nurse staffing needs include: patient complexity, acuity, or stability; number of admissions, discharges, and transfers; professional nursing and other staff skill level and expertise; physical space and layout of the nursing unit; availability of or proximity to technological support or other resources ("Optimal Nurse Staffing," 2015). Currently, New York is one of only fourteen states that addresses the nurse staffing issue in hospitals. New York State requires organizations such as NYP to disclose their nurse-to-patient staffing ratios to the public; however the state does not require a minimum nurse-to-patient......

Words: 3851 - Pages: 16

#### Health Economics

...Health Economics and Health Policy A critique of the methods used to measure and value health in cost-effectiveness studies submitted to NICE. Introduction The responsibility to provide data concerning “Good value for money” in regards to a new treatment or healthcare programme intervention has for itself a remarkable relevance. However, this information has become much more important in recent years due to the fact that we are facing a combination of unprecedented demand with the limitation of resources and the necessity of making decisions regarding priority setting in the healthcare system. Priority setting in healthcare means to determine what is most important in the context of finite resources as well as to decide who is going to benefit from a particular health care service as giving priority to one group of people inexorably implies taking it away from another one. (William, 1998). Nowadays, health care systems are facing the problem of how to set priorities in the allocation of health care resources in order to provide a high quality of care to those who need it and at a cost their governments can afford. All this happens in a time when people have greatest expectations concerning the care they should receive and the health care innovation offers broader options for interventions. (Littlejohns et al, 2012). In England the NHS has the obligation to provide a comprehensive and fair service for all and at the same time to promote an equal...

Words: 2476 - Pages: 10

#### Effective Approaches in Nursing Leadership and Management

...LEADERSHIP AND MANAGEMENT Effective Approaches in Leadership and Management: Nursing Staff Ratio Yu Chen Grand Canyon University: NRS-451V Nursing Leadership and Management October 11, 2015 Effective Approaches in Leadership and Management: Nursing Staff Ratio Introduction Identifying and maintaining the appropriate number and mix of nursing staff is critical to the delivery of quality patient care (American Nurses Association, 2015). Staffing issue is very important simply because this ongoing concern affects the quality of health care service, the safety of both patients and nurses. Many research shows that adequate staff ratio has close relationship with patients’ safety and recovery time of period. In this paper, different nursing leadership and approaches are discussed. Skills and methods employed by leaders and managers to address staff issue are described. My preferred approach is also presented. The Importance of the Issue The benefits and importance to maintain s safe staffing ratio is never underestimated. • Relieve nurses from overload, fatigue and burnout so that they can focus on work to reduce medical and medication errors • Plenty of nurses can provide better service and attention to patients so that complications will be decreased • Mortality could be decreased due to more frequent monitoring of patients’ health condition and prompt response from on-duty nurses and doctors Different Nursing Leadership and......

Words: 1344 - Pages: 6

#### Cost Volume Profit Analysis

... Analysis of company situation………………………………………………....4-8 Analysis on market situation...............…………………………………….....9-12 Swot and competitor analysis ………………………………………………12-15 New product for McDonalds………………………………………………...15- 19 Future marketing strategy..................................................................................19-21 Financial forecast............................................................................................21-22 Conclusion……………………………………………………………......22 Appendix …………………………………………………………..........23-24 References…………………………………………………………….....25 INTRODUCTION Health care system is critically important around the world. And health care industry has always been a subject area with a strong international dimension. The health-care industry incorporates several sectors that are dedicated to providing health care services and products. According to industry and market classifications the health-care industry includes health care equipment and services as well as pharmaceuticals, biotechnology and life sciences, nursing homes, providers of health care plans and home health care. Consuming just fewer than 10 percent of gross domestic product of most developed nations, health care...

Words: 3598 - Pages: 15

#### Introduction to Financial Ratios and Financial Statement Analysis

...REV: SEPTEMBER 13, 2004 WILLIAM BRUNS Introduction to Financial Ratios and Financial Statement Analysis There is almost always a reason why someone picks up an organization’s financial statements and begins to analyze them. Lenders or creditors may be interested in determining whether they will be repaid money they have lent or may lend to the organization. Investors may be interested in comparing a potential investment in one organization with that of another. Employees may want to compare the current performance or financial status of their employer with earlier periods. Regulatory agencies often need to assess organizational or industry financial health and performance. Financial analysis is always based on a set of questions, and the specific questions requiring answers depend on who the financial statement user is and the reasons for his or her analysis. Financial analyses based on accounting information consistently involve comparisons. Amounts or ratios may be compared with industry norms, the same measurement in a prior period, the same measurement in a competitor’s organization, or with planned and budgeted amounts previously established. Figuring out which comparisons will best answer the questions motivating the analysis is one of the necessary steps in making the best use of accounting information. Financial ratios can help describe the financial condition of an organization, the efficiency of its activities, its comparable profitability, and...

Words: 951 - Pages: 4

#### Health Care Finance: Financial Statement Analysis

...Northeast Health Council, INC was established in 1993 to meet the primary healthcare needs of the residents of the Northeast through a not-for-profit community-responsible approach. A nonprofit analysis helps nonprofit executives and board members understand their organization’s underlying fiscal health and readiness for change and growth. The analysis is a critical tool for Northeast Health Council planning for program expansion, organizational restructuring and/or realignment, financial and fundraising challenges, new executive and board leadership, a new capital project, or acquisition or merger with another nonprofit organization (such as the local health clinic). The Northeast Health Council’s analysis helps its executives and board members to understand the underlying financial trends and characteristics of their organization, including revenue composition and growth, expense composition and trends, balance sheet composition, and key ratios. It helps to assess the alignment of the organization’s current financial structure with change; predict the impact of proposed changes on the organization’s future growth, sustainability, and survival; Use financial planning and management tools, such as annual/monthly cash flow projections, budgets of revenue and expenditures versus actual reports, to inform strategic decision making; establish benchmarks for program productivity, financial performance and organization-wide fiscal health. Additionally, the analysis is a......

Words: 709 - Pages: 3

#### Case Law

...Affordable Care Act was passed by Congress and then signed into law by the President on March 23; 2010. On June 28, 2012 the Supreme Court rendered a final decision to uphold the health care law”. The Affordable Healthcare Act affords new means to hold insurance companies responsible and offers strong selections for customers. For example as part of the recently upheld Affordable Care Act, all health insurers are required to spend a percentage of each premium dollar collected to pay claims and to provide clinical service and activities that improve health care quality. ("Healthcare.gov", 2012) The Medical Loss Ratio (MLR) is known as a percentage that healthcare insurers must meet or better known as the MLR requirement. Healthcare insurers are required by the Affordable Care Act to produce a reimbursement to its consumers. The Medical Loss Ratio financial measurement used in the Affordable Care Act to help ensure that health plans provide significant value to users. The following is an example of how insurers use the MLR According to "Healthcare.gov" (2012), “if an insurer uses 80 cents out of every premium dollar to pay its customers' medical claims and activities that improve the quality of care; the company has a medical loss ratio of 80%. A medical loss ratio of 80% indicates that the insurer is using the remaining 20 cents of each premium dollar to pay overhead expenses, such as marketing, profits, salaries, administrative costs, and agent commissions. The Affordable......

Words: 902 - Pages: 4

#### Procter and Gamble Acquiring Gillette

...Gamble- 2006 | Written Case Analysis | Contents Executive Summary 3 Facts about Procter and Gamble: 4 Financial Ratio Analysis: 5 Profitability Ratios: 5 Liquidity Ratios 5 Disadvantages of acquiring Gillette: 6 Employees Layoff: 6 Divergence of P & G from its functioning Efforts: 6 Competitor Threats 6 Supporting of the Acquisition 7 Strong Brand Portfolio, opportunity for more innovation, faster sales growth and cost saving: 7 More Bargaining Power: 8 Boy Meets a Girl! 8 Over all Recommendations for P & G 9 Should Penetrate in the Indian Market 9 P&G should diversify 9 Conclusion 10 Recommendations over Organizational chart 11 Executive Summary With more than 100,000 employees and nearly 5 billion customers, Procter and Gamble (26 among 500 fortune companies is considered as number one US and Global manufacturer of household products, with \$56.7 billion revenues by the end of 2005. Procter and Gamble was established back in 1837, a company holds immense financials with very strong and un-orthodox management structure. Company operated with more than 300 products in 160 countries. The main segment of Procter and Gamble includes the Beauty care which further includes personal and beauty products, the fabric and home care segment which mainly consisted of fabric care and laundry products, the health care segment which encompasses the oral care and prescription drugs and the baby family care segment which further......

