|Type of paper:||Research paper|
|Categories:||Budgeting Healthcare policy Financial analysis|
New ratios tend to affect the financial statements in that there is a need to create a room for adjustment. New strategies in the organization create a large difference in the ratios as there could be an increase or a decrease in the institution's operations that will require them to be cautious about their data presented to the public. If Valley Medical Center improves its way of making profits hence a higher operating margin, they will need to adjust the information given to the public because it is useful for comparison and for the needs of the stakeholders, as well.
The freestanding ER will affect the financial statements of VMC in the future as they will need to be added for the measure of the financial health of the company. The ratios tend to shed light on the financial health of a business. This new aspect of the emergency room will need a new restructuring of the facility to describe the new aspect being examined, the business debt, inventory and also sales health.
The ratios hat would be the most important to utilize when analyzing the construction of the emergency room include debt to equity ratio, debt to capitalization ratio, operating margin, current and quick ratio. The assumption that VMC wanted to borrow long-term bonds for funding the construction is to mean that the facility will have a pending loan to pay in the long-term. Debt to capitalization ratio will help in determining their capability to borrow while the debt to equity ratio will show the amount they can cater for in equity and how much needs borrowing (Tian and Yan 511). The operating margin will help ensure the institution does not suffer losses.
Taking the recent audited financial statements there is a huge difference for VMC when it has the free-standing Emergency room and when it does not. The operating margin of VMC with ER will be 2% while that without is 3.62%. The ratio is smaller when the Emergency Room is created because it will be the measure of profits for the institution after they have paid for variable costs of production. There is a huge loan they have to pay, hence the ratios.
There will be an increase in the debt to equity ratio where without the ER, it will be 1.55 while with the ER, it will be 2.28. There are more company's total liabilities when there is the ER since they have to cater for the total costs of restructuring. There will be an increase in the measure of the degree to which the institution is financing its operations through debt (Laitinen). It will be a different case for the ratio of return on investment that will decrease from 0.508 to 0.36 as well as the return on assets that will decrease from 0.9 to 0.6. It will be because of the larger proportion of a debt that the company will use to finance its assets. The account receivable turnover ratio will decrease from 9.06 to 8.32 because the company experiences a decrease in operating on a cash basis and more on debt.
If there is no new debt issued, the ratios are expected to change. The debt to equity ratio will reduce because they will be operating more on a cash basis and clearing the already existing debts. There will also be a reduction in the ratio of debt to capitalization because of a smaller proportion of the loan. The account receivable turnover ratio will increase as it will show that they have an efficient strategy for gaining a high proportion of quality customers hence pay their debt without many struggles.
There are monetary factors to consider in the new venture. The financial statement has to include various aspects that show the projection of operations in terms of whether the company will make losses or profits by the end of a particular term. The factors include ratios, financial statements, Return on Investment and depreciation among others. The cash flow statements will be a critical information tool to determine if it would be a good idea to partner with VMC. The statements will show the amounts needed to meet obligations, when it will be needed and the source.
Ratio analysis will help in evaluating and analyzing the financial performance of the institution in terms of risk, profitability, solvency and efficiency. Depreciation will reflect the decrease in the value of capital assets for generating income and will also be an indicator of the low of money. VMC is a strategic partner to deal with from the analysis of past business transactions. The decision should not be solely dependent on the financial analysis because there are other measures such as ethics in business that will determine the greater value of the company. With the qualitative and non-qualitative factors, it would be wise to enter into a strategic alliance with VMC because of the expected high-profit margins, hence more benefits.
Laitinen, Erkki K. "Financial Reporting: Long-Term Change of Financial Ratios." American Journal of Industrial and Business Management 8.09 (2018): 1893. Retrieved from https://www.scirp.org/journal/PaperInformation.aspx?paperID=87112
Tian, Shaonan, and Yan Yu. "Financial ratios and bankruptcy predictions: An international evidence." International Review of Economics & Finance 51 (2017): 510-526. Retrieved from https://www.sciencedirect.com/science/article/pii/S1059056017305348
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