Exhibit below lists the financial ratios for 227 bed ABC com

Exhibit below lists the financial ratios for 227 bed ABC community hospital. Assess the revenue, expense, profitability,liquidity, activity, and capital structure of the hospital for 2011. Explain why these financial measures changed between 2010and 2011.

Solution

Liquidity Ratio-

Current Ratio= Current Assets/Current Liabilities

1-Current Ratio of Hospital has been increased from 2.01 to 3.05 which indicate that company has current assets 3 times of current liabilities. Idle Current Ratio is 2.0 and above this indicate inefficieny in operation of company. This Ratio has been increased from 2.01 to 3.05 either due to increase in current Assets or Decrease in Current Liabilities.

2- Acid Test Ratio is liquidity ratio that indicates short term liquidity of company. Acid test ratio has been increased from 0.35 to 0.65 in 2011 which is favourable condition for company. It has been increased due to increased in liquid Assets which includes current assets other than Stock and Prepaid expense.

3- Days in Account receivable shows average collection period taken for collecting cash from customers. Collection period of Hospital has been decreased to 48 days from 60 days which indicate efficiency of company in management of Customers and collection strategy. It means company is now collecting cash from customers in 48 days instead of 60 days, which is good.

4- Days cash on hand of Hospital has been increased from 120 to 215 days, which indicate that company is not able to manage cash. in crease in this area mmay be due to mismanagement and deficiet in planning of treasury department because company has cash on hand for 215 days which indicate abnormal period and fund is idle.

5- Average Payment period means time taken by company for payment to creditors or credit period allowed by supplier. Payment period has been increased from 48 to 62 days which indicates advantage in form of credit period allowed by suppliers. this may be due to arrangement of creditors.

Activity Ratio-

1- Total Assets Turnover ratio means percentage of sales to total Assets. Assets Turnover ratio of hospital has been decreased from 1.20 to 0.90 which indicates that company has not generated revenue even equal to Total Assets in 2011. Which may be due to increase in Assets or deacrease in sales.

2- Fixed Assets Turnover ratio shows how many times revenue of Fixed assets. Fixed assets turnover ratio of Hospital has been decreased from 2.75 to 2.20 which indicates that company is not able to maintain FA Turnover ratio. Ratio in 2011 indicates that revenue of hospital is 2.20 times of fixed assets than 2.75 times in 2010.

Capital Structure Ratio--

Debt Service Coverage Ratio= (PAT+Interest+Depreciation)/ (Interest +Installment of Principal paid)

DSCR of Hospital has been decreased from 4 to 2.75 times. Ratio 2.75 in 2011 indicates that Service of debt is 2.75 times of Installment and Interest. Ratio has been decreased due to increase in loan fund of decrease in profit.

Long term debt to net assets is increased from 0.55 to 1.40 which may be due to increase in long term debt.

All ratio of hospital has been moved in reverse direction which are not in favour of hospital.