Complete 5 page APA formatted essay: Health Care Finance (Module 1-CBT).The industry average for health care industry is a current ratio of 2:1.Days in accounts receivables show how many days it will

Complete 5 page APA formatted essay: Health Care Finance (Module 1-CBT).

The industry average for health care industry is a current ratio of 2:1.

Days in accounts receivables show how many days it will take for OHC to collect its outstanding receivables. As shown from above, OHC took 32.91 days (on average) to collect its receivables in 2007. and this situation has worsened in 2008 where the company took 55.

22 days to collect the outstanding amounts. These high values show that there may be a problem in revenue collection process and the company needs to address the issue quickly to ensure that receivables are collected in quick time.

The analysis of liquidity ratios shows that the company is fairly liquid. It is able to meet its short term obligations. However, the days in accounts receivable has worsened than 2007 and some action may be required to reduce the number of days to collect outstanding funds.

The operating margin ratio was 76.5% in 2007 which shows that the cost of services provided by OHC is small as compared to the revenue generated (that is, for every $1 revenue, the company incurs an operating cost of $0.235. This shows healthy performance. The operating margin ratio has improved in 2008 (as it increases to 78.5%). This shows that the operating cost has gone further down as compared to 2007.

As shown from above, OHC was fairly profitable in 2007 and the gross profit margin has increased in 2008. Although, it may be argued that healthcare organization should not have very high profit margins as this indicates that they are charging high fee from patients.

c. Return on Assets (ROA)

The ROA for OHC is calculated as below:

Return on Assets for OHC Medical Center

Year

Net Income

/

Total Assets

=

ROA

2007

$37,370,000

/

$44,450,000

=

84.07%

2008

$34,177,000

/

$49,370,000

=

69.23%

Although the company has been profitable during 2007 and 2008. but the above table shows that OHC has not been able to effectively utilize its assets towards generation of profits. The Return on Assets was 84% in 2007 which was satisfactory but it declined sharply in 2008 to 69%. This may not be acceptable to shareholders as this indicate