DRAFT - Consideration of Key Data for Arcadia HCA 270...

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Consideration of Key Data for Arcadia HCA 270 Financial matters for health care professionals By: To: Axia College of University of Phoenix May 10, 2009 Ratio Analysis between 2006 and 2005 Financial Statements, Part I Current Ratio = Current Assets / Current Liabilities 2006: 1.81 2005: 2.16 What does this mean? In 2006 Arcadia became less able to cover its current liabilities out of its current assets; this change indicates less liquidity, and may affect the extension of credit from prospective lenders. Ratio Analysis, Part II Inventory Turnover = Sales / Inventory = Net Patient Revenues / Inventory 2006: .74 2005: .61 What does this mean? In 2006 Arcadia was able to move its inventory faster (turn it over more times over the year), which indicates better resource or sales use. Ratio Analysis, Part II (Continued) However…
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A hospital is a largely service-driven business, and therefore most of Net Patient Revenues will be due from services rendered, not inventory sold.1 Therefore, the inventory turnover ratio is not highly meaningful since the portion of Net Patient Revenues due to inventory sales cannot be disaggregated from total Net Patient Revenues. Ratio Analysis, Part III Total Asset Turnover Ratio = Sales / Net Total Assets 2006: .74 2005: .72 What does this mean? This ratio is an indicator of Management’s efficiency in using a company’s net resources. The increase of this ratio may indicate increased Management efficiency.2 This indicator is mainly useful in comparison to industry ratios; in this case, competitors had a 2005 Total Asset Turnover Ratio of 1.01, which may mean one of two things for
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This note was uploaded on 07/23/2011 for the course HIST 135 taught by Professor Thomas during the Winter '10 term at University of Phoenix.

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DRAFT - Consideration of Key Data for Arcadia HCA 270...

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