Importance of Ratio Analysis in Healthcare

Ratio Analysis in Healthcare
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Ratio Analysis in Healthcare
Ratio analysis is critical in the healthcare business because it allows healthcare organizations to evaluate their financial performance and stability, make informed decisions, and find areas for development. Healthcare businesses can use ratio analysis to compare their financial status to industry benchmarks, evaluate trends over time, and measure the success of financial management methods (Baker, 2023). As a result, executives in healthcare businesses should understand financial ratios and how they might inform strategic decisions. Effective use of financial ratios may assure a healthcare institution's financial stability and success.
Ardent Health Services is one of the largest healthcare organizations in the United States, with 30 hospitals and 180 clinic locations. The organization has 24,000 employees and serves 2.6 million patients per day (Ardent Health Services, 2023). Annually, the company generates around US$ 4.4 billion in revenues. Three financial ratios can be used to assess the financial health of Ardent Health Services. To begin, one can use the current ratio to determine whether the company can satisfy its short-term obligations with the assets it has on hand. To determine it, divide the number of current assets by the number of current liabilities. According to Baker (2023), a high current ratio indicates improved liquidity and the capacity to fulfill the short-term commitments of the company.
Second, operating margin ratio would be a helpful metric to use in determining the organization's overall operating profitability. It is determined by dividing operating income by total revenue (Baker, 2023). Operating income is generated by subtracting operating expenses from revenue. If an organization's operating margin ratio is larger, it suggests that managing its core operations is more profitable and efficient. Third, by comparing Ardent's total debt to its total equity, the debt-to-equity ratio can determine how much financial leverage the company has. The debt-to-equity ratio is computed by dividing total debt by total equity. Baker (2023) states that a lower...