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Healthcare Finance and Accounting
Finance & Accounting
Pages 3 (753 words)
Financial statement analysis involves the use of financial formulas to draw relations and conclusions regarding the financial performance of an enterprise. The five categories of ratio analysis are liquidity, financial leverage, asset efficiency, profitability, and market value ratios (Peavler, 2012).
Seven categories of operating indicators are profitability, price, length of stay, volume, intensity of service, input cost, and efficiency. Both the financial statement analysis and the operating indicator analysis are significant tools because they allow managers to quantify different aspects of the performance of the company. There are several financial ratios that managers can use to assess the financial performance of a business entity. The current ratio is a liquidity ratio that can be used to determine the ability of a company to pay off its short term debt. The basic premise regarding this ratio is that ratios above 1.0 are good. The current ratio is calculated dividing current assets by current liabilities (Besley & Brigham, 2000). Another important ratio is return on assets. “Return on assets measures how well assets have been employed by management” (Garrison & Noreen, 2003, p. 784). Return on assets is calculated dividing net income by total sales. A third ratio that management can calculate to evaluate the efficiency of a company is the inventory turnover ratio. The inventory turnover ratio tells management how many times inventory has been sold during a year. A high inventory turnover ratio is the desirable outcome. ...
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