Find an income statement (called a statement of revenue and expense in your book) from a hospital within the last 5 years. They are publicly available.

6a. Review what an income statement looks like and contains in real life. Complete the following ratios as outlined on page 128:

• Current ratio
• Quick ratio
• Days Cash on Hand
• Days Receivables
• Operating margin
• Return on total assets

6b. After completing the ratios, state in your own words what this means about the OVERALL financial health of the hospital, you do not need to state which each ratio specifically means.

For example, the operating margin is negative, with high days in receivables and only 3 days cash on hand. This hospital is losing money, not collecting what is owed to them fast enough, and does not have enough cash to cover emergency expenses.this appears to show a poor financial performance.

128 Exhibit 12-1 Eight Basic Ratios Used in Health Care Liquidity Ratios 1. Current Ratin Current Assets Current Liabilities 2. Quick Ratio LIQUIDITY Liquidity ratic ratios measure nization to be to cash-onh Current Rati CHAPTER 12 Financial and Operating Ratios as Performance Meas Cash and Cash Equivalents + Net Receivables Cash Operation Expenses + No. of Days in Period (365) 4 Days Receivables Net Receivables Net Credit Revenues + No. of Days in Period (365) Solvency Ratios 5. Debt Service Coverage Ratio (DSCR) Change in Unrestricted Net Assets (net income) + Interest, Depreciation, Amortization Maximum Annual Debt Service 6. Liabilities to Fund Balance Total Liabilities Current Liabilities 3. Davs Cash on Hand (DCOH) Unrestricted Cash and Cash Equivalents The current example: This ratio be carefully computed. Quick Ratio The quick ra liabilities: Unrestricted Fund Balances The stand 1.08 to 1. is a This ratio inore than ti reasons. Days Cash Profitability Ratios 7. Operating Margin (%) Operating Income (Loss) Total Operating Revenues 8. Return on Total Assets (%) EBIT (Earnings Before Interest and Taxes) Total Assets The days cas ating expen: Courtesy of Resource Group, Ltd., Dallas, Texas. There is This ratio example in amount of in ratios reflect the ability of the organization to meet its current obligations. Liquidity We measure short-term sufficiency. As the name implies, they measure the ability of the orga This ratio is considered to be a measure of short-term debt-paving ability. However, it must be carefully interpreted. The standard by which the current ratio is measured is 2 to 1, as mation to "he liquid in other words to have sufficient cash-or assets that can be converted The current rato equals current assets divided by current liabilities. For instance, consider this Liquidity Ratios 129 LIQUIDITY RATIOS washon hand Current Ratio example: Current Assets (365) $120.000 S60.000 2 to 1 Current Liabilities 365) computed Quick Ratio The quick ratio equals cash plus short-term investments plus net receivables divided by current liabilities Cash and Cash Egivalents + Net Receivables $65,000 = 1.08 to 1 Current Liabilities $60,000 The standard by which the quick ratio is measured is generally 1 to 1. This computation, at 1.08 to 1. is a little better than the standard, This ratio is considered to be an even more severe test of short-term debt-paying ability (even more than the current ratio). The quick ratio is also known as the acid-test ratio, for obvious reasons. Days Cash on Hand The days cash on hand (DCOH) equals unrestricted cash and investments divided by cash oper ating expenses divided by 365: Unrestricted Cash and Cash Equivalents_$330,000 = 30 days Cash Operating Expenses $11,000 No. of Days in Period There is no concrete standard for this computation. This ratio indicates cash on hand in relation to the amount of daily operating expense. This example indicates the organization has 30 days worth of operating expenses represented in the amount of (unrestricted) cash on hand. 130 CHAPTER 12 D Days Receivables The days receivables computation is represented enues divided by 365 $720.000 $12,000 alance Sheet Assets Current Assets Net Receivables Net Credit Revenue No. of Days in Period Accounts rech inventories Prepaid Insuran Total Current AS Property. Planta is performance Buildings (het) Equipment (not Net Property. Po Omer Assets compare with your own organization's computation. as net receivables divided w This computation sents the mumber of days in receivables. The older at more difficult it becomes to collect. Therefore, this computation is a measure PANCAS in our organization. This example indicates that the organization Lash There is no hard and fast rule for this computation because much depends collection performance. There are many "days receivables" regional and me Credit revenue tied up in netreceivables. This computation is a common mean Figure 12-1 shows how the information for the numerator and the denom calculation is obtained. It takes the Westside Clinic