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Ration Analysis in Decision Making - Assignment Example

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Ration Analysis in Decision Making

The healthcare company that is going to be evaluated in this report is Cameron Memorial Community Hospital. The financial statements of Cameron Memorial Community Hospital are illustrated in Appendix A and B. The tool that is going to be used to analyze the financial statements of the company is ratio analysis. The Cameron Memorial Hospital was founded in 1926 by Don F. Cameron. The hospital is a 25 bed Critical Access Community Hospital. “CMCH is a comprehensive healthcare system that services the Tri-State Area of Northeast Indiana, South Central Michigan and Northwest Ohio” (Cameronmch). Some of the services offered at Cameron Memorial Community Hospital include radiology, sleep center, surgical services, occupational health, and hospice care. There are over 100 doctors working at Cameron Memorial Community Hospital. In order to comply with its civic duties and social responsibility the hospital created the Cameron Hospital Foundation. The 2010 fiscal year of Cameron Memorial Community Hospital started September 30, 2009 and ended September 30, 2010. In 2010 Cameron Memorial Community Hospital generated total revenues of $41.94 million (In). The company’s revenues increase by 4.98% in comparison with fiscal year 2009. The total expenses of the hospital in 2010 were $41.10 million. The net margin of the company in 2010 was 4.51%. The net margin is an absolute measure of profitability. It is calculated by dividing net income by total revenues. In order to determine whether the net margin of Cameron Memorial Community Hospital is good or not we must compare it to the industry standard. A good database that has information regarding the industry standards across different industries is the Dun & Bradstreet database. The health care industry net margin industry standard is 4.2% (Dun & Bradstreet). The net margin of Cameron Memorial Community Hospital was above the industry standard by 0.31%. The table below illustrated a ratio analysis of Cameron Memorial Community Hospital in 2010. Cameron Memorial Community Hospital 2010 Net Margin 4.52% Return on Equity 7.30% Return on Assets 4.12% Debt Ratio 2.29 Current Ratio 1.97 Working Capital $4380419 Debt to 'Equity 0.77 The return on equity of Cameron Memorial Community Hospital in 2010 was 7.30%. The return on equity metric measures how effective a company was at generating profits from its total equity. The formula to calculate return on equity is dividing net income by total equity. The industry standard return on equity is 9.2% (Dun & Bradstreet). The return on equity of Cameron Memorial Community Hospital in 2010 was 1.90% below the industry standard. The return on assets of the company in 2010 was 4.12%. The return on assets metric can be calculated by dividing net income by total assets. The industry standard return on assets is 4.30% (Dun & Bradstreet). The return on assets ratio measures how effective a company was at generating profits from its total assets. The return on assets of Cameron Memorial Community Hospital was 0.18% below the industry standard. The debt ratio measures a company’s ability to pay off its long term debt. The debt ratio is calculated dividing total assets by total liabilities. The debt ratio of Cameron Memorial Community Hospital in 2010 was 2.29. The general rule for a debt ratio is that a debt ...Show more
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Summary

The healthcare industry is one of largest and most powerful industries in the world. In 2010 the healthcare industry generated $2,600 billion in sales in the United States in 2010 and it expected to reach $3,538 billion by 2015 (Plunkett Research). In order to analyze the financial information of companies in this industry it is essential to have good accounting knowledge…
Ration Analysis in Decision Making
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