Ratios

Question 1

liquidity ratios measure…

Answer 1

a firm’s ability to turn assets into cash to pay its short-term benefits

Question 2

current ratio interpretation

Answer 2

tell immediate liquidation of current assets at book value, if it can cover its debt, current assets / current liabilities

Question 3

current ratio desired direction

Answer 3

higher

Question 4

quick ratio interpretation

Answer 4

if a company has enough liquid assets to cover current liabilities and impending debt, cash (& cash equivalents) + net A/R / current liabilities

Question 5

quick ratio desired direction

Answer 5

higher, indicated ability to generate cash quickly in case of emergency

Question 6

acid test interpretation

Answer 6

what % of bills can be paid in worst case scenario, cash ( & cash equivalents) / current liabilities

Question 7

acid test desired direction

Answer 7

higher

Question 8

days cash on hand interpretation

Answer 8

number of days an organization can continue to pay operating expenses given amount of cash available, (cash & cash equiv + ST investments) / (expenses - deprectiation) / 365

Question 9

days cash on hand desired direction

Answer 9

higher, indicates more liquidity

Question 10

capitalization ratios

Answer 10

ability to pay long term debt

Question 11

total debt to total assets interpretation

Answer 11

% of total capital provided by creditors, total debt / total assets

Question 12

total debt to total assets desired direction

Answer 12

creditors prefer low b/c there’s a greater cushion against losses

Question 13

long term debt to equity interpretation

Answer 13

how much debt exists relative to what the owners put in, LT debt / total equity

Question 14

long term debt to equity desired direction

Answer 14

bank prefers lower

Question 15

long term debt to assets interpretation

Answer 15

% of assets that have not been paid, LT debt / total assets

Question 16

long term debt to assets desired direction

Answer 16

lower

Question 17

times interest earned interpretation

Answer 17

company’s ability to meet its debt obligations based on its current income, profit from operations + interest expense / interest expense

Question 18

times interest earned desired direction

Answer 18

higher

Question 19

debt to capitalization interpretation

Answer 19

proportion of debt used in a business’ long term capital structure, LT debt / LT debt * equity

Question 20

debt to capitalization desired direction

Answer 20

lower

Question 21

cash flow coverage interpretation

Answer 21

amount that cash flow covers fixed financial requirements

Question 22

cash flow coverage desired direction

Answer 22

higher

Question 23

asset management/turnover ratios

Answer 23

how efficiently a firm uses its assets to generate sales

Question 24

asset turnover interpretation

Answer 24

efficiency with which a company uses its assets to produce sales, net operating revenue / total assets

Question 25

asset turnover desired direction

Answer 25

higher

Question 26

A/R turnover interpretation

Answer 26

how many times in 1 year we can get through the revenue cycle, net patient revenues / net A/R

Question 27

A/R turnover desired direction

Answer 27

higher

Question 28

average collection period interpretation

Answer 28

how long it takes to get through the revenue cycle, 365 / A/R turnover

Question 29

average collection period desired direction

Answer 29

lower

Question 30

fixed asset turnover interpretation

Answer 30

utilization of property and equipment, total revenues / net fixed assets

Question 31

fixed asset turnover desired direction

Answer 31

higher

Question 32

days in patient accounts receivable interpretation

Answer 32

effectiveness in managing receivables, net patient A/R / net patient service rev / 365

Question 33

days in patient accounts receivable desired direction

Answer 33

higher

Question 34

avg age of plant interpretation

Answer 34

avg age in years of fixed assets, accumulated depreciation / depreciation expense

Question 35

profitability ratios

Answer 35

measures of the operating success of a company for a given period of time

Question 36

net operating margin interpretation

Answer 36

how much of profit is made for every revenue dollar, profit from operations / net operating revenues

Question 37

net operating margin desired direction

Answer 37

higher

Question 38

return on assets interpretation

Answer 38

how much profit is generated from assets, profit from operations / total assets

Question 39

return on assets desired direction

Answer 39

higher

Question 40

allowance ratio interpretation

Answer 40

estimates amount the company expects will be uncollectible, contractual allowances + charity care / gross patient revenues

Question 41

allowance ratio desired direction

Answer 41

lower ratios indicate allowance could be too low, high signifies accumulation of excessive allowances

Question 42

bad debt interpretation

Answer 42

revenue that did not come in, bad debt expense / gross patient revenues - contractual allowances & charity care

Question 43

bad debt desired direction

Answer 43

lower

Question 44

total profit margin interpretation

Answer 44

measures ability to generate revenues from all sources and to control expenses, net income / total revenues

Question 45

total profit margin desired direction

Answer 45

higher

Question 46

operating ratios

Answer 46

a comparison of profit and each item of expense of the IS, expressed as a % of sales income

Question 47

net price per discharge interpretation

Answer 47

avg rev collected on each inpatient discharge, net inpatient revenues / total discharges

Question 48

net price per discharge desired direction

Answer 48

lower

Question 49

cost per discharge interpretation

Answer 49

avg dollar amt expended on discharge, inpatient operating expenses / total discharges

Question 50

cost per discharge desired direction

Answer 50

lower

Question 51

profit per discharge interpretation

Answer 51

gross profit on each discharge, net price per discharge - cost per discharge

Question 52

profit per discharge desired direction

Answer 52

higher

Question 53

medicare payment percentage interpretation

Answer 53

measures exposure of a hospital to medicare patients

Question 54

outpatient revenue percentage interpretation

Answer 54

measures the mix between outpatients and inpatient revenues, net outpatient revenue / net patient service revenue

Question 55

occupancy percentage interpretation

Answer 55

percentage calculated daily and based on number of rooms sold as a % of total number of available rooms, inpatient days / number of staffed beds * 365

Question 56

occupancy percentage desired direction

Answer 56

lower

Question 57

avg length of stay interpretation

Answer 57

avg number of days a patient spend in the hospital, inpatient days / total discharges