Ratio Analysis of South Nassau Communities Hospital
This paper conducts a ratio analysis of South Nassau Communities Hospital, a healthcare organization serving the Oceanside community in New York, using its 2011 and 2012 financial statements. The analysis focuses on two categories of financial ratios: liquidity ratios—specifically the current ratio and quick ratio—and profitability ratios, including Return on Assets (ROA) and Net Margin. Results show that the hospital maintained current and quick ratios at or above 2.0 in both years, indicating a sound liquidity position. Profitability ratios were positive but declined slightly from 2011 to 2012. The paper also identifies key factors influencing these results, including patient volume, seasonal variations, and external funding sources.
- Company Overview: Hospital background, services, and 2012 revenue results
- Ratio Analysis: Definition and purpose of ratio analysis
- Liquidity Ratios: Current ratio and quick ratio calculations for 2011–2012
- Profitability Ratios: ROA and net margin calculations and interpretation
- Factors Affecting Financial Performance: Patient volume, seasonality, and grants as influencing factors
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What makes this paper effective
- The paper follows a clear, logical structure by first defining each financial ratio, then applying the formula to real institutional data, and finally interpreting the results — a method that makes quantitative analysis accessible and easy to follow.
- It grounds every calculation in named financial statements, giving the analysis credibility and traceability back to primary source documents.
- The summary table consolidates all calculated ratios across both years into a single reference point, reinforcing comparisons made throughout the text.
Key academic technique demonstrated
The paper demonstrates applied quantitative analysis in a healthcare finance context. By systematically selecting relevant ratios, defining their formulas, computing values from real financial statements, and benchmarking results against an established standard (McLean's 2.0 liquidity threshold), the author shows how financial theory translates into institutional evaluation — a core skill in health administration coursework.
Structure breakdown
The paper opens with a company overview and states its analytical purpose. It then defines ratio analysis broadly before dividing into two major sections: liquidity ratios (current ratio and quick ratio) and profitability ratios (ROA and net margin). Each subsection follows the same formula-calculate-interpret pattern. A summary table consolidates findings, and a closing paragraph discusses external variables that moderate the ratio results. References close the paper.
Company Overview
South Nassau Communities Hospital is a healthcare organization that delivers a wide range of healthcare services to the communities of Oceanside, New York. The organization offers general and specialty health services — including medical and surgical services — for a variety of patient health cases.
The financial results of South Nassau Hospital at the end of 2012 reveal that the hospital recorded revenue of $400 million, compared to $380 million in 2011, allowing the organization to record excess gains and revenue over expenses of above $5.0 million, compared to $2.6 million recorded in 2011 (South Nassau Communities Hospital, 2013).
This paper carries out a ratio analysis of South Nassau Communities Hospital to evaluate its financial performance, using the organization's 2012 financial statements as the basis for analysis.
Ratio Analysis
Ratio analysis is a financial tool used to analyze the financial performance of an organization. The calculations are derived from an organization's financial statements, such as the balance sheet and income statement. This paper uses the 2011 and 2012 South Nassau Communities Hospital financial statements to determine the hospital's liquidity ratios and profitability ratios.
Liquidity Ratios
Liquidity ratios reveal the rate at which an organization can convert its assets into cash. The current assets of South Nassau Hospital include cash and equivalents and investment notes. Current liabilities are debts that the company is required to settle within one year, and for this hospital they include accounts payable, accrued expenses, payroll, and vacation liabilities. This paper uses the current ratio and quick ratio to determine the rates at which South Nassau Communities Hospital converts its assets into cash.
The current ratio is the most widely used liquidity ratio. The formula is:
Current Ratio = Current Assets / Current Liabilities
Using the 2012 and 2011 fiscal year financial statements:
2012 Current Ratio = 198,467,973 / 90,217,760 = 2.19
2011 Current Ratio = 188,669,609 / 91,039,737 = 2.07
McLean (2002) argues that a liquidity ratio of 2.0 is appropriate for a healthcare organization, because hospitals require more liquid assets than organizations in other sectors to sustain operations. A liquidity ratio below 1.0 is a warning sign indicating that a company may be at risk of insolvency. The current ratio of South Nassau Communities Hospital exceeded 2.0 in both years, indicating a sound liquidity position.
Similar to the current ratio, the quick ratio measures a company's ability to meet its short-term obligations with liquid assets; however, it excludes inventories from the calculation. The formula is:
Quick Ratio = (Total Current Assets − Inventory) / Total Current Liabilities
2012 Quick Ratio = (198,467,973 − 11,358,401) / 90,217,760 = 2.07
2011 Quick Ratio = (188,669,609 − 12,245,852) / 91,039,737 = 1.94
The results of the current ratio and quick ratio for both fiscal years are at or above 2, showing that South Nassau Communities Hospital has efficiently utilized its current assets.
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