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Ratio Analysis in Decision Making for Health Care Organization

In: Business and Management

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…...

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