Ratio Analysis and Ñomparison: University Of Washington Med.Center

Ratio analysis and comparison: University Of Washington Med.Center
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Executive summary
The ratio analysis of the hospital looked into profitability, liquidity, and coverage ratios. This has been crucial to assessing the organization’s financial condition in the short-term and long-term. Even though, the changes in profitability have not been uniform from 2012 to 2014, the hospital can increase its profitability from operations by improving the quality of services. The ratio analysis of the emergency department also showed that there is a need to improve operations and improve on asset efficiency. The ratio analysis also influences the decisions made, showing that it is crucial for the company to assess how increasing hours of operation will influence the organization’s financial position. Overall, the ratio analysis gives a snapshot on what the organization needs to improve and maximize on opportunities available.
Ratio analysis
The total margin has been on a downward trend in the year 2014 compared to the previous periods, although the ratio had risen in 2013. On the other hand, the latest operating margin figure was highest from 2012 to 2014 at 0.052. This shows that the medical center is better placed to control expenses. The primary activities affect performance, but the total margins also take into account revenue from other sources. Since the margin ratios were positive measures, the hospital is in a good financial position at the moment. In calculating the profitability ratios, then the net income is used rather than the cash flow, but the approach is still not exhaustive enough
Besides the margin ratios, the Return on asset (ROA) is another profitability measure and it is the ratio of net assets to the total assets. In 2014, the ROA was considerably lower than the previous two years and this will impact negatively on the business ability to adequately utilize assets in income generation. In other words, there is a need to improve the net income levels by reducing wastages in order to improve the productive capacity of the assets.
The liquidity position for the hospital is a cause for concern given that in 2014, the current ratio reduced to 1.37 from 1.47 in 2013. Since the current ratio is related to the ability to meet short term obligations, there is a need to conduct a proper valuation of the inventories and receivables in order to properly record the current assets. The day’s cash on hand is equally an important liquidity ratio affecting the hospital’s ability to meet cash obligations on daily basis when there is no new cash injection. The day cash on hand is more than 4 days, and higher day cash on hand ratios would be preferred as it would be associated with ability to attract more credit facilities.
The average payment period also focuses on the organization’s liquidity by taking into account the time required to meet current liabilities. The average payment period has increased and there is a concern that this could affect the organization’s liquidity position. On the other hand, the debt service coverage is related to the cash flow required to make debt payments in relation to the debt expenses, and since the ratio has...