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Patton-Fuller Community Essay Sample

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Patton-Fuller Community Essay Sample

The unaudited financial statement current ratio shows that the hospital is able at 24 to 1 ratio to pay their obligations. Since the ratio is higher than one, it tells us that the company is in good financial health. If we compare this unaudited ratio to the audited ratio we can see a change of ratio. The audited current assets are at $127,867 and the current liabilities are at $23,807. The ratio is represented by a 5 to 1. The ratio in both situations shows an efficiency of the hospital operating cycle and its ability to turn its products into cash. There is a significant change in the ratio when comparing the financial statements.

It is important to understand that a high current ratio does not always mean a good thing because it depends on how fast the company can convert into cash their current liabilities. For the future, it will be important for the Board to continue to keep such a good ratio. It is important for companies to have access to cash and investors will appreciate this ability to convert assets into cash. Since the current ratio measures only the quantity and not the quality of current assets, the Hospital must continue to invest in state of the art equipment and invest wisely to keep their assets at a good level. Since it is easy for the ratio to be manipulated, it is important to have an effective evaluation of all assets in the hospital. 2. Quick ratio

The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets. In this ratio, it excludes inventories from current assets, and is calculated as follows (unaudited): Cash and cash Equivalent + Net Receivable=$33,752=1.41 to 1 Current Liabilities$23,807

The quick ratio measures the dollar of liquid assets for each dollar of current liabilities. We can explain the quick ratio of 1.41 meaning that the hospital has $1.41 of liquid assets available to cover each $1.00 of current liabilities. When we compare to the audited quick ratio, we can see the difference. The hospitals cash, cash equivalent plus the net receivable are at $33,752 and the current liabilities at $23,807. The ratio became even better at 1.45 to 1. The quick ratio is more a conservative measure because it excludes inventories from current assets. There was not a significant change from the statement with the audited numbers compare to the unaudited. The Hospital must keep in mind that it may take time to convert inventories into cash, and if they need to be sold quickly, the hospital may have to accept a lower price.

3. Days Cash on Hand (DCOH)
The days cash on hand indicates the number of days of operating expenses in which a non-profit facility have available with its current cash supply. To calculate days cash on hand, (DCOH) all tangible cash equivalents must be
added; for example the calculation used to calculate DCOH is unrestricted cash and investments divided by cash operating expenses/365. According to the Patton Fuller hospital’s unaudited balance sheet, their total operating expenses equals 462,293, after subtracting the value of depreciation the total equals 426,257. Dividing 426,257 by 365 equals $1,168 which represents the daily operating amount. Next, the total for cash and cash equivalents must be divided by $1,168 which equals 20, or the days of cash on hand. This indicates that the hospital has 20 days of cash on hand in average and need to slow down on expenditures and utilize cash sparingly. 3 Days Receivables

The days receivables calculation involves computing net receivables divided by net credit revenues/365. Patton Fuller hospital, for the year 2009, had a net receivables amount of 59,787, this amount can be divided by the net credit revenue (459,900) also divided by 365. The calculation is determined by the formula: net receivables = 59,787 = 47 net credit revenue/365 459,900/365

The number of days receivables equals 47 which represents the number of days in receivables. The older an account receivable remains the more difficult it will be to collect.

SOLVENCY RATIOS
4 Debt Service Coverage Ratio (DSCR)

5 Liabilities to Fund Balance
PROFITABILITY RATIOS
1. Operating Margin (%)
The operating margin compares a company’s operating income (earnings before interest and taxes, or EBIT) to sales. It indicates how successful management has been in generating income from operating the business. The calculation for the unaudited is as follows: Operating Income (loss)=$689____=0.14%

Total Operating Revenue$462,982

After reviewing unaudited operating margin, which was compared to audited operating income of the hospital there was a difference, which showed a negative ($-311) to $462,982 yielding 0.6%. This would reflect the profit margin for the organization, which influence investors, stakeholders and sets margins for the organization worth. This also shows how successful management has been in maintaining operational expenses for the organization.

2. Return on Total Assets (%)
Return on total assets is calculated by dividing net income by total assets. It can be found with the net income on the income statement and total assets on the balance sheet. The hospital unaudited return on total assets percentages is as follows: EBIT (Earnings before Interest and Taxes = $627 =0.1% Total Assets$588,767

There continues to be a great margin of difference between the unaudited which showed $627 to $588,767 giving the hospital a 0.1% profit, and the audited which showed a negative ($-311) to $587,767 which showed 0.06% profit, which the audited margin reflects the negative impact of losses for the hospital.

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