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Financial Ratio And Operating Indication Analysis Case Study

Riverview Community Clinic manages as a not for earnings center with 210 inpatient mattresses. The financial ratio and operating indicator examination of Riverview Community Clinic will try to determine their performance within their market. The further examination of the cash moves, Du Pont formula, and economical value added (EVA) will offer insight with their financial performance.

The diagnosis of the nursing homes cash flows will allow the evaluator to determine if the company's core functions were profitable, how capital grew up, and how the institution's financial strategies effected their cash position. The closing cash and investments for 2009 were reduced by almost forty-five percent from the prior year.

This downward craze may become an area of concern, since it could create an failure for a healthcare facility to pay its daily operating commitments. The predetermined property acquisitions have extended to go over the depreciation indicating a possible section of research for budget development to regulate costs. This is a loss of forty-six percent from the previous year and could require further financial strategies to justify their costs. The most important factor impacting the change in the money movement was the payment of long term credit debt ($1. 4 million) when compared with the previous year when more than $3. 5 million was incurred to hide for their capital buys.

The Du Pont research offers the management a standard understanding of the profitability of the organization. Riverview's total margin of 6. 75% falls within the top quartile of the industry data for clinics with 200-299 bedrooms (Table 2). This higher profit margin reveals that Riverview has achieved better control over its total expenses than nearly all similar size hospitals. The asset turnover of 0. 67 falls within the lowest quartile of comparable hospitals. This asset utilization reveals that the hospital is not so efficient in making revenues for every dollar of asset. The collateral multiplier of 1 1. 69 falls below the median data group. This means that that the organization possesses lower debts funding and lower risk than the common hospital but this results reducing its financial leverage. Riverview's go back on collateral (ROE) falls right above the median of similar size clinics at 7. 66% which translates to 7. 6 cents earnings for every money of revenue. This is significantly lower than the top quartile of similar facilities that got more than dual Riverview's ROE.

The evaluation of the income declaration and the total amount sheet requires the calculations of financial ratios to obtain meaningful data that can be compared to industry values. You'll find so many ratios that can be utilized to evaluate the financial position of a business. The success ratios of Riverview street to redemption within the median range, except their total profit percentage of 6. 75% (Table 3). This level places it within the top quartile of equivalent hospitals. This might point out that Riverview manages to control expenses well. Riverview's current proportion and days and nights cash readily available fall within the very best twenty-five percent of the industry data. These liquidity ratios point out that Riverview's current assets would provide $2. 67 for every dollars of current liabilities, and they have 32. 72 times of cash on hand. These ratios suggest to their collectors that they are constantly in place to meet their obligations. The debt management ratios all fall season within the median range. The advantage management ratios fall within the median range except the set and total property turnover. Riverview's usage of assets comes within the cheapest quartile. The fixed property turnover of 0. 86 times may be an indication of their incapability to offer specific services. The total property turnover of 0. 67 times is much less low as its set advantage indicating they are utilizing current assets much better than fixed assets. Inflation or age of the hospital may adversely influence these ratios; however, Riverview has an estimated fixed advantage age of 6. 12 years. Riverview falls within lower quartile to point that their medical center offers more recently purchased acquisitions.

The operating sign analysis examines internal data to look for the factors that donate to the financial status of the company. These indicators are used by managers to identify and guide financial strategies for the near future. Riverview's profit indications are within the median selection of the industry; however, the significant downward pattern for revenue per inpatient release should be followed closely (Stand 4). The earnings per outpatient visit has upgraded but is still negative. The net price per visit and revenue percent of outpatient services are both within top of the quartile. The outpatient services remain not producing a revenue with the increased price per visit. Riverview's occupancy rate is within the median range, but their average daily census is at the lower quartile. This would further suggest their need to make use of fixed assets better. The hospital's modified amount of stay is within the lowest quartile indicating a good management of discharging patients. The level of service indications show that the cost per release and visit are within the cheapest quartile but their circumstance combination is in the top quartile. They are providing more extreme service to their patients better value. The outpatient labor hours per visit are within the upper quartile at 9. a day. The outpatient service would require further investigation of these higher labor time to increase efficiency.

The monetary value added (EVA) measures the management's capacity to set-up or destroy riches because of their company. Stern Stewart & Co. (Stern, 2010) developed this metric to provide a more effective evaluation of management's capacity to provide stockholders value. The EVA analysis of profitability considers all costs including: capital, equity, and its funding. The higher the EVA measure, the more effective management is at creating value because of their shareholders. The EVA dimension for Riverview has trended negatively over the two past years but has improved upon twenty-five percent this past this past year to -1. 2 million (Figure 1). The factors adding to this negative change were shrinking profits and an increasing build up of capital. The EVA money amount in 2009 2009 improved credited to lowered capital acquisitions and reduction in long term personal debt. The limitation of the EVA computation; will not offer an allowance for the cultural value provided to the community by the not-for-profit service.

The diagnosis of the financial performance of Riverview Community Clinic reveals several areas of matter. The further examination of fixed property acquisitions should be justified by the clinics financial strategies. These capital acquisitions significantly outpace the yearly depreciation allowance. Riverview's REO analysis reveals a significant reduction in total margin that remains in the top quartile with their industry. A healthcare facility should examine the viability of improving both total advantage turnover and collateral multiplier to bring their ROE in line with their degree of total margin performance. They ought to determine if upgraded fixed asset utilization will better leverage them within the market. The profit of these outpatient services can be an area that should be targeted for effective cost lowering strategies.

The financial proportion and operating signal examination may have several limitations that need to be addressed. The income from non-operating earnings for not-for-profit private hospitals can be unstable and inconsistent. This outside the house source of earnings can be a significant part of their income. This may distort the calculations predicated on that highly unreliable income. The many financial ratios may not fully account for the not-for-profit status of a healthcare facility and may need further examination to ascertain their validity. The unaccounted equity provided to the city is not factored in to the equations. The excess professional medical benefits provided to the shareholders of the community may out weight the decrease in effective asset utilization by the facility.

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