Financial and Operating Ratios for Dr. Smith and Dr. Brown's Physician Practice

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HCA 312 - WEEK 4 ASSIGNMENT
ENTER YOUR NAME IN THE BOX ABOVE
FINANCIAL AND OPERATING RATIOS
INSTRUCTIONS: Review Chapters 11, 12, & 13 before completing the template. You will be utilizing Dr. Smith and Dr. Brown’s Physician
Practice financial statements for completing the financial ratio calculations. In addition, you will utilize the Ratio Benchmark & Median
Table below as well as the textbook appendices 13A, and 13C to complete the operating ratio calculations. Refer to the Week 4 Assignment
directions within the course to understand what is expected in each part of the table below. Thorough explanations and definitions for each section
are required. If you include enough detail for each section, the template document will be at least seven pages in length. Include APA citations
within the Response Column where appropriate. List your references in APA format on the last row of this template. All citations and references
must be in APA style according to the Ashford Writing Center guidelines. Once you complete the template, upload the document to the Week 4
Assignment section of the course.
Use the Ratio Benchmark and Median Table below in Part 3 for your analysis on Dr. Smith and Dr. Brown’s financial health status.
RATIO BENCHMARK AND MEDIAN TABLE
Ratio Benchmark - 50th Percentile) for Comparable
Physician Group Practices
Median for Comparable Physician Group Practices
Current Ratio *2.2 2
Quick Ratio *1.74 1
Debt Service Coverage Ratio *1.49 1.1
Operating Margin *4.45 2.6
Return on Total Assets *4.04% 4.05%
*Benchmark Data: 50th Percentile Information extrapolated from Appendix 33B Case Study.
HCA312 6/12/2018

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PART 1:
CALCULATION of FINANCIAL RATIOS:
Below are five financial ratios. In each of the columns, you will be responsible for showing the calculation for each based off Dr. Smith and Brown’s
financial statements (located with the textbook). You will need to identify the type of ratio as well. Choices for the type of ratio are:
LIQUIDITY, SOLVENCY, PROFITABILITY or N/A.
EXAMPLE for the INVENTORY TURNOVER RATIO:
Show Calculation: 180,000/5000 = 36
Identify the type of ratio: n/a
CURRENT RATIO QUICK RATIO DEBT SERVICE
COVERAGE RATIO
OPERATING MARGIN RETURN ON TOTAL
ASSETS
Show calculation in the box
provided:
Identify the type of ratio:
Show calculation in the
box provided:
Identify the type of ratio:
Show calculation: (For this
ratio, the denominator you
will use is 22,200)
Identify the type of ratio:
Show calculation in the box
provided:
Identify the type of ratio:
Show calculation in the box
provided:
Identify the type of ratio:
HCA312 6/12/2018
=70000/30000
2.33
Liquidity Ratio
=65000/30000
2.16
Liquidity Ratio Solvency Ratio Profitability Ratio
=80000/180000
44%
=80000/1000000
8%
Profitability Ratio
=80000/22000
3.63

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PART 2:
TYPE OF RATIOS
In your own words, define the meaning of each ratio: liquidity, solvency, and profitability.
Liquidity
The liquidity ratios are the ratios which determines the capability of the company whether the company is
able to meet its contractual obligations with the help of the current assets that can be readily available in
cash. The liquid cash is the main requirement for any company to determine the ability of how early in
comparison to the competitors a particular company can pay back (Chiaramonte & Casu, 2017).
Solvency
Solvency ratio is the key metric used to measure the ability of the enterprise to meet the debt obligations
and this can be viewed as whether the cash flow of the company is sufficient to cater the short term and the
long term liabilities. The solvency ratio is the mirror to the company on how the company has performed
with respect to the solvency and efficiency (Rahman, 2017).
Profitability
Profitability ratios are the class of the financial measurement used to determine the profitability of the
business. The ability of the company can be judged by finding out whether the amount of the earnings is
sufficient against the relative expenses or not. Since all the users of the financial statements are looking
forward for the profitability of the business hence it is the most crucial ratio (Goldmann, 2017).
PART 3:
OPERATING RATIOS
Define the financial ratios listed below. Next, analyze the result for each ratio calculated above and explain what the calculated result tells you
about the financial health of Dr. Smith and Dr. Brown’s physician practice
EXAMPLE:
INVENTORY
TURNOVER RATIO
DEFINE: Inventory turnover is calculated to determine how quickly the inventory is used based on the services
rendered. If the inventory turnover is high, this means the hospital does not have enough inventories on hand to
accommodate the patient load. ANALYSIS: For this example, the hospital is turning over their inventory 36 times per
year, which is about 3 times a month. The opposite is true if the inventory turnover calculation is lower than the
median. FINANCIAL HEALTH: This could mean that there is a build-up of inventory due to lower than expected
patient revenues.
HCA312 6/12/2018