Ratio Analysis in Healthcare Organizations Essay

Ratio Analysis in Healthcare Organizations

Professional affiliation

Don't use plagiarized sources. Get Your Custom Essay on
Ratio Analysis in Healthcare Organizations Essay
Just from $13/Page
Order Essay

Healthcare providers often face the task of managing their facilities under very tight budgets. Whether the provider is a big healthcare organization or a newly founded one, it all comes down to financial analysis.

Financial analysis entails the use of ratios and this process of using ratios to rate your company’s performance is what is known as financial ratio analysis. There are several ratios computed in the financial analysis and these ratios are then analyzed in a more intensive manner using several criteria. For a healthcare provider, a comparison of the ratios with other ratios of other healthcare providers will ultimately give a clear picture of the performance and effectiveness of your organization. This needs not to be done by a good financial analyst who can give the management adequate information as to the results of the ratios. For the management the financial ratio analysis is an invaluable asset to them.

Importance of ratio analysis

Several financial statements are produced during an accounting period of a business, whether it is healthcare related or not. They may be produced quarterly, semi-annually or even annually. In the end the management has several financial statements to look at namely the balance sheet, the cash flow statement and the profit and loss account statement. These statements, when presented to the management are very complex and they find it hard to get the required picture of the organization. Therefore, the financial ratio analyses come in to simplify the statements by utilizing professional analysts of the financial statements. This in turn helps the management in the comparison of the healthcare organizations performance with that of other successful companies.

These statements are also important by the mere fact that they assist the management in the assessment of the healthcare company’s position financially. Basically any business set up should be geared towards growth and without this the management will close shop. Therefore, as they attempt to read the financial statements they, they become well versed on the standing of the business financially and they will be able to make proper budgeting plans for the facility.

Finally, financial ratio analysis will help the healthcare organization to determine its financial liquidity on demand. This is otherwise called as the firm’s liquidity position, while at the same time an analysis of these firms will ensure that the management has a clear understanding of the organizations long-term solvency.

Given that one is to analyze a company, for this matter a healthcare facility’s financial statement, the analyst will have to compute several types of ratios. They are;

1. Liquidity ratio

2. Profitability ratio

3. Activity ratio and,

4. Leverage ratio.

Liquidity ratio: a healthcare company’s capability to repay its short-term debts on demand is calculated using this ratio. It contains several ratios under its name for example; the current ratio, the acid test ratio.

The current ratio: it shows the ratio of the current assets to the current liabilities

Current ratio =

For example given the following data it is easy to calculate the current ratio for the organization:

The two ratios are calculated as below and for any current ratio above 1 it implies that the healthcare facility has more current assets than current liabilities in both years. However the second year has slightly increased therefore it means that the facility increased its service delivery. The acid test ratio is calculated as =


Year 1 $

Year 2 $

Current assets



Current liabilities






Current ratio



Acid ratio



The acid ratio in year 1 and year two shows that they are below 1 which in essence the ratio should only be at 1:1 therefore the healthcare facility should go back to the drawing board to look at its credit policy. The acid ratio is also known as the quick ratio.

Profitability ratios: these ratios when calculated, they provide the healthcare providers management with a quantifiable picture of its operating efficiency. This means that the company’s income should be seen to flow in rather than no profits. There are several of these ratios namely; gross profit margins, net profit margin, return on assets, and return on capital employed.

Net profit margin =

Return on assets: this ratio measures the income generated by the company’s assets per unit.

Year 1

Year 2

Net profit after tax and interest



Net sales



Average total assets



Net profit margin



Return on assets



The above table shows calculations of net profit margin and return on assets ratios

Activity ratios: these ratios are concerned with the management of the assets of the facility. They are turnover ratios (receivables, and inventory).

Debt turnover ratio; it relates to the timeframe within which debtors pay their debts. It is calculated as =;

Therefore the smaller the ratio the better the performance of the company in terms of debt collection therefore in a healthcare facility, it is up to the management to make sure they recover the money offered for their services from the debtors promptly

Inventory turnover ratio; this is an indicator of how quickly stock is sold and replaced. If there is a low turnover the management should be cautioned that they are not using any of the materials they had bought e.g. medicines and other consumables. In short they are not making any sales for their services.

Leverage ratios: these ratios are used in the determination of the long-term financial position of the healthcare organization some of the ratios are; debt equity ratio, and the total debt ratio. The ratio is also known as the capital structure ratios.

Debt equity ratio: calculated as =; many financial analysts use this ratio to get a general idea of the company owners debts and liability relationship. A high ratio shows that creditors have much higher stake in the healthcare facility than the shareholders.

Debt ratio; it is calculated as the ratio of total debts (including long-term liabilities) to total assets. It shows the fraction of assets that the healthcare facility being used and are being financed by these liabilities.


Daniel L.J. (1997). Advanced Accounting, McGraw-Hill College Publishing,

Eric Press. (1999). Analyzing Financial Statements, Lebahar-Friedman.

