Exhibit 4-21 lists the financial ratios for 227-bed Hollywood Community Hospital

Question

Exhibit 4-21 lists the financial ratios for 227-bed Hollywood Community Hospital. Assess the revenue, expense, profitability, liquidity, activity, and capital structure of Hollywood for 20X1. Explain why these financial measures changed between 20X0 and 20X1.

*The figure 4-21 from the book is attached.

Exhibit 4-21 Selected financial ratios for Hollywood Community Hospital Ratio 20X1 20x0 Liquidity ratios Current ratio Acid test ratio Days in accounts receivable Days cash on hand Average payment period, days Revenue, expense, and profitability ratios Operating revenue per adjusted discharge Operating expense per adjusted dischar Salary and benefit as a percentage of total operating expense Operating margin Non-operating revenue Return on net assets 4.05 0.96 49 132 60 2.29 0.20 64 84 53 $8,087 $7,009 $6,934 $7,168 50% 0.05 (0.01) 0.04 0.04 ge 43% 0.15 0.13 Activity ratios Total asset turnover ratio Fixed asset turnover ratio Age of plant Capital structure ratios Debt service coverage ratio Long-term debt to net assets (equity) Net assets to total assets 1.15 3.02 8.49 0.95 2.10 10.56 4.40 0.48 0.55 2.47 3.06 0.38

Explanation / Answer

From the above figures it is clear, that from year 20X0 to 20X1, following changes are observed:

The operating revenue has increased and the operating expenses have reduced. Due to which the Return on Assets also increased from 4% to 13%.

As agianst of this the liquidity position has down graded in the 2 years as current ratio (from 2.29 to 4.05) increased shows that the liquidity in the company is worsened.

Profitability ratio is showng the positive sign as it has improved.

Similarly, activity ratio is also improved as total assets and fixed assets turnover ration has increased.

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