Shriners Hospitals: Financial Report and Improvements

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Table of Contents

Introduction
Ratio Analysis
Liquidity Ratios
Solvency ratios
References

Introduction

This paper evaluates Shriners hospitals by performing ratio analysis.

Ratio Analysis

Ratios can be divided into several categories as follows:

Profitability Ratios

There are several ratios under this category.

Profitability ratios

Total margin= revenues in excess of expenses / Total revenues

In2007 (8090) /658198 * 100 % = -1.23 %
In 2008 (2395511) /550118 * 100 % = -331.57 %
In2009 876440 / 456531 * 100 % = 191.99 %

This, therefore, means that in two thousand and seven, for every one dollar collected inpatient revenues the hospital loses 1.23 US dollars as profit. And in two thousand and eight there is a decrease meaning that for every one dollar invested in inpatient revenues, the hospital loses 331.57 US dollars in profit. And in two thousand and nine, there is an improvement in the trend as we can see that for every dollar collected inpatient revenues the hospital makes 191.99 US dollars (Shriners hospitals, 2010).

Markup ratio= {(Gross patient service revenue + other operating revenue) / Total operating expense}

In 2007 658198 / 666288 = 99 %
In 2008 550118 / 722472 = 76.14%
In 2009 456531 / 671772 = 67.96 %

In two thousand and seven, for example, the hospital managed to get an increase of ninety-nine percent on markup, while in two thousand and eight, the markup was lower as they could only manage a markup of seventy-six percent, and finally, in two thousand and nine, the downward trend continued as they could only manage sixty-seven point nine six percent.

Liquidity Ratios

These ratios are used to measure the ability of the firm (in our Case the Hospital) to meet its short-term debt obligations.

Current Ratio = Current assets / Current liabilities

In 2007 1,469201 / 184744 = 1: 8
in 2008 948047 / 255798 = 1: 4
In 2009 877959 / 237168 = 1: 4

This means therefore that in two thousand and seven the firm was sufficiently able to meet its liabilities, and in the subsequent year, the firm’s ratio is on the decline, if the hospital continues in that trend, then the firm will not be able to pay off its current debt obligations. And in the year two thousand and nine the trend has stabilized and this means that the firm can meet its short-term debt obligations as the current assets sufficiently cover the current liabilities.

Days cash on hand (short term sources only = {(Current cash and investments + board designated investments) / (other operating expenses / 365)} (Fridson, M. and Avarez, F., 2002)

In 2006 13664 * 365 / 666288 = 7.48 days
In 2007 4979 * 365 / 722472 = 3 days
In 2009 7830 * 365 / 671772 = 4.25 days

This, therefore, means that in two thousand and seven we could continue to operate the hospital for 7 days without collecting additional cash, whereas in two thousand and eight we can see that the performance is much lower because we can continue to operate the hospital for 3 days without seeking for additional cash and finally in two thousand and nine the performance increases by 1 day meaning that we can continue to operate for 4 days without collecting additional cash.

(Acid test ratios = cash + marketable securities / current liabilities)

In 2007 13664 + 8312077 / 184744 = 45.07 :1
in 2008 5704474 + 5059 / 255798 = 22.32 :1
In 2009 8921990 / 1055591 = 8.45:1

This means that the company can pay out its creditors more efficiently in the first year as compared to the subsequent years without converting its current assets to stock.

Solvency ratios

(Cash flows to total debt ratios= (revenues in excess of expenses add back depreciation) / Total Current Liabilities+ Noncurrent Liabilities) (Erich, H., n. d)

In 2007 {(8090) + 47196 / 1575080} = 2.48 %
In 2008 {(2,395,511) + 45529 / 1140697 ] = – 2.06 %
In 2009 {876,440 + 45425) / 1055591= 87.33 %

In two thousand and seven, this means that the hospital would be able to repay two percent of their total debt in the current year if they used all the available funds, in the subsequent year the figure is much lower as the hospital would not be able to pay its debt and it would have to look for alternative means to manage to pay its debt of their total debt in their current year if they used all the available funds and in the year two thousand and nine the company was much better off than the subsequent years as it would manage to pay eighty-seven percent of their total debt in the current year if they used all their available funds.

References

Erich, H. (n.d). Financial analysis tools and techniques: a guide for managers. New York: McGraw Hill.

Fridson, M. and Avarez, F. (2002). Financial statement analysis: a practitioners’ guide. New Jersey: John Wiley & Sons, Inc.

Shriners hospitals. (2010). Company Website. Web.