Moreno Medical Center’s Ratio and Budget Management
Moreno Medical Center had faced challenges in managing its operations during 2013. It could be noted from the organization’s monthly income statement that it generated an operating loss for consecutive five months from April to August 2013. The CFO Report referred to this situation as seasonal fluctuations that the company experienced during 2013 (Moreno Medical Center – Annual Report 2013, 2013). Moreover, it reported a net profit of $627, 000 at the year-end. It is useful to analyze the organization’s past performance by performing financial analysis that would highlight the potential weaknesses in its strategies ( Moreno Medical Center – Annual Report 2013 , 2013).
The current report presents results of financial ratio analysis by using key financial ratios including current ratio, quick ratio, operating income margin ratio, and return on assets. The company’s performance is evaluated by comparing values of key ratios with the industry averages. It is useful to assess whether the selected company has effective strategies to compete with other companies in the same industry (Fridson & Alvarez, 2011) Furthermore, the report includes findings of budget management analysis.
Financial Ratio Analysis
The financial ratio analysis is a key tool that is commonly used by analysts and shareholders to assess a company’s financial performance. However , a key limitation of financial ratio analysis is that it is based on the company’s past performance that may not be appropriate for predicting its future performance. There are four ratios selected to analyze the financial performance of Moreno Medical Center. The values of key financial ratios are also compared with the industry averages.
The current ratio is a key ratio that is used for ascertaining the company’s liquidity position. It is calculated by “dividing current assets of the company by its current liabilities” (Peterson & Fabozzi, 1999). It is important that the company has sufficient liquidity to fulfill its short-term business requirements. The following table indicates the values of the current ratio of the organization for 2012 and 2013.
Table 1: Current Ratio.
The company’s annual report indicated that its current assets decreased by 1 . 7% and its current liabilities increased by 184. 1% in 2013. It could be inferred that the company’s liquidity position weakened in 2013. However, the value of current ratio remained more than the benchmark value of one. The company had current assets of $5. 37 for each $1 of current liabilities ( Moreno Medical Center – Annual Report 2013 , 2013). It was unlikely to face financial problems in the short-term. However, the significant decline in the value of current ratio reflected that the company could experience liquidity issues in the future. The industry average was 2. 0 (Ellison, 2015) that indicated that the company performed better than other companies in the industry. The significant increase in the company’s liabilities was due to its external debt and the slow down in the payable settlement. The external debt was obtained by the company at an adjustable interest rate for the purchase of new equipment.
The quick ratio that is calculated by excluding the value of inventories from current assets is another measure of liquidity (Peterson & Fabozzi, 1999).
Table 2: Quick Ratio.
The values in the table provided above indicated that the company’s liquidity position weakened in 2013. The analysis showed that the company’s inventories almost doubled in 2013. It implied that the company was ineffective in managing its inventories of medical supplies. The industry average was not available.
Operating Income Margin Ratio
The operating income margin ratio is a key indicator of the performance of health centers. The company’s operating profit is divided by its total revenues to determine the value of operating income margin ratio (Fridson & Alvarez, 2011).
Table 3: Operating Income Margin Ratio.
The result indicated that the company’s operating income margin value was very low. The company’s income statement indicated that the company incurred an operating loss in five consecutive months. The industry average was 2 . 6% (Ellison, 2015). It suggested that the company performed poorly as compared to other companies in the industry. The company’s low profitability could be a major concern for its shareholders, and it could undermine the company’s ability to generate positive cash flows in the future.
Return on Assets (ROA)
The return on assets is calculated simply by dividing net earnings of the firm by its overall revenues (Khan, 2004).
Table 4: Come back on Assets.
The lower value of come back on assets pointed out that this company experienced poor profitability within 2013. It has been a major some weakness of the organization, also it should get steps which could assist it improve the financial position. The particular industry average has been 4. 5% (Ellison, 2015) that Atezado Medical Center experienced major problems that will affected its success in 2013.
Spending budget Management Analysis
The particular variance analysis is usually performed by evaluating the projected earnings statement using the temporary income statement associated with the company. The particular variation analysis is advantageous to evaluate the particular company’s performance simply by comparing the real results using the budgeted amounts (Weygandt, Kimmel, & Kieso, 2009).
Table 5: Difference Analysis.
The difference analysis indicated presently there was a beneficial variation in the particular net patient income and total income of the organization Atezado Medical Center : Annual Report 2013 , 2013). Upon the other hands, it may be noted that will the company’s complete expenses had a negative variation Moreno Clinic : Annual Report 2013 , 2013). The particular favorable variation within the company’s total income resulted in working income instead associated with operating loss. Furthermore, there was a good variation in the particular company’s net earnings. The company may overcome unfavorable variants by managing the expenses efficiently. It may be noted that the particular depreciation charge with regard to 2013 was twenty percent greater than 2012. This was because of the buy of new gear by the organization. The organization could decrease the depreciation cost by changing the particular depreciation method or even estimated useful existence of assets.
Benchmarking enhances budget management because it allows the particular management to arranged targets and help to make their techniques for attaining those targets. With regard to example, if the particular management decides in order to increase its income by 5%, after that it can help to make strategies that might achieve this focus on.
The particular analysis concludes that will Moreno Medical Middle had strong fluid in 2013. Nevertheless, there was clearly a substantial decline within the ideals of the 2 liquidity ratios within 2013. The company’s profitability remained really low in 2013. The budget variance analysis pointed out that the organization performed better in order to achieve higher income that led to internet income instead associated with net loss because projected by the particular company’s management.
Ellison, The. (2015). 200 medical center benchmarks. Web.
Fridson, H., & Alvarez, Farrenheit. (2011). Financial statement evaluation: A practitioner’s manual. Danvers, MA: John Wiley & Sons.
Khan, Meters. Y. (2004). Financial administration: text, problems plus cases. New Delhi: Struktur McGraw-Hill Education.
Atezado medical center : annual report 2013. (2013). Web.
Peterson, P., & Fabozzi, F. M. (1999). Analysis of monetary statements. Hoboken, NJ: Steve Wiley & Kids.
Weygandt, J. J., Kimmel, P. D., & Kieso, D. Electronic. (2009). Managerial accounting: Equipment for business decision producin