Company ABC Ltd operates in the Health services sector and employs mainly contract doctors and nurses for subcontracting out to local hospitals.

You have used your skills acquired in BUS163 and have found that Health services sector averages for financial ratios/information are as follows:

Overheads = are generally high due to the high cost of employing medical professionals including doctors and surgeons

Operating margin = 40%

Net profit margin = 15%

Quick ratio = 2.5

On average entities in this sector have very little debt.

Please submit answers to the following questions based on the format above:

1) What is the purpose of calculating financial ratios (1 mark)

2) Company ABC has a current ratio of 0.5, a debt ratio of 65% and a net profit margin that is negative. Discuss the position and performance of Company ABC (4 marks)