Financial Ratio And Operating Indicator Analysis Case Study

Financial Ratio And Operating Indicator Analysis vitrine StudyRiverview Community Hospital operates as a not for earn facility with 210 inpatient beds. The mo authorizeary ratio and operating indicator outline of Riverview Community Hospital will attempt to get their surgery at heart their market. The tho prisement of the silver flows, Du Pont equation, and economic range added (EVA) will strait insight to their monetary performance.The assessment of the hospitals cash flows will allow the evaluator to determine if the companys core operations were profitable, how capital was raised, and how the institutions pecuniary strategies effected their cash position. The ending cash and investments for 2009 were reduced by almost forty-five per centum from the forward year.This downward trend may become an celestial orbit of concern, because it could micturate an in top executive for the hospital to pay its daily operating commitments. The fixed addition acquisitions hav e continued to exceed the depreciation indicating a possible argona of investigation for budget development to control costs. This was a decrease of xlvi percent from the previous year and may train further financial strategies to justify their expenditure. The most signifi squeeze outt factor affecting the change in the cash flow was the payment of long term debt ($1.4 million) as compared to the previous year when more than $3.5 million was incurred to cover for their capital purchases.The Du Pont abstract offers the trouble an overall understanding of the profitability of the institution. Riverviews total valuation reserve of 6.75% falls at bottom the upper quartile of the fabrication information for hospitals with 200-299 beds (Table 2). This high profit margin indicates that Riverview has succeed emend control over its total expenses than the majority of similar sizing hospitals. The summation dollar volume of 0.67 falls deep down the lowest quartile of similar h ospitals. This plus custom indicates that the hospital is not very efficient in generating revenues for all(prenominal) dollar of asset. The candour multiplier factor of 1.69 falls below the normal data group. This indicates that the institution possesses lower debt financing and lower risk than the aver come on hospital but this results in reducing its financial lever mount. Riverviews return on equity (ROE) falls just above the median of similar size hospitals at 7.66% which translates to 7.6 cents profit for every dollar of revenue. This is significantly lower than the top quartile of parallel facilities that had more than double Riverviews ROE.The analysis of the income statement and the balance sheet requires the calculations of financial ratios to obtain meaningful data that can be compared to persistence values. at that place are numerous ratios that can be utilized to assess the financial status of a business. The profitability ratios of Riverview fall indoors the median ply, barely their total profit margin of 6.75% (Table 3). This level places it within the upper quartile of comparable hospitals. This would indicate that Riverview manages to control expenses well. Riverviews real ratio and days cash on hand fall within the top 25 percent of the industry data. These liquidity ratios indicate that Riverviews current assets would provide $2.67 for every dollar of current liabilities, and they have 32.72 days of cash on hand. These ratios indicate to their creditors that they are in position to meet their financial obligations. The debt management ratios all fall within the median range. The asset management ratios fall within the median range except the fixed and total asset turnover. Riverviews utilization of assets falls within the lowest quartile. The fixed asset turnover of 0.86 times may be an indication of their inability to offer specific services. The total asset turnover of 0.67 times is not as low as its fixed asset indicating t hey are utilizing current assets better than fixed assets. Inflation or age of the hospital may adversely affect these ratios however, Riverview has an estimated fixed asset age of 6.12 years. Riverview falls within lower quartile to indicate that their hospital offers more recently purchased acquisitions.The operating indicator analysis examines internal data to determine the factors that domiciliate to the financial status of the company. These indicators are used by managers to identify and withdraw financial strategies for the future. Riverviews profit indicators are within the median range of the industry however, the significant downward trend for profit per inpatient discharge should be followed closely (Table 4). The profit per outpatient visit has improved but is still controvert. The net price per visit and revenue percent of outpatient services are both within the upper quartile. The outpatient services are still not producing a profit with the increased price per vis it. Riverviews occupancy rate is within the median range, but their average daily census is within the lower quartile. This would further indicate their need to utilize fixed assets more effectually. The hospitals adjusted length of stay is within the lowest quartile indicating a good management of discharging patients. The garishness of service indicators show that the cost per discharge and visit are within the lowest quartile but their case mix is in the upper quartile. They are providing more intense service to their patients at a lower cost. The outpatient tire hours per visit are within the upper quartile at 9.24 hours. The outpatient service would require further investigation of these higher labor hours to increase efficiency.The economic value added (EVA) measures the managements ability to create or destroy wealth for their company. Stern Stewart Co. (Stern, 2010) develop this metric to offer a more effective evaluation of managements ability to provide stockholders value. The EVA analysis of profitability takes into depict all costs including capital, equity, and its financing. The higher the EVA measure, the more effective management is at creating value for their shareholders. The EVA measurement for Riverview has trended negatively over the two previous years but has improved twenty-five percent this past last year to -1.2 million (Figure 1). The factors contributing to this negative change were shrinking profits and an increasing accumulation of capital. The EVA dollar heart and soul in 2009 improved due to decreased capital purchases and reduction in long term debt. The limitation of the EVA calculation does not offer an allowance account for the social value provided to the community by the not-for-profit facility.The assessment of the financial performance of Riverview Community Hospital reveals several areas of concern. The further analysis of fixed asset acquisitions should be justified by the hospitals financial strategies. These capital purchases significantly outperform the yearly depreciation allowance. Riverviews REO analysis reveals a significant decrease in total margin that remains in the upper quartile of their industry. The hospital should assess the viability of improving both total asset turnover and equity multiplier to bring their ROE in line with their level of total margin performance. They should determine if improved fixed asset utilization will better leverage them within the market. The profit of their outpatient services is an area that should be targeted for effective cost reduction strategies.The financial ratio and operating indicator analysis may have several limitations that need to be addressed. The income from non-operating revenue for not-for-profit hospitals can be unpredictable and inconsistent. This outside source of revenue can be a significant portion of their income. This could distort the calculations based on that exceedingly unreliable income. The many financial ratios may not fully account for the not-for-profit status of the hospital and may need further analysis to determine their validity. The unaccounted equity provided to the community is not factored into the equations. The additional healthcare benefits provided to the shareholders of the community may out weight the decrease in effective asset utilization by the facility.