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Healthcare Finance Organizational Analysis Case Solution & Answer

Healthcare Finance Organizational Analysis Case Solution

1.     Debt management (capital structure) Ratio:

  Debt management(capital structure) Ratio
DEBT RATIO TOTAL DEBT/TOTAL ASSETS 199% 187% 173% 144%
DEBT TO EQUITY RATIO TOTAL DEBT/ TOTAL EQUITY 67% 65% 63% 59%

Debt Ratio:

It measures the total debt financing in order to finance the resources; a higher ratio means higher debt, consisting of both the long term and the short-term debt. In this case, total debt ratio has a higher percentage. This shows that the healthcare has financed maximum operations through debt and it that the trend is decreasing yearly. This means that they are trying to pay off their long-term liability.

Debt to Equity Ratio:

It measures debt percentage in the capital structure of the business, while considering equity portions as well. The debt to equity shows that the company has increased its long-term loan in its capital structure to finance operations and to reduce annual debt in order to optimize the capital structure. As the higher the debt has the advantage of tax saving.

2.     Asset management Ratio:

  Asset management Ratio
FIXED ASSTES TURNOVER RATIO TOTAL REVENUE/NET FIXED ASSETS        14.95        15.02        13.98        12.95
TOTAL ASSETS TURNOVER RATIO TOTAL REVENUE/TOTAL ASSETS          9.31          9.22          8.84          8.22
DAYS IN PATIENT ACCOUNT RECEVABLES NET PATIENT ACCOUNT RECEIVABLES/NET PATIENT SERVICES REVENUE/365        58.76        58.03        53.10        49.14

Fixed assets turnover Ratio:

It measures the total revenue generated from net fixed assets, which show higher percentage of fixed assets returns by efficient utilization of land, and equipment. It is similar to total asset turnover, only using sub set of total assets.

Total assets turnover Ratio:

It measures the total revenue as per dollar of total assets. A higher turnover means an efficient investment of assets. It shows the total investments of assets in generating the sales. In this case, the return is better in all years as indicated in the calculation. Although it is decreasing, it is still generating good return I times.

Days in patient account receivables

It measures the average time to collect the receivables from creditors. The calculations for the hospital show that the receivables are in range of 50 to 58 days.

Trend analysis:

Trend analysis shows a comparison between income statements and the balance sheet from the previous year.

The income statement shows \revenue generated from patients in the healthcare facility and it shows a decreasing in present year as compared to previous year, since the total patients decreased by 9% in the second year and 8% in the fourth year as compared to the previous year. Therefore, the net income decreased in the last year, as the company increased its expenses. They saw a decrease of 6.21% in profits for the 4th year. The balance sheet’s trend analysis shows that total assets are decreasing each year because there a decrease in fixed and current assets. Total assets decreased by 1.17% in the fourth year. Healthcare liabilities are increasing each year and they have increased by 17.66%. This shows that company is using more debt in its operations and has the advantage of tax saving, along with reduction in the use of equity.

Would u Invest or Not:

By examining the ratios, it is wise to invest in the company as it is improving every year, the increasing trends in each analysis make the facility very attractive to investors The hospital is now working on reducing debt in its daily operations. Net income is also increasing, which indicate at future growth opportunities for the company.

However, based on trend analysis, the investing decision does not favor the hospital as it has seen a decline in income every year in comparison to the previous year……………….

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