Zelman, W. N., McCue, M. J., Glick, N. D., & Thomas, M. S. (2014). Financial management of health care organizations: An introduction to fundamental tools, concepts and applications (4th ed.). San Francisco, CA: Jossey-Bass.
- Chapter 3, “Principles and Practices of Health Care Accounting” (pp. 103–126)
- Chapter 4, “Financial Statement Analysis” (pp. 137–183)
- Chapter 9, “Using Cost Information to Make Special Decisions” (pp. 409–432 only)
Ratio Analysis DQ
The purpose of financial ratio analysis is to provide information about the financial performance of an organization which goes beyond that which is available from analyzing only one line item at a time. Ratios are generally grouped into four categories: Liquidity; Revenue, Expense, and Profitability; Activity; and Capital Structure.
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Liquidity ratios answer the question: “How well is the organization positioned to meet its short-term obligations?”
Revenue, Expense and Profitability ratios answer two questions: (1) “How profitable is an organization?” and (2) “How effective is it in controlling its operating costs and increasing its operating revenues?”
Activity ratios answer the question: “How efficiently is the organization using its assets to produce revenues?”
Capital Structure ratios answer two questions: (1) “How are the organization’s assets financed?”; and( 2) “How able is the organization to take on new debt?”
Exhibit 4.21 on page 193 of our textbook (Zelman et al.) lists 17 financial ratios for the 189-bed Collings wood Community Hospital. For this Discussion, choose six of the ratios and discuss the following:
- From the definition of the ratios, explain why your selected ratios changed from 20X0 to 20X1. Be sure to indicate if the change noted is favorable or not and explain why.
- Compare your selected ratios with the national industry benchmarks for Collingswood’s bed size using the data shown in Exhibit 4.16a on p. 185. Indicate whether or not Collingswood’s current performance on each of the selected ratios is better or worse than the corresponding industry benchmarks. Explain how the hospital can improve its current performance relative to individual benchmarks for each of the selected ratios.