Assessing organizational financial condition through financial ratio analysis

¶ … health care providers have been facing tremendous financial challenges. Part of the reason for this, is because the underlying costs have risen dramatically. as, these facilities are forced to pass on these increases to: consumers and insurance companies. This is problematic, because these rising costs mean that their profit margins are declining, which is causing a variety of hospitals to face severe financial problems. A good example of this can be seen with a study that was conducted by the American College of Health Care Executives. They found that over the last three years between: 76% and 77% of the CEOs of large health care organizations are concerned about financial challenges (as this is number one issue with these individuals). ("Top Issues," 2011) This is important, because it is showing how all health care facilities must use to tools that will determine how strong they are financially speaking. In the case of the health care organization that we are examining (St. Francis Care), we will look at a number of different ratios to determine the financial strength of our health facility. Once this takes place, it will provide the greatest insights, as to what specific criteria should be used when determining the fiscal condition of a hospital.

Financial Ratios

There are a number of different financial ratios that we can use to determine the underlying strength of the facility. The most notable include: the current ratio and the long-term debt / equity ratio. The current ratio is when you are looking at the hospital's ability to pay its short-term obligations these include: utility bills, employee expenses and other costs involved in the day-to-day operations of the facility. When you see a number higher than 1.00, this will indicate that the hospital has enough income and assets, to be able to cover any kind of short-term obligations. In the case of St. Francis Care, their current ratio decreased from: 3.16 to 2.79 in one year. This is important because, it is indicating that the company has over two and half times enough assets to cover any short-term liabilities. ("Financial Profile," n.d.)

The long-term debt to equity ratio is when you are looking at the company's ability to finance growth through: increasing their total amounts of debt. When you see a reading of 100%, this is a sign of normal activity in most organizations. The higher that the number moves above 100%, the greater the chances are that they are financing their growth with debt offerings. In the case of St. Francis Care, their current long-term debt to equity ratio has increased from: 100.2% to 108.7% in one year. This is important, because it is showing how the facility has a lower amount of long-term debt equity. ("Financial Profile," n.d.)

However, when you look at the underlying trends of both ratios, it is clear the hospital has been increasing the total amount of debt. Evidence of this can be seen with the decline in: the current ratio and increase in the long-term debt to equity ratio. as, these new trends are indicating that the hospital is dealing with their various challenges through: increasing the amount liabilities. While this is not at critical levels, the fact that this trend is occurring, is a sign that the underlying financial foundation of the facility is declining. Therefore, management needs to be aware of these issues, otherwise they will have trouble paying the interest on these debt obligations (down the road). ("Financial Profile," n.d.)