Leopold B., John W. (2000). Analysis of Financial Statements, McGraw-Hill

Martin M. Et al., (1994) Accounting for Effective Decision Making. Irwin Professional Press,

Harold M. (1992). Financial Management: study pack, Strathmore University distance learning centre. Macmillan publishers

What Will You Get?

We provide professional writing services to help you score straight A’s by submitting custom written assignments that mirror your guidelines.

Premium Quality

Get result-oriented writing and never worry about grades anymore. We follow the highest quality standards to make sure that you get perfect assignments.

Experienced Writers

Our writers have experience in dealing with papers of every educational level. You can surely rely on the expertise of our qualified professionals.

On-Time Delivery

Your deadline is our threshold for success and we take it very seriously. We make sure you receive your papers before your predefined time.

24/7 Customer Support

Someone from our customer support team is always here to respond to your questions. So, hit us up if you have got any ambiguity or concern.

Complete Confidentiality

Sit back and relax while we help you out with writing your papers. We have an ultimate policy for keeping your personal and order-related details a secret.

Authentic Sources

We assure you that your document will be thoroughly checked for plagiarism and grammatical errors as we use highly authentic and licit sources.

Moneyback Guarantee

Still reluctant about placing an order? Our 100% Moneyback Guarantee backs you up on rare occasions where you aren’t satisfied with the writing.

Order Tracking

You don’t have to wait for an update for hours; you can track the progress of your order any time you want. We share the status after each step.


Areas of Expertise

Although you can leverage our expertise for any writing task, we have a knack for creating flawless papers for the following document types.

Areas of Expertise

Although you can leverage our expertise for any writing task, we have a knack for creating flawless papers for the following document types.


Trusted Partner of 9650+ Students for Writing

From brainstorming your paper's outline to perfecting its grammar, we perform every step carefully to make your paper worthy of A grade.

Preferred Writer

Hire your preferred writer anytime. Simply specify if you want your preferred expert to write your paper and we’ll make that happen.

Grammar Check Report

Get an elaborate and authentic grammar check report with your work to have the grammar goodness sealed in your document.

One Page Summary

You can purchase this feature if you want our writers to sum up your paper in the form of a concise and well-articulated summary.

Plagiarism Report

You don’t have to worry about plagiarism anymore. Get a plagiarism report to certify the uniqueness of your work.

Free Features $66FREE

  • Most Qualified Writer $10FREE
  • Plagiarism Scan Report $10FREE
  • Unlimited Revisions $08FREE
  • Paper Formatting $05FREE
  • Cover Page $05FREE
  • Referencing & Bibliography $10FREE
  • Dedicated User Area $08FREE
  • 24/7 Order Tracking $05FREE
  • Periodic Email Alerts $05FREE

Our Services

Join us for the best experience while seeking writing assistance in your college life. A good grade is all you need to boost up your academic excellence and we are all about it.

  • On-time Delivery
  • 24/7 Order Tracking
  • Access to Authentic Sources
Academic Writing

We create perfect papers according to the guidelines.

Professional Editing

We seamlessly edit out errors from your papers.

Thorough Proofreading

We thoroughly read your final draft to identify errors.


Delegate Your Challenging Writing Tasks to Experienced Professionals

Work with ultimate peace of mind because we ensure that your academic work is our responsibility and your grades are a top concern for us!

Check Out Our Sample Work

Dedication. Quality. Commitment. Punctuality

All samples
Thesis/Thesis chapter
Research paper
Essay (any type)
creating a Code of Conduct
View this sample
Research paper
Week 1 Journal Assignment
Undergrad. (yrs 3-4)
Human Resources Management (HRM)
View this sample
Research paper
Cultural Intelligence Presentation
View this sample
Research paper
Communicable Disease
View this sample
Research paper
Mental health
View this sample
Essay (any type)
Personalized Glossary of Research and Assessment Terms
View this sample

It May Not Be Much, but It’s Honest Work!

Here is what we have achieved so far. These numbers are evidence that we go the extra mile to make your college journey successful.


Happy Clients


Words Written This Week


Ongoing Orders


Customer Satisfaction Rate

Process as Fine as Brewed Coffee

We have the most intuitive and minimalistic process so that you can easily place an order. Just follow a few steps to unlock success.

See How We Helped 9000+ Students Achieve Success


We Analyze Your Problem and Offer Customized Writing

We understand your guidelines first before delivering any writing service. You can discuss your writing needs and we will have them evaluated by our dedicated team.

  • Clear elicitation of your requirements.
  • Customized writing as per your needs.

We Mirror Your Guidelines to Deliver Quality Services

We write your papers in a standardized way. We complete your work in such a way that it turns out to be a perfect description of your guidelines.

  • Proactive analysis of your writing.
  • Active communication to understand requirements.

We Handle Your Writing Tasks to Ensure Excellent Grades

We promise you excellent grades and academic excellence that you always longed for. Our writers stay in touch with you via email.

  • Thorough research and analysis for every order.
  • Deliverance of reliable writing service to improve your grades.
Place an Order Start Chat Now