Financial Ratio Analysis Essay

Ratio Analysis

Company Overview

South Nassau Communities Hospital is a healthcare organization that delivers wide range of healthcare services for the communities of the Oceanside in New York. The organization offers general and specialty health services such as medical services, and surgical services for the varieties of patients' health cases.

The financial results of the South Nassau Hospital at the end of the 2012 reveals that the Hospital recorded the revenue of $400 Million compared to the 2011 revenue of $380 making the organization to record the excess gains and revenue over expenses of above $5.0 Million compared to $2.6 million recorded in 2011. (South Nassau Communities Hospital, 2013).

The paper carries out the ratio analysis of the South Nassau Community Hospital to evaluate its financial performances, and the paper uses the organizational 2012 financial statements for the analysis.

Ratio Analysis

Ratio analysis is a financial tool to analyze the financial performance of an organization. In other word, the calculation of the ratio analysis is derived from an organizational financial statements such as balance sheet and income statements. The paper uses the 2011 and 2012 South Nassau Communities Hospital Financial Statements to determine the company liquidity ratios and profitability ratios.

Liquidity Ratios

Liquidity ratios reveal the rate by which an organization turns its assets into cash. Typically, the current assets of the South Nassau Hospital include Cash and Equivalents, and Investment Notes.However, the current liabilities are the debts that the company is required to settle within one year. The organizational current liabilities include account payable, accrued expenses, payroll and vacation. The paper uses the organizational current ratio and quick ratio to determine the rates by which the South Nassau Communities Hospital turns its assets into cash.

Current Ratio

Current ratio is the most used liquidity ratio, and the formula to calculate the current ratio is as follow:

Current Ratio: Current Asset / Current liabilities

The paper uses the 2012 and 2011 fiscal year financial statements to calculate the South Nassau Communities Hospital current ratio:

Current Ratio= Current Asset / Current liabilities

2012 Current Ratio = 198,467,973 / 90,217,760

Current Ratio =2.19.

2011 Current Ratio 188,669,609 / 91,039,737

Current Ratio =2.07.

McLean, (2002) argues that the liquidity ratio of 2.0 is good for a healthcare organization because the organization will need liquid asset than other organizations in the other sectors to run its business operations. However, a liquidity ratio below one is a bad sign for a company revealing that the company is likely to go bankrupt.

Overview of the liquidity ratio of the South Nassau Communities Hospital reveals that the company current ratio is above 2.0 within the last 2 years revealing the company has the sound liquidity position......