Financial Ratio Analysis

The TEXTBOOK needed isFinancial Management of Health Care Organizations, 3rd Edition

Financial Ratio Analysis

  1. Search for a Hospital’s Annual Report on the web, or you can also look for a hardcopy annual report of a Hospital. Find the most recent Annual report. Annual reports older than 2008 is not accepted. Most Annual Reports contain the Hospital’s Financial Statements. You will use the financial Statements to prepare the Financial Ratio Analysis of the Hospital you select.
    1. NOTE: Be careful not to select a Hospital System!. Hospital Systems consist of several hospitals of varying bed sizes. Most times their financial statements are consolidated. As such you may be unable to compare and benchmark your ratios to the industry standards in item #4 below.
  2. Prepare a 2-3 year financial ratio analysis. You must calculate each of the ratios listed in your textbook. The sample below only serves as a guide for what your assignment may look like when complete.
  3. Include a brief commentary including both benchmarking and trend analysis. Study the example below.
  4. Refer to Financial Ratio National Standards Table, Exhibit 4-16a 0n page 167 in your text for industry benchmarks. Note the hospital size (# of Beds) and select the Median Ratio appropriate for your hospital.
  5. Don’t forget to include a brief description of the company. Your description should include the following:
    1. An overview of the hospital
    2. Major types of services provided by the hospital
    3. Number of facilities and location
    4. Type of legal entity
    5. A brief history of the hospital

Financial Ratio Analysis Sample Assignment

Here is an example of what your financial ratio analysis might look like when you are through:

1. Current Ratio

2008: 1.90

2009: 1.69

Comment: 1.9 is in good agreement with HCIA/HCFA value of 1.95 for a 100-249 bed hospital. However, from 1996-1997, there is a decrease to 1.69, suggesting concern that asset increase did not keep up with increase in liabilities.

2. Days in accounts receivable

2008: 101.9

2009: 71.29

The HCIA/HCFA average is 66. Both 1996 and 1997 are high, but there is a clear decreasing trend in ’97, which is favorable

3. Days cash on hand:

2008: 27.2

2009 23.71

The HCIA/HCFA standard is 47 Both 1997 and 1996 are low, and the trend to 1997 is decreasing and is a concern about cash flow problems.

4. Times interest earned

2008: 4.70

2009: 1.395

The HCIA/HCFA average is 4.29. In 1996, the ratio was excellent at 4.70. However, in 1997 the ratio decreased significantly.

5. Debt service coverage

2008: 5.64

2009: 3.62

HCIA/HCFA value is 3.35 for a 1-99 bed hospital-both figures are well above standard, but there is a decreasing trend. Concern is whether the trend would continue and debt service capability would be jeopardized.

6. Total asset turnover

2008: 0.685

2009: 0.7164

The HCIA/HCFA value is 1.02 for a 1-99 bed hospital. Both values are low, but there is a slight upward trend in ’97.

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