Health Care Finance

Finance Describe the following 4 types of costs: Fixed- fixed costs are business costs, that are constant given a certain level of production Variable- variable costs are cost that vary as output increases or decreases Semivariable- an expense that contains a fixed component and a variable component. Semifixed- costs that are constant within a defined level of activity but that can increase or decrease when activity reaches upper and lower levels Dynamic Medical Suppliers, Inc. has sales of $300,000 for the calendar year of 2010. Its total variable costs equal $107,700.

Calculate the contribution margin ratio, and determine whether it presents profit or loss to the organization CM Margin Ratio= Contribution Margin/Sales Sales of $300,000- Variable costs of $107,700= $192,300 Contibution Margin $192,300/$300,000= 64.1% Profit= ($300,000 x .641)- $115,000= Profit of $77,000 to the organization You create the schedule for the nursing staff in the pediatric intensive-care unit. Your daily staffing uses 6 registered nurses (RNs) working 8 hours and 2 licensed practical nurses (LPNs) working 3 hours. Determine the number of work hours required for 1 day.

6x8= 48 +6= 54 Work hours required per day Understanding financial ratios can help the health care organization analyze its credit. Financial ratios should be compared to other financial information within the organization. Values used in calculating financial ratios are taken from the balance sheet, income statement, and statement of cash flows. • Liquidity ratios tell whether the health care agency is able to meet its financial obligations. Are there assets or cash available to pay the bills? Current Ratio of $743,500/$300,000= 2.47 The company has twice as many assets and it does current liability.

The company has nearly $2.50 in assets for every $1.00 in liabilities. To determine if this is appropriate, the analyst would want to use comparative ratios with other companies of comparable size and scope. Without any other market information, this ratio seems adequate given the company does not have a lot of debt coming due within the year. It can easily finance the interest payments while having enough cash to pay off principle amounts.

Quick Ratio= 2.25 Ratio provides a more accurate measure of liquidity as it does not take into account the inventory and prepaid expenses. This ratio is still relatively high given the company's low liabilities. However, it should be noted that a majority of current assets are accounts receivable. This may indicate that the firm is loosening credit terms with customers. This receivable may not be collectable. As such, the allowance for doubtful accounts should be analyzed as this impacts the firms liquidity.

Debt to Asset Ratio= 39.6 (Current liabilities is not broken down, this ratio assumes that all current liabilities is debt that will be due within a year) Over 60% of the company is financed with equity. Although this ratio seems low, it should be compared with similar companies in the industry. It seems that the company is in a solid financial position as it can easily pay its debt. Profit Margin= 4% This seems somewhat low given the volatility in expenses that characterize the health care industry.

The company only makes 4 cents for every $1 of revenue ROA=10.9% This seems to be adequate, however, comparison with a peer group would be recommended. The company generates 10 of profit for every $1 of assets. This indicates that management is successfully using assets to generate profit for the firm. The company overall seems to be doing a fairly good job a maintaining its liquidity and solvency. The firm generates nearly twice the amount of expenses in terms of revenue. The company has strong liquidity with higher cash reserves.

The only troubling aspect of the balance sheet is the excessive amounts of account receivable. This figure should be evaluated for credit quality of customers who have been extended credit. If accounts are deemed uncollectable, an account for the allowance of bad debt should be created. Inventory should also be reviewed for impairment and potential write-down, as it may become obsolete due to age or new technological advances. Using the information provided in Part II,.