As a health care manager and department head, you are responsible for reporting on the status of your department and developing plans for the future. Using financial ratios will provide you with the support for your decisions.
Choose one of these ratios to discuss in detail:
*Current ratio
*Debt to asset ratio
*Profit margin ratio
*Return on total assets ratio
*Working capital ratio
Respond to the following:
If you are calculating your chosen ratio, what are you trying to determine about your company’s financial position? What would you do with the results?
How would a health care leadership team use the financial ratio? Provide an example.
Assuming your ratio shows a weakness in the company’s performance, what specific action would you recommend to leadership to improve the position?
How would you use 1 of the financial ratios in your personal finances or current profession? Give a specific example.
C,Y, DISCUSSION PLS REPLY
The working capital ratio is calculated simply by dividing total current assets by total current liabilities. It is a measure of liquidity, meaning the business’s ability to meet its payment obligations as they fall due.
Working capital ratio= Current assets / Current liabilities
If this ratio is around 1.2 to 1.8 – this is generally said to be a balanced ratio, and it is assumed that the company is in a healthy state to pay its liabilities.
If it is less than 1- it is a negative working capital, which generally means that the company cannot pay its liabilities. A consistently negative working capital may also lead to bankruptcy.
Example: Sears holding stock fell by 9,8 % due to continuing losses and poor quarterly results. Sears balance doesn’t look too good either. Especially if you check the working capital situation of Sears holding and calculate the working capital ratio, you will note that this ratio has been decreasing continuously for the past ten years or so. This ratio below 1.0 x is not good. Making cash flow more predictable in order to fuel your operating cycle for growth can seem easier said than done. These working capital improvements techniques can help: shorten operating cycles, avoid finances fixed assets with working capital, perform credit checks on new customers, utilize trade credit insurance, cut unnecessary expenses, reduce bad debt, and fund additional bank finances.
I must say when it comes to finances in my personal life I haven’t always made the best decisions. So has I did research on many of the different types of ratios I now understand the importance of ratio and finances. This course is also showing me ways to better handle my finances and situations that may occur.
J.W. DISCUSSION PLS REPLY
As a healthcare manager, calculating debts to asset ratio is an important tool to determine a company’s financial position. In finance, a ratio tells you how much liability is financed by assets. I can make informed decisions about the financial health of the company using the debt-to-asset ratio calculation. When the ratio is high, the manager may need to increase equity financing to reduce debt.
Leadership teams in healthcare could use the financial ratio to determine if they need to reduce debt or if they are in a position to pursue growth opportunities. As an example, if the financial ratio is high, the team might need to take out a loan to pay off existing debt. Therefore, a low financial ratio may allow the team to invest in capital projects.
It would be a good idea for leadership to take a closer look at their expenses and look for opportunities to cut back. In addition, they should explore ways to increase revenue, such as by introducing new products, services, or investing in marketing.
My goal would be to have a higher asset ratio than debt ratio, using the Debt to Asset ratio. In my role as a healthcare administrator, I may be able to reduce expenses by reducing travel, office supplies, and technology costs.
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C:
If I am calculating the working capital ratio, I am trying to determine the company’s liquidity and its ability to meet its payment obligations in the short term. A working capital ratio around 1.2 to 1.8 is considered balanced, indicating that the company is in a healthy state to pay its liabilities. However, if the ratio is less than 1, it signifies a negative working capital, indicating that the company may struggle to pay its liabilities and could be at risk of bankruptcy.
Based on the results of the working capital ratio, I would take appropriate actions to improve the company’s financial position. If the ratio is below 1, I would recommend implementing working capital improvement techniques. These may include shortening operating cycles, avoiding financing fixed assets with working capital, performing credit checks on new customers, utilizing trade credit insurance, cutting unnecessary expenses, reducing bad debt, and seeking additional bank financing.
In my personal finances or current profession, I could use the working capital ratio to assess my own financial health. By calculating my current assets and liabilities, I can determine if I have enough liquidity to cover my short-term payment obligations. If my working capital ratio is less than 1, it would indicate a potential issue with my ability to meet financial commitments. In that case, I could explore ways to increase my income, reduce unnecessary expenses, or seek additional financing if needed.
J.W.:
If I am calculating the debt-to-asset ratio, I am trying to determine the proportion of a company’s assets that are financed by debt. This ratio provides insight into the company’s financial position and its reliance on borrowed funds. A high debt-to-asset ratio indicates a higher level of debt relative to assets, which can pose risks and impact financial stability.
With the results of the debt-to-asset ratio, a health care leadership team can assess the company’s financial health and make informed decisions. If the ratio is high, indicating a significant amount of debt, the team may need to consider strategies to reduce debt and improve the company’s financial position. This could involve increasing equity financing, refinancing debt at lower interest rates, or implementing cost-saving measures to free up cash flow for debt repayment.
In the case of a weakness in the company’s performance indicated by a high debt-to-asset ratio, I would recommend specific actions to leadership to improve the position. This could include reducing expenses by identifying areas of cost inefficiency, negotiating better terms with suppliers, optimizing revenue generation through strategic pricing or service expansions, and exploring opportunities for debt restructuring or refinancing.
In my personal finances or current profession, I could use the debt-to-asset ratio to assess my own financial position. By evaluating my total assets and total debts, I can determine the proportion of debt financing relative to my assets. This information can help me gauge my financial leverage and make decisions accordingly. If the ratio is high, indicating a significant debt burden, I might consider strategies such as debt consolidation, negotiating lower interest rates, or prioritizing debt repayment to improve my financial situation.