balance sheet and the sun enue and expense that were discussed in the preceding chapter and illustre of each figure in the four ratios just discussed. The multiple computations hand and for days receivables are further broken down into a three-step procent This ratio is universally used in credit analysis and figures prominent in Each lending institution has its particular criteria for the DSCR. Lending have a provision that requires the DSCR to be maintained at or above a certa Nav will SOLVENCY RATIOS Solvency ratios reflect the ability of the organization to pay the annual interest obligations on its long-term debt. As the name implies, they measure the abilis nization to be solvent": in other words, to have sufficient resources to meet obligations service: Change in Unrestricted Net Assets (Net Income) + Interest, Depreciation, and Amortization Maximum Annual Debt Service Figure 121 and work with the Case Study entitled "Comparative Analysis (fins and Benchmarking) Helps Turn Around a Hospital", you will soon master the Debt Service Coverage Ratio The debt service coverage ratio (DSCR) is represented as change in unrest (net income) plus interest, depreciation, and amortization divided by masini tam Opere $250,000 $100.000 me and Gas Study. Figure 12-11 Courtesy of Res Tung Us days der a receivable 5100000 2. Et 100.000 WP SA32.000 195.000 lepends on the y has days www measure of and national figure TO T 100 c denominato de d the statements Durres sont 552.000 Accounts and 9000 Torrent DINGEN 572,000 TAS Lo Tome Les Recom Matures of Long-Term Dott 152.000 id illustrates the tations for days tep process. If you nalysis (Financial Run master this process 305 . 200.000 354,000 Toner Fond Bates $12.00 25 sed Total Tours and Font Blanc 418.000 500.000 Statement of an und beste Crew e Year Ending Decembra 101209 ual interest and patinis ure the ability of the ces to meet its long 2.000.00 T. 70.000 ut portieren 2.000.000 Torop Stop 2 wyty 1.800.000 . Operating boms Medic Surga TV Menye Omer professionals Support SVO Great Depreciation 0,230 860,000 30,000 220,000 65,000 40,000 20.000 $1.as. Pop e in unrestricted at d by maximum annual 250.00 1931 50. Total operating Exp income from Operations $115.000 operating Games (Louses 35.000 250.000 = 2.5 5,000 soroga 100,000 and Gaing in Excess of me ind Loss 3120,000 ominently in the Mabu $120,000 Unrestricted Fund Balance R. Lending agreemento bove a certain figure Figure 12-1 Examples of Liquidity Ratio Calculations Courtesy of Resource Group, Lad, Dallas, Texas The return on total assets is represented as earnings before interest and taxes CHAPTER 12 Finale 1.32 D $2,000,000 $2,250,000 alance Sheet =0.80 Total Liabilities Unrestricted Fund Balances Na will Liabilities to Fund Balance (or Debt to Net Worth) unrestricted netasseis (ie, fund balances or net worth) or total debt divided for The liabilities to fund balance or net worth computation is represented as total Another indicator that is more severe is long-term debt to net worth it. to the quick ratio discussed previously in its restrictiveness to net worth com computed as long-term debt divided by fund balance. This computation is A mirror image of total liabilities to fund balance is total assets to fund balance Figure 12-2 shows how the information for the numerator and the des of revenue and expense that were discussed in the preceding chapter and illustrate of each figure in the two solvency ratios just discussed, along with each figure in calculation is obtained. This figure again takes the Westside Clinic balance she ability ratios still to be discussed. When multiple computations are necessary, analysis. It is therefore a multipurpose measure. It is so universal that many outside available for comparative purposes. The result of the computation must still become broken down into a two-step process. This figure is a quick inditor of debt load. Assets Current Assets Accounts receivable the Inventories Prepaid Insurance Total Current Assets Property. Plant und Equip Land Buildings (net) Equipment (net) Net Property. Plant and Othet Assets puted as total assets divided by fund balance. Total Other Assets Assets Durant matures of lo Accounts payabit and Long-term ett Less current matus PROFITABILITY RATIOS Profitability ratios reflect the ability of the organization to operate with an excess revenue over operating expense. Nonprofit organizations may not call this te the measurement ratios are still generally called profitability ratios, whether ther an for-profit or nonprofit organizations. Fand Balance Linnad tunda Restricted fund balanc Total und mances Total Libes and Fund Operating Margin The operating margin, which is generally expressed as a percentage, is represented income (loss) divided by total operating revenues: Operating Income (Loss) $250,000 = 5.0% Total Operating Revenues $5,000,000 Total penting revenu Operating Expenses Medicarical and The service Services Gens This ratio is used for a number of managerial purposes and also sometimes cali ered because of variables in each period being compared. Total operating expen Income from Operations Naparating Gains (Lo Interest income Net nonoperating game Revenue and Gains in Ex Expenses and LOSS Increase in Unrestricted Return on Total Assets by total assets: Figure 12-2 Exa Courtesy of Resour EBIT Total Assets $400,000 = 10% $4,000,000 128 Exhibit 12-1 Eight Basic Ratios Used in Health Care Liquidity Ratios 1. Current Ratin Current Assets Current Liabilities 2. Quick Ratio LIQUIDITY Liquidity ratic ratios measure nization to be to cash-onh Current Rati CHAPTER 12 Financial and Operating Ratios as Performance Meas Cash and Cash Equivalents + Net Receivables Cash Operation Expenses + No. of Days in Period (365) 4 Days Receivables Net Receivables Net Credit Revenues + No. of Days in Period (365) Solvency Ratios 5. Debt Service Coverage Ratio (DSCR) Change in Unrestricted Net Assets (net income) + Interest, Depreciation, Amortization Maximum Annual Debt Service 6. Liabilities to Fund Balance Total Liabilities Current Liabilities 3. Davs Cash on Hand (DCOH) Unrestricted Cash and Cash Equivalents The current example: This ratio be carefully computed. Quick Ratio The quick ra liabilities: Unrestricted Fund Balances The stand 1.08 to 1. is a This ratio inore than ti reasons. Days Cash Profitability Ratios 7. Operating Margin (%) Operating Income (Loss) Total Operating Revenues 8. Return on Total Assets (%) EBIT (Earnings Before Interest and Taxes) Total Assets The days cas ating expen: Courtesy of Resource Group, Ltd., Dallas, Texas. There is This ratio example in amount of in ratios reflect the ability of the organization to meet its current obligations. Liquidity We measure short-term sufficiency. As the name implies, they measure the ability of the orga This ratio is considered to be a measure of short-term debt-paving ability. However, it must be carefully interpreted. The standard by which the current ratio is measured is 2 to 1, as mation to "he liquid in other words to have sufficient cash-or assets that can be converted The current rato equals current assets divided by current liabilities. For instance, consider this Liquidity Ratios 129 LIQUIDITY RATIOS washon hand Current Ratio example: Current Assets (365) $120.000 S60.000 2 to 1 Current Liabilities 365) computed Quick Ratio The quick ratio equals cash plus short-term investments plus net receivables divided by current liabilities Cash and Cash Egivalents + Net Receivables $65,000 = 1.08 to 1 Current Liabilities $60,000 The standard by which the quick ratio is measured is generally 1 to 1. This computation, at 1.08 to 1. is a little better than the standard, This ratio is considered to be an even more severe test of short-term debt-paying ability (even more than the current ratio). The quick ratio is also known as the acid-test ratio, for obvious reasons. Days Cash on Hand The days cash on hand (DCOH) equals unrestricted cash and investments divided by cash oper ating expenses divided by 365: Unrestricted Cash and Cash Equivalents_$330,000 = 30 days Cash Operating Expenses $11,000 No. of Days in Period There is no concrete standard for this computation. This ratio indicates cash on hand in relation to the amount of daily operating expense. This example indicates the organization has 30 days worth of operating expenses represented in the amount of (unrestricted) cash on hand. 130 CHAPTER 12 D Days Receivables The days receivables computation is represented enues divided by 365 $720.000 $12,000 alance Sheet Assets Current Assets Net Receivables Net Credit Revenue No. of Days in Period Accounts rech inventories Prepaid Insuran Total Current AS Property. Planta is performance Buildings (het) Equipment (not Net Property. Po Omer Assets compare with your own organization's computation. as net receivables divided w This computation sents the mumber of days in receivables. The older at more difficult it becomes to collect. Therefore, this computation is a measure PANCAS in our organization. This example indicates that the organization Lash There is no hard and fast rule for this computation because much depends collection performance. There are many "days receivables" regional and me Credit revenue tied up in netreceivables. This computation is a common mean Figure 12-1 shows how the information for the numerator and the denom calculation is obtained. It takes the Westside Clinic balance sheet and the sun enue and expense that were discussed in the preceding chapter and illustre of each figure in the four ratios just discussed. The multiple computations hand and for days receivables are further broken down into a three-step procent This ratio is universally used in credit analysis and figures prominent in Each lending institution has its particular criteria for the DSCR. Lending have a provision that requires the