Hackensack University Medical Center’s Financial Analysis

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Liquidity ratios

Ratio	2015	2014	Industry average
Current ratio Current assets/current liabilities	914,952/291,969 3.13:1	838,589/266,158 3.15:1	2.2
Collection period (Accounts receivables * 365) / total revenue)	(157,884 * 365)/1,631,737 35 days	(158,823 * 365)/1,564,562 37 days	23 days
Days cash-on-hand (cash + short term investment) * 365 / total expenses –depreciation	(176,684 + 437,378) * 365/(1,545,921 – 62,505) 151 days	(171,157 + 382,837) * 365/(1,472,121 – 60,880) 141 days	74 days
Average payment period (current liabilities * 365) / (total expenses – depreciation)	(291,969 * 365) / (1,545,921 – 62,505) 72 days	(266,158 * 365) / (1,472,121 – 60,880) 69 days	34 days

The calculations above show that there was a slight drop in current ratio. However, the values are high and greater than industry average. This shows that the Hackensack University Medical Center has a strong liquidity position. It can also imply that the company is holding a lot of cash in the form of current assets (Atrill & McLaney, 2013). The collection period dropped. This shows an improved efficiency in collection of accounts payable. The day’s cash-on hand and average payment period increased.

Profitability

Ratio	2015	2014	Industry average
Operating margin (net operating income /operating revenue)	85,816 /1,387,045 6.19%	92,441/1,304,710 7.09%	3.2%
Total margin (net profit/revenue)	85,816 /1,631,737 5.26%	92,441/1,564,562 5.91%	2.9%
Return on net assets (net profit/total assets)	85,816 /1,855,940 4.62%	92,441/1,670,612 5.53%	3.9%

The three ratios show that the profitability of the company dropped in 2015. This can be attributed to a decline in net profit for the year (Hackensack University Health Network, 2015).

Asset efficiency

Ratio	2015	2014	Industry average
Total asset efficiency Total revenue/Total assets	1,631,737/1,855,940 0.88	1,564,562/1,670,612 0.94	1.9
Age of plant (years) Accumulated depreciation / depreciation expense	676,404/58,736 11.5 years	653,932/54,086 12 years	21 years
Fixed asset turnover Total revenue/net fixed assets	1,631,737/660,625 2.47	1,564,562/547,349 2.86	3.1
Current asset turnover Total revenue/current assets	1,631,737/914,952 1.78	1,564,562/838,589 1.87	2.9
Inventory turnover Total revenue /inventory	1,631,737/37,971 42.97	1,564,562/30,721 50.91	39

There was a drop in asset efficiency ratios. The efficiency in the use of total assets, fixed assets, and current assets deteriorated. Besides, the ratio shows that the average age of the fixed assets dropped. This can be an indication that the assets are wearing out and there is need to continuously replace them. Finally, inventory turnover dropped and it shows that rate of stock movement declined (Atrill & McLaney, 2013). Thus, overall efficiency deteriorated.

Capital structure

Ratio	2015	2014	Industry average
Net asset financing ratio Long term debt / net assets	624,670/674,792 0.9257	554,353/597,156 0.9283	0.45
Long-term debt to capitalization Long term debt / (long term debt + total equity)	624,670/624,670 + 674,792 0.48	554,353/(554,353 + 597,156) 0.48	0.32
Debt service coverage (Net income + interest + depreciation + amortization)/(debt principal payments + interest expense)	(85,816 + 26,670 + 62,505) / (26,670 + 48,035) 2.34	(92,441 + 27,351+ 60,880) / (27,351 + 47,599) 2.41	5.5
Cash flow to debt (%) (net income + depreciation + amortization) / current liabilities + long term debