Ratio analysis. Allen Community Hospital is a small, 95-bed hospital. The hospital just completed a major renovation of its facility, which has helped to attract new physicians and patients to the hospital. Assess Allen’s revenue, expense, and profitability;

liquidity; activity; and capital structure ratios. Using the financial ratios from Exhibit 4.26 for the current and previous years, evaluate Allen’s financial condition and also compare its ratios to national industry benchmarks for its bed size, using the data from Exhibits 4.16a.

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EXHIBIT 4.26 SELECTED FINANCIAL RATIOS FOR ALLEN COMMUNITY HOSPITAL Ratio Liquidity ratios 20X1 20X0 Current ratio Acid test ratio Days in accounts receivable Days cash on hand Average payment period (days) 1.90 2.18 0.20 0.35 53 63 70 90 75 50 Revenue, expense, and profitability ratios Operating revenue per adjusted discharge $6,900 $6,500 Operating expense per adjusted discharge $6,800 $6,600 Salary and benefit expense as a percentage of total operating 50% 45% expense Operating margin Return on assets 0.01 (0.01) 0.03 0.02 Activity ratios Total asset turnover Fixed asset turnover Age of plant 1.20 0.95 2.95 2.20 7.85 11.52 Capital structure ratios Long-term debt to equity 1.47 1.40 Equity to total assets 0.25 0.23 Debt service coverage ratio 2.00 3.02