Question

Radnor Healthcare System, an 800-bed institution, is located in a highly competitive, urban market area. Using the financial ratios from Exhibit 4.22 for the current and previous years, evaluate Radnor's financial condition, focusing on revenue, expense, and profitability; liquidity, activity, and capital structure ratios, and compare them to national industry benchmarks for Radnor's bed size, using the data from Exhibit 4.16a. EXHIBIT 4.22 SELECTED FINANCIAL RATIOS FOR RADNOR HEALTHCARE SYSTEM Ratio 20X1 20x0 1.85 1.50 0.43 70 155 60 2.10 1.55 0.45 55 145 55 $12,500 $12,800 55% $11,000 $10,500 50% Liquidity ratios Current ratio Quick ratio Acid test ratio Days in accounts receivable Days cash on hand Average payment period (days) Revenue, expense, and profitability ratios Operating revenue per adjusted discharge Operating expense per adjusted discharge Salary and benefit expense as a percentage of total operating expense Operating margin Nonoperating revenue Return on assets Activity ratios Total asset turnover ratio Fixed asset turnover ratio Age of plant Capital structure ratios Long-term debt to equity Equity to total assets Debt service coverage ratio (0.05) 0.06 0.02 0.02 0.07 0.06 1.12 2.55 11.75 0.99 2.35 11.03 0.45 0.55 2.85 0.56 0.71 3.05

Answer 1

Quick ratio or Liquid ratio is there comparison of liquid assets to liquid liabilities. The term liquid liabilities means liabilities payable within short period. The ideal ratio is 1. It means that is company is able to payoff the liabilities with the available liquid assets.

Current ratio is used as index of company financial stability since it shows the extent to which current assets exceeds current liabilities. Ideal current ratio is 2 while 1.5 is also acceptable if company has adequate arrangements with its bankers to meet it's short term requirements.

Days in accounts receivables is the time within which company had to collect from its debtors. Here the company has to collect its receivables in 70 days.

Average payment period in days the time period within which the company had to repay to its creditors. Here the company had to repay in 60 days to its creditors.

Debt service coverage ratio is the indicator to lender to assess the extent of ability of the borrower to service the loan in regard to timely payment of interest and repayment of loan installment. A ratio 2 is considered satisfactory by financial institution.

Fixed assets turnover indicates the extent to which investment in fixed assets has contributed to sales. Comparison of fixed assets turnover ratio indicates whether the investment in fixed assets has been judicious or not.

Salary and benefits as percentage of total operating expense indicate that the major portion of the operating expenses are allocated to salaries and benefits.