Are the financial ratios for the hospital improving? The Answer is: No There is a essential use and limitations of financial ratio analysis, One must keep in mind the following issues when using financial ratios: One of the most important reasons for using financial ratio analysis is comparability and for this, a reference point is required. Usually, financial ratios are compared to historical ratios of the business itself, competitor’s financial ratios or the overall ratios of the industry in question.Performance may be adjudged as against organizational goals or forecasts. A number of ratios must be analyzed together to get a true and reliable picture of the financial performance of the business.
Relying on each ratio individually may not be a good strategy. Year-end values may not be truly representative of the actual performance of the business and hence, average values should be used when they are available. The limitations of accounting methods also apply to financial ratio analysis.The selection and application of accounting standards may result in different ratio values. Financial ratio analysis, in fact, has a great use in management accounting which differs from financial accounting in being an on-going, performance management exercise.
This summary is a review of the annual report and financial statements and the differences between the audited and the unaudited statements. The financial ratios are examined to determine if there has been improvement from 2008 to 2009 and to explain the cause.This paper will also summarize the relationship between revenue sources and expenses and explain the effect of revenue sources on financial reporting. The summary will also determine how the hospital’s revenues and expenses are grouped for planning and control.
Audited and Unaudited Financial Statements The balance sheets for the Patton-Fuller Community Hospital for the years of 2008 and 2009 appear to have a discrepancy of $1,000,000 in the patient accounts received. On the 2009 unaudited statement, there was $59,787,000 and on the audited there was $58,787,000 which accounts for the $1,000,000 difference.Additionally on the Statement of Revenue and Expense for years 2008 and 2009 there was a discrepancy of $1,000,000 in 2009. This discrepancy appeared on the provision for doubtful accounts. The unaudited report showed $13,797,000 and the audited shows $14,797,000 which accounts for the $1,000,000 difference.
This makes the “net income” for the year (2009) $627,000 in the unaudited, and 373,000 in the audited statement. The financial ratios for Patton Fuller Hospital are not improving according to liquidity, solvency, and profitability ratios.The liquidity ratios, which show the organization’s ability to pay off short-term debts, are indicating that Patton-Fuller hospital does not have a sustainable safety net.
The current ratio and the quick ratio have decreased nearly three-fold. Day’s cash on hand has decreased two-fold, and days receivables have increased. The solvency ratios indicate the ability for a company to meet its long-term commitments.
Both the debt service ratio and the liabilities to fund balance indicate that the company will not able to survive over the long-term.Patton Fuller’s profitability ratios show that the organization is not doing well. Both the operating margin and the return on total assets have decreased significantly, showing that the organization is experiencing difficulty generating earnings compared to its cost. The expense report, which consists of assets from both an audited and unaudited annual report dated from 2008 to 2009, is the total of revenue acquired throughout the year. It is important to review the balance sheet and to understand the T account.The T account displays the two sides of the report: the left side indicates the debits and the right side indicates the credits.
In the unaudited balance sheet in 2009 an incorrect entry of $13,797,000 and the correct entry was $14,797,000, which is a difference of $1,000,000. The operating income on the 2009 unaudited report entry was $6,890,000 and the correct entry is $3,110,000 this is a difference of $2,540,000. Incorrect report entries on the balance sheet in the area of the debit side would cause negative effects. This error would cause overspending and poor resource allocation.
The Patton-Fuller Community Hospital’s Statement of Revenue and Expense, is that the revenue is grouped together as one large classification relative to the revenue centers. However, the CFO Report breaks the hospital’s revenue down into more detail, which shows that 80% of the revenue is from inpatient activity and 20% is from emergency department and other outpatient services. The statement’s expenses are grouped by general services cost centers.
However, the CEO receives a total report overseeing all centers and this is what is shown on Patton-Fuller’s report.This hospital’s statement is grouped as an overview of the operations revenues and expenses. Conclusion A review of the Patton Fuller Community Hospital financial statements and annual report shows the audited and unaudited financial statements differ. The financial ratios for the hospital were not improving. The relationship between revenue sources and expenses on Patton-Fuller’s financial performance and the effect of revenue sources on financial reporting can be surmised by examination of the reports.
Lastly, one can surmise the method of grouping the hospital’s revenues and expenses for planning and control.