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Patton-Fuller Ratio Computation Essay Sample

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Patton-Fuller Ratio Computation Essay Sample

1. The Current Ratio, 5.41 to 1 (2009) and 15.5 to 1 (2008), are due to a decrease in current assets of $1,159, and an increase in current liabilities of $15,427, which indicates a 10.1 to 1 change from 2008 to 2009 in the ratio of assets to liabilities. This performance measurement shows that the hospital assets dropped while the liabilities increased. The increase of $22,121 in Accounts Receivables is contributing to the decreasing ability of the hospital to pay its short term debts. In regard to the CEO statement that every financial ratio has improved, we disagree with that statement because the report shows clearly that the Current Ratio dropped from 2008 to 2009. 2. The Quick Ratio are 3.47 to 1 (2009) and 9.49 to 1 (2008). The main difference between the Current Ratio and the Quick Ratio is that Quick Ratio used cash, cash equivalents, and accounts receivable/current liabilities in opposed to the total current assets/current liabilities. We stand in strong disagreement with the CEO statement that all areas of financial ratio have improved; because under careful observation and calculations they have they have not.

3. The Days Cash on Hand are 19.7 days (2009) and 36.3 days (2008) due to significant increase in total liabilities amid the years of comparison and not enough increases in assets to offset the difference. Again, the CEO explained the use of cash to buy equipment and inventory. However, the CEO did not explain how the unfavorable increase in Accounts Receivable also absorbed millions in cash. 4. The Days Receivables are 47.15(2009) and 32.63(2008), effectively removing about $22,121 in cash from the facility and leaving that cash in the hands of the payers. An increase in the days receivable means that more revenue will become more difficult to collect. This computation shows that billing and collection performance has declined. Once again we do not agree with CEO that every financial ratio has improved due to the 14.52 day increase in day’s receivable.

5. The Debt Service Coverage Ratio (DSCR) is 2.76 (2009) and 3.0 (2008) due to the $16,473 increase in cash and the $10,414 increase in “Maximum Annual Debt Service”. The debt ratio improved from 2008 to 2009. 6. The change in the Liabilities to Equity Ratio was 3.65 (2009) and 0.64 (2008). This unfavorable change is caused by having high liabilities and low Retained Earnings (or “Net Worth”). Major contributors to this problem were the significant increase in long term debt and the diminishing decline in the unrestricted fund balance. 7. The Operating Margins are 0.15% (2009) and -3.82% (2008) equating a 3.65% increase in profit margin. 8. Return on Total Assets was 22% (2009) and 61.7% (2008), due to the improvement in Operating Income and the relatively small increase in Total Assets. Based on the audited financial statements, the eight ratios show that some of the return does not positively reflect the return on total assets. Audited Financial Statement

1. The Current Ratio (2008) 15.5 to 1 (2009) 5.4 to 1“unaudited” statements, due to the decrease in current assets as well as an increase in liabilities, which indicates a 10.1 to 1 change in the ratio of assets to liabilities. 2. The Quick Ratio (2008) 9.49 to 1 (2009) 3.44 to 1, due to an audit adjustment to Net Accounts Receivable. This ratio indicates a decrease in the ratio of assets to liabilities. 3. The Days Cash on Hand (2008) 37 days (2009) 19.6 days “unaudited” statements, due to expenditure of cash and the decrease in Accounts Receivable.

4. The Days Receivables, again effectively removing millions in cash from the facility and leaving it in the hands of the payers. Due to the accounting method used at the hospital (Provision for Doubtful Accounts is shown as an “expense” and does not directly reduce “Net Patient Revenue”), the effect of the $ 1 million audit adjustment was not as apparent in this ratio. 5. The Debt Service Coverage Ratio (2008) 3.0 to 1 (2009) 2.69 to 1 unaudited statement, due to the audit adjustment of $1 million. Again, the “non-cash” expenses (depreciation, amortization) are big factors in the computation of this ratio. 6. The Liabilities to Equity Ratio (ratio of what is “owed” to what is “owned” showed the same unfavorable change, due to audit. 7. The Operating Margin showed a gain (due to the audit adjustment), which is different from that reported on the “unaudited” financial statements however, the revenues and expenses “breakeven”. 8. Return on Total
Assets (2008) -0.0354% (2009)-0.57% “breakeven”, due to decline in Operating income (again, not as much as was indicated via the unaudited financial statements).Net Receivables ÷ Net Credit Revenue/No. of Days in Period

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