You have just been selected as the new Chief Executive Officer of OHC Medical Center, a 600-bed hospital in the suburbs of a city with a population of over 1.5 million. The former CEO, Ms. Andrews, was terminated because of her inability to engage in key managerial functions. Ms. Andrews was unable to effectively use financial information to assess the financial health of OHC and make decisions regarding current and future operations of OHC.
At the request of the Board of Trustees, you have been scheduled to meet the organization's Chief Financial Officer and Accountant. They have provided the following financial information. Using the figures evaluate the financial health of OHC accurately.
Provide the Board of Trustees with your conclusions about the financial health of the organization. Your discussion should include the state of the organization at the end of 2007 as well as a comparison of the years 2007 and 2008. Be sure to show all formulas and calculations
Relevant ratios should be applied and conclusions drawn.
Deductions from Revenue
Net Patient Revenue
Other operating Revenues
Cash and Cash Equivalent
Total Current Assets
Property, Plant and Equipment
Other Current Liabilities
Total Current Liabilities
TOTAL LIABILITIES AND DEBT
Debt to Equity 12.77 1.95 (total Debt/Total Equity)
Return on Equity 11.58 2.04 (Net income/shareholder equity)
These ratios are also contained in the spreadsheet. An optimal current ratio is about 2:1, which indicates that a company has enough short-term and liquid assets to cover its' short term obligation twice. You can see that in 2007, the hospital did not have quite enough short-term assets to meet this expectation, but in 2008 it slightly exceeds this goal.
You will also notice that in 2007, the hospital is holding almost double the cash that it holds in 2008 (by percentage and by dollar). This is a measure of whether a business could pay all its' short term liabilities today, ...