Introduction
In the health industry just like any other trading environment operates on stringent financial environment lie any other firm that looks for future stability and sustainability.
My choice is firm is Marshfield clinic, a pan American nonprofit making healthcare institution that has been in operations for almost the last one century. The institution was born when a group of six medical doctors came together and decided to pool their talent in improving the welfare of ailing Americans in the year 1916.The head office of the clinic is domiciled in the city of Marshfield.
On the different fronts highlighted on the case, below is my analysis as per the different ratios running for various years to enhance comparability.
Typically, current ration g given by a comparison between the current assets and liabilities of the institution at any given period of time, a sure way of telling whether all the available current assets can meet the liability threshold recommended by the industry for particular business.
Taking an analysis for different years running below is the result.
For year 2011, the current ratio has fallen below 1.0, which is the recommended value at which a company can operate in the gravest circumstances. In this, it means that meeting short term obligations will be difficult since the current assets available are far below the liabilities to be offset. The only avenue left for the company is to use funds intended for long term growth of the company in paying this dues, thus injuring the long term goals of the firm (Robinson, 2009).
For 2012 the current ratio is on the rise but falls below the industry average of 1.20.It will thus be difficult for the company to meet its short term obligations when they fall due.
There has been many short comings of using current ratio for the purposes of determining the financial stability if a company in the short term. This is due to the fact that some elements of current ratio in the analysis do not fit in the category of assets that have realizable value immediately. As a way of example, stock items fall in this category. This is because it will take some time to dispose stocks for the purposes of obtaining cash to offset bills, depending on market forces. As such, it will be a misconceived idea to propose that stock can be part of the assets lined to clear bills, hence leading to the adoption of acid test ratio (Robinson, 2009).
Acid test ratio.
Acid test ratio is a more refined way of determining the liquidity of a company in the short term
This ratio excludes stock in the calculation of the liquidity test, hence leaving the more liquid items for the analysis.
After sampling out the remaining stocks for the periods of the four years running, the following analysis has been brought forth.
Acid ratio 1.6 1.21 0.94 1.14
The brought forth calculations reflect the financial performance of the company in the short term. It is worth mentioning that the industry average for acid test ratio is 1.00, since this gives the chances of paying out all short term liabilities possible at any given time. It is against this back ground that I conclude that Marshfield clinic has very impressive financial model, only that the fluctuations from year to year make the predictability difficult (Robinson, 2009).
The negligible value of the available stock at each year makes the variance between the current ratio to acid test ratio negligible, and of great interest is year 5.This is the only time when the acid test ratio falls below the recommended 1.00, making it slightly difficult for the company to meet its short term obligations when they fall due (Robinson, 2009).
Margins.
This highlights how the institution has been using the assets it has at its disposal to generate revenues for the company. It has been a business goal to ensure that all the available assets in the business are efficiently utilized to keep incomes flowing to the firm, for the founding principles of the organization to remain afloat. (Alvarez, 2011).
4.1 The utilization of the assets available to RPC group can be summarized in the table below.
This shows that the assets of Marshfield clinic have been efficiently utilized to generate sales for the company. The maximum utilization of assets in any business enterprise should be 100%, a notion based on the several assumptions:
- That the asset base of the company is can be broadened any time by different business arrangements like leasing to cater for un expected demand that has caught the institution by surprise (Robinson,2009).
- The company has planned for all the necessary costs that will be brought in to force by making sure all the demand levels (both expected and unexpected) are catered for.
On these grounds, it will be fair to conclude that Marshfield clinic has made all the necessary arrangements to keep the assets of the company utilized to maximum, which can be associated with the urge to keep customers alive. It is thus fair to say that the company has surpassed the expected industry utilization level of 100% (Alvarez.2011)
The final analysis of efficiency will be a detailed comparison of the net income to the asset base of the institution.
- Machines with high maintenance costs being used in the production of the products Marshfield deals with.
- Production method that calls for high usage of expertise personnel in the process of facilitating smooth processing.
Funding of the institution.
- This attributes to the portion of profits that will be enjoyed by the ordinary shareholders of the company. As a matter of law, shareholders remain the last beneficiaries of the company’s earnings after every other stake holder has been provided for as per agreement. Run through the financiers of the institution highlights that debt capital takes less than 30% of the institution’s core capital, reducing the dangers of excessive payment of interest on different maturity dates. This is because an entity is highly geared when more than 60% of the core capital is derived from interest bearing instruments. As for Marshfield clinic, I conclude that it is moderately geared.
References
Fridson M.S & Alvarez (2011) .Financial statement analysis. New York: John Wiley & Sons
Robinson T.R (2009) .Financial performance analysis: New York.Mc Graw Hill
Peterson D.M (2010) Investors bible: Washington: Mc GrawHill.
Lawrence R.N & Collins D.W (2002) .financial accounting: New York: Wiley & sons
Albatross& Oscar (2011).Financial statement analysis. Washington: John Wiley & Sons
Riley (2009). Financial performance analysis: New York.Mc Graw Hill
