Table of Contents
Executive Synopsis Revenue Liquidity Productivity Capital Structure Bibliography
Executive Synopsis
The table attached to this report provides a comparative examination of St. Mary's financial performance as measured by financial ratios. The organization's ratios are compared to the national benchmark for healthcare organizations for the respective time periods. Comparing the financial ratios of the same company across time offers an examination of the firm's financial situation and profitability over time (Horne, 2004). The organization's financial health can also be determined by comparing its ratios to the industry average for the relevant time period.
Profitability
Profitability ratios are a class of financial indicators used to evaluate a company's capacity to create profits relative to its expenses and other costs incurred during a specific time period (Investopdeia). In the instance of St. Mary's, between 1990 and 1993, the organization's profitability improved significantly. This is evidenced by the gradual improvement of the operating margin from -30.24 percent in 1990 to 4.81 percent in 1993. Compared to the national average of 2.25 percent for the year 1993, St. Mary's financial performance in terms of profitability is much superior. However, the organization has not performed better in terms of gross margin, as the 1993 industry average of 7% is higher than that of St. Mary's. Even though St. Mary's was able to improve its financial performance on the gross margin relative to 1990 (-24.65%), it has failed to reach industry requirements. Due to the smaller gross margin, the company cannot offer a higher return on equity to its shareholders. In 1993, although the industry average was 14.88 percent, St. Mary's was only able to earn a return of 7.03 percent, which is substantially lower. Over time, however, the company's stockholders are receiving ever increasing returns. In this regard, the company has succeeded well financially.
Liquidity
Liquidity refers to a company's capacity to satisfy its periodic financial obligations. In proportion to the firm's ability to create adequate cash flows, it will be able to meet its financial obligations. Current ratio and quick ratio are indicators of an organization's capacity to meet its obligations (Ross, Westerfield, & Jaffe, 2004). St. Mary's liquidity has been uneven between 1990 and 1993. This is demonstrated by the comparative financial indicator statement. St. Mary's current ratio for 1993 is 1.68, whereas the industry average is 2.18. The current ratio is determined by comparing the value of an organization's current assets to its current liabilities. This suggests that the company's cash flow is considerably constrained and that it may have difficulty meeting its existing financial obligations. The quick ratio is the ratio of a company's immediately realizable current assets to its current financial commitments. St. Mary's had a bad quick ratio relative to the national average, highlighting the organization's constrained cash flow status. From 1990 to 1993, the quick ratio has, however, improved.
Efficiency
Efficiency ratios reveal a company's capacity to utilize its diverse resources effectively in order to increase earnings. Based on St. Mary's efficiency ratios, a historical analysis of the company's ratios, and a comparison with the national benchmark for 1993, it is reasonable to conclude that the company has employed its assets more efficiently to generate profits. The firm was able to collect its delinquent accounts at a far higher rate than its competitors in the market. This can be observed by comparing St. Mary's average collection period to the national norm.
Capital Structure
The debt to equity, long-term debt to equity, and long-term debt to capital assets ratios reveal the organization's financial leverage. Financial leverage is the degree to which a company relies on debt funding instead of equity. The more a company's debt, the greater the likelihood that it will be unable to fulfill its contractual obligations. A high level of debt might increase the likelihood of insolvency and financial difficulties. St. Mary's has a stronger track record in this category, and the organization has not grown its exposure to debt financing, which reflects the organization's ability to finance its operations using its own equity and cash flow. This is evident from the firm's debt to equity ratios and a comparison of those ratios to the national average.
In general, St. Mary's financial performance has improved during the period, thus the current management team can be retained. However, there is an immediate need to increase the gross margin by reducing administrative and other overhead costs, which would result in a greater return on equity.
Table 1: Comparison of St. Mary's with National Benchmark Financial Indicators
1990 1991 1992 1993
The Saint Mary's National St.
St. Mary's National
St. Mary's National
Mary's National Hospital
Profitability
Operating Margin -30.24% 2.0% -4.67% 1.52% -0.08% 2.07% 4.81% 2.25%
Gross Margin -24.65% 5.15% -2.25% 4.45% 2.0% 4.62% 7.0%
Return on equity -69.62 percent 7.29 percent -14.28 percent 6.36% -0.26% 6.82% 14.88% 7.03%
Liquidity
Current 1.61 2.00 1.54 2.15 1.56 2.05 1.68 2.18
Quick 1.01 1.63 1.31 1.81 1.34 1.72 1.56 1.71
Efficiency
Asset Turnover Total 1.44 N/A 1.8 N/A 2.04 N/A 1.99 1.01
Asset Turnover Rate 3.73 N/A 4.51 N/A 5.21 N/A 4.29 3.57
Investment Asset Turnover 2.35 N/A 3 N/A 3.35 N/A 3.71 2.2
Age of Plants on Average 16,03 n/a 17,09 n/a 19,63 n/a 17,15 8.5
Average Collection Period
Capital Structure
Debt Ratio 13.47% 45.8% 15.22% 45.7% 12.13% 44.7% 8.06% 44.5%
Long Term Debt To Equity Ratio 21,54 % 55,2 % 25,85 % 53,3 % 19,33 % 51,5 % 12,53 % 50,1 %
Debt to Capital Asset Ratio 21.95% 64.0% 25.33% 64.5% 19.94% 63.9% 15.04% 63.1%
Bibliography
Financial Management Policy, Edition XII, New Delhi: Prentice Hall India Private Limited, J. C. Horne (2004). Investopdeia (n.d.). Ratios de rentabilidad Web. Ross, S. A., Westerfield, R. W., & Jaffe, J. (2004). Corporate Finance, edition seven New Delhi: Tata McGraw Hill.
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