Words: 2183 - Pages: 9

#### Student

...difference between trend analysis and comparative analysis Trend Analysis is a ratio analysis technique that examines the value of a ratio over time to see if it is improving or deteriorating. Example: "The analysis of financial information, trend analysis is the presentation of amounts as a percentage of a base year. Example: The trend of a company’s revenues, net income, and number of clients during the years 2001 through 2007, trend analysis will present 2001 as the base year and the 2001 amounts will be restated to be 100. The amounts for the years 2002 through 2007 will be presented as the percentages of the 2001 amounts. In other words, each year’s amounts will be divided by the 2001 amounts and the resulting percentage will be presented. For example, revenues for the years 2001 through 2007 might have been \$31,691,000; \$40,930,000; \$50,704,00; \$63,891,000; \$79,341,000; \$101,154,000; \$120,200,000. These revenue amounts will be restated to be 100, 129, 160, 202, 250, 319, and 379. Let’s assume that the net income amounts divided by the 2001 amount ended up as 100, 147, 206, 253, 343, 467, and 423. The number of clients when divided by the base year amount are 100, 122, 149, 184, 229, 277, and 317. From this trend analysis we can see that revenues in 2007 were 379% of the 2001 revenues, net income in 2007 was 467% of the 2001 net income, and the number of clients in 2007 was 317% of the number in 2001. Using the restated amounts from trend analysis makes it much......

Words: 506 - Pages: 3

#### Analysis of Financial

...information of an organization to its external users” (Edmunds, 2010). They show recordings of obligations and are used for making decisions. The purpose of the analysis is to determine the meaning and significance of the data contained. As stated in the text, there are three different methods that is used for examining financial statements. They are horizontal analysis, vertical analysis, and ratio analysis. Horizontal analysis is one of the most common used techniques to analyze financial statements. The changes from period to period or year to year and over time are observed by absolute amounts or percentages. “Percentage uses the formula (subsequent year – previous year / previous year) * 100” (Zelman, McCue & Glick, 2009). Horizontal analysis is done for the income statement and the balance sheets. Using horizontal analysis is important. It states the facts very simple and makes analyzing more simple. “Vertical analysis uses percentages to compare individual components of financial statements to a key statement figure” (Edmunds, 2010). It analyzes the income statement and the balance sheet. It is also a common used method but it’s used more frequently to monitor annual changes. A benefit of vertical analysis is the ability to evaluate comparisons. The formula used for this analysis is “(line item of interest / base line item) * 100” (Zelman, McCue & Glick, 2009). Ratio analysis is the studying of various relationships between different items reported. Ratio analysis’......

Words: 443 - Pages: 2

#### Student

...causing GM to react with target costing strategies, rising fuel prices directly impacts their cash flows and complicates capital budgeting strategies and tactics and their ongoing health care and pension costs continue to color their future earning potential. These challenges will be addressed by using performance assessment measures. The financial assessment measures include net income and their market share value, liabilities of health care and pension benefits, revenues, target costing and capital budgeting. Non-financial measures include customer satisfaction and branding effects on sales volume. General motors corporation need to reduce the amount of health care expenditures for retired employees and significantly reduce the number of current employees. General motors also introduce to new products to the market, allowing for increase in profit. In order to maintain its position as the leading producer in the automotive industry general motors. PEST: ECONOMIC FACTORS: * An increase in gas prices. * An increase in a health care trend rate. SOCIAL FACTORS: * A change in life style to concern more about environment. * Global warming. TECHNOLOGICAL FACTORS: * Alternative vehicles for alternative energies(hybrid and hydrogen car) * Economic efficient. SWOT ANALYSIS: Strengths: * wide cash reserves * Global network of suppliers and distributors * Economies of scale and scope * Quality improvements * Low cost suppliers......

Words: 1348 - Pages: 6

#### Health Care Economics Issue Presentation

...Nursing shortage is featured in every magazine, health articles, newspaper, television and other forms of communications. Nursing shortage creates serious concerns not only in the field of medicine but in the consumer’s eyes. Health is considered a basic need of mankind; therefore, everyone is affected in maintaining the health status. Nurses are a major workforce in the provision of health care. Where does this discussion lead? Is there a serious threat? What happens now? Is it global? All these questions pump adrenaline to everyone who is concern about their health status. Health care organizations, specifically hospitals have significantly felt the impact of nursing shortage. Nurses are an integral part of any health care organization; and are known to the health care community as front line workers. The following outline is to discuss a health care situation such as nursing shortage in hospital settings. This outline is to provide a comprehensive overview by analyzing and evaluating the effectiveness of procedures that are in place, and recommend improvement strategies based on economic theories and concepts that support best practices. Key Players Nursing shortage is a work in itself, there is no immediate solution to the problem; therefore, nurses as the key players must be involved in the decision making occurring at every health care organization. As nurses, the sole responsibility lies upon them to establish a safe working environment, ensuring patients and......

Words: 4300 - Pages: 18