DSCR to be maintained at or above a certa Nav will SOLVENCY RATIOS Solvency ratios reflect the ability of the organization to pay the annual interest obligations on its long-term debt. As the name implies, they measure the abilis nization to be solvent": in other words, to have sufficient resources to meet obligations service: Change in Unrestricted Net Assets (Net Income) + Interest, Depreciation, and Amortization Maximum Annual Debt Service Figure 121 and work with the Case Study entitled "Comparative Analysis (fins and Benchmarking) Helps Turn Around a Hospital", you will soon master the Debt Service Coverage Ratio The debt service coverage ratio (DSCR) is represented as change in unrest (net income) plus interest, depreciation, and amortization divided by masini tam Opere $250,000 $100.000 me and Gas Study. Figure 12-11 Courtesy of Res Tung Us days der a receivable 5100000 2. Et 100.000 WP SA32.000 195.000 lepends on the y has days www measure of and national figure TO T 100 c denominato de d the statements Durres sont 552.000 Accounts and 9000 Torrent DINGEN 572,000 TAS Lo Tome Les Recom Matures of Long-Term Dott 152.000 id illustrates the tations for days tep process. If you nalysis (Financial Run master this process 305 . 200.000 354,000 Toner Fond Bates $12.00 25 sed Total Tours and Font Blanc 418.000 500.000 Statement of an und beste Crew e Year Ending Decembra 101209 ual interest and patinis ure the ability of the ces to meet its long 2.000.00 T. 70.000 ut portieren 2.000.000 Torop Stop 2 wyty 1.800.000 . Operating boms Medic Surga TV Menye Omer professionals Support SVO Great Depreciation 0,230 860,000 30,000 220,000 65,000 40,000 20.000 $1.as. Pop e in unrestricted at d by maximum annual 250.00 1931 50. Total operating Exp income from Operations $115.000 operating Games (Louses 35.000 250.000 = 2.5 5,000 soroga 100,000 and Gaing in Excess of me ind Loss 3120,000 ominently in the Mabu $120,000 Unrestricted Fund Balance R. Lending agreemento bove a certain figure Figure 12-1 Examples of Liquidity Ratio Calculations Courtesy of Resource Group, Lad, Dallas, Texas The return on total assets is represented as earnings before interest and taxes CHAPTER 12 Finale 1.32 D $2,000,000 $2,250,000 alance Sheet =0.80 Total Liabilities Unrestricted Fund Balances Na will Liabilities to Fund Balance (or Debt to Net Worth) unrestricted netasseis (ie, fund balances or net worth) or total debt divided for The liabilities to fund balance or net worth computation is represented as total Another indicator that is more severe is long-term debt to net worth it. to the quick ratio discussed previously in its restrictiveness to net worth com computed as long-term debt divided by fund balance. This computation is A mirror image of total liabilities to fund balance is total assets to fund balance Figure 12-2 shows how the information for the numerator and the des of revenue and expense that were discussed in the preceding chapter and illustrate of each figure in the two solvency ratios just discussed, along with each figure in calculation is obtained. This figure again takes the Westside Clinic balance she ability ratios still to be discussed. When multiple computations are necessary, analysis. It is therefore a multipurpose measure. It is so universal that many outside available for comparative purposes. The result of the computation must still become broken down into a two-step process. This figure is a quick inditor of debt load. Assets Current Assets Accounts receivable the Inventories Prepaid Insurance Total Current Assets Property. Plant und Equip Land Buildings (net) Equipment (net) Net Property. Plant and Othet Assets puted as total assets divided by fund balance. Total Other Assets Assets Durant matures of lo Accounts payabit and Long-term ett Less current matus PROFITABILITY RATIOS Profitability ratios reflect the ability of the organization to operate with an excess revenue over operating expense. Nonprofit organizations may not call this te the measurement ratios are still generally called profitability ratios, whether ther an for-profit or nonprofit organizations. Fand Balance Linnad tunda Restricted fund balanc Total und mances Total Libes and Fund Operating Margin The operating margin, which is generally expressed as a percentage, is represented income (loss) divided by total operating revenues: Operating Income (Loss) $250,000 = 5.0% Total Operating Revenues $5,000,000 Total penting revenu Operating Expenses Medicarical and The service Services Gens This ratio is used for a number of managerial purposes and also sometimes cali ered because of variables in each period being compared. Total operating expen Income from Operations Naparating Gains (Lo Interest income Net nonoperating game Revenue and Gains in Ex Expenses and LOSS Increase in Unrestricted Return on Total Assets by total assets: Figure 12-2 Exa Courtesy of Resour EBIT Total Assets $400,000 = 10% $4,000,000