Ratio Analysis Paper
Ratios describe the various relationships among accounts in the balance sheet and income statement. Financial ratios are important and helpful gauges of how an organization is functioning. An organization’s financial health, potential revenue, and even possible bankruptcy can be garnered from financial ratios. Information derived from financial statements is used to calculate most ratios and make projections. “Ratios help investors and lenders determine the risk associated with lending or investing funds in an organization” (GE Financial Healthcare Services, 2003, para 1). According to Finkler and Ward (2006), “the key to interpretation of ratios is benchmarks. Without a basis for comparison, it is
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The trend shows steady growth over the past three years, which is promising for increased growth into the future. The benchmark for this ratio is the goal set by the board or a comparison to industry peers. Increases in tuition or student enrollment will increase the earned income potential for The Children’s Home, thus raising the self sufficiency ratio for the organization. This could also augment any decreases in government aide.
Expense Ratios
Personnel Costs Ratio Costs related to staffing generally take up the largest portion of the budget. Adjustments to staffing percentages are easily seen in the budget. Formula: Total wages, taxes and benefit expense / Total expenses = Personnel costs ratio.
FS 2010: $1,639,564 / $14,904,356 = 0.11 or 11%
FS 2009: $1,446,010 / $14,584,770 = 0.09 or 9%
FS 2008: $1,199,759 / $12,678,305 = 0.09 or 9% The Children’s Home maintains a low personnel costs ratio. The trend over the last three years shows a steady staffing percentage with a slight growth. The benchmark for this ratio is set by the board or is by comparison to industry peers. This organization should take note of the fact that, when this ratio is low, there is little room for staff alterations in the face of financial crisis.
Administrative Cost Ratio This is an important ratio that nonprofit organizations and supervisory bodies frequently check and assess for changes over time. Formula: Total
With regards to organization budgeting, staff will be comprised of both paid staff and volunteers. Both groups will require adequate and appropriate training. Funding for
Financial statements paint a picture of financial health of an organization. Important aspects of the financial statement of a health care organization are ratios. Analysis of ratios show how two numbers relate or compare to one another. Ratios are a way for organizations to make comparison. These comparisons not only encompass what is happening presently but can also be used to make comparisons about numbers and ratios over time. Ratios are a way for organizations to compare themselves with competitors and the industry. (Finkler, Kovner, and Jones, 2007). There are four major ratios that financial statements analyze 1) liquidity 2) activity 3) leverage and 4) profitability. The financial statement for Mayo Health System
Eight. Overstaff or Understaff. Such labor measures can play a role in the creating budgets for the TRP. The more staff in need of training, the higher the budget needed.
Ratios are highly important profit tools in financial analysis that help financial analysts implement plans that improve profitability, liquidity, financial structure, reordering, leverage, and interest coverage. Although ratios report mostly on past performances, they can be predictive too, and provide lead indications of potential problem areas. Financial ratios are important because they help investors make decisions to buy hold or sell securities.
At Universal Health Services, Inc. we want to evaluate our financial condition, so that we can assess how we are doing compared to our competitors. We also want to create a strategic financial plan for the next three years, so that we can continue to grow stockholder’s equity and to keep up and even take over our competition. One way to analyze our financial condition is through financial ratios. “Financial ratios are often used in benchmarking. Comparisons are made between the financial ratios of a firm and those of its peers or an industry standard. A financial ratio can be used as a yardstick for measuring how the firm stacks up against its competition” (Beckham, 2015).
$10,644,800 / $2,271,400 = 4.69 Times Return on Common Stockholders’ Equity (2002) $647,645 / $1,928,960 = 33.58% Return
Before starting a new business, several decisions such as its legal structure must be made first. Five basic entity types exist in which to structure a business. These types consist of sole proprietorships, partnerships, limited liability companies (LLC), C corporations, and S corporations. When determining the type of structure to use, comparison of different factors such as liability to the owners, taxation, and management
As we grow in number of employees, number of locations, amount of payroll, new expenses like 401k management and matching, 50% coverage for employees’ health care, bonus compensation, and increased marketing efforts, as well as large amounts of difficult to collect and overdue AR, we struggled to cover expenses. During this
Financial ratios are great indicators to find a firm’s performance and financial situation. Most of the ratios are able to be calculated through the use of financial statements provided by the firm itself. They show the relationship between two or more financial variables that can be used to analyze trends and to compare the firm’s financials with other companies to further come up with market values or discount rates, etc.
For any organization, effective planning and financial management is required for the sustainability of its mission and business. Moreover, management tools, such as ratio analysis are used to provide key indicators of the organization’s performance as well as comprehension of the financial trends and results over time. Financial ratios are thus used by different stakeholders in meeting their objectives, for instance managers to point out the strengths and weaknesses to allow for informed strategies and initiatives. Conversely, funders analyze financial ratios to compare organizational results to allow them to make informed decisions on mission impact and management effectiveness. Ratios are thus meaningful when compared to industry averages and historical data.
Financial ratios allow health care companies to compare themselves to competitors and identify its personal strengths and weaknesses. Mostly, utilized by bankers, creditors, shareholders and accountants to evaluate data presented on entity financial statements. Depending on the consequences of the evaluations, bankers and creditors may additionally select to extend or retract financing and capability shareholders may additionally regulate the level of commitment in an enterprise. Financial ratios are essential gear that judges the profitability, performance, liquidity and solvency of an entity. Some key element stakeholder look is the Operating margin- operating margin indicates the organization's profitability from operations, including investment-related
started with a fixed budget of one million dollars for funding the higher wages of part time employees in order to retain workers and decrease the high percentage of turnovers (75%) in the organization. The goals to keep in mind when drafting our new budget are: to retain part time employees by increasing their pay and improving their health benefits; cutting program costs by reducing a few programs in order to improve the quality [Quality over quantity]; and lastly to set aside funds for evaluation in order to determine the overall quality and effectiveness of the program.
In situations such as this, it is likely that there are several professional staffing providers sourcing the talent. This volume almost always leads to a desire to evaluate how that expense is being managed.
Looking at the school’s growth gaps, OSE is atypical. Students that are free and reduced lunch eligible and minority students are outperforming the students identified as G&T in academic growth in math measures. This growth gap is inverse. In English and Language Arts, minorities are outperforming the average yearly growth of the majority of the student body, and students eligible for free and reduced lunch are maintaining adequate yearly growth. OSE needs to continue to work to grow students in these categories, as well as help students who don’t identify as a minority or eligible for free and reduced lunch obtain adequate yearly growth.
For this exercise, I will use Directorate of Family, Welfare and Recreation (DFMWR) as my guinea pig for this assignment. They are the only organization within the US Army that has to generate a profit in order to support its programs. The Department of the Army reviews there programs and services annually to see what programs are striving and what programs are struggling (Hall, Musters & Lovallo, 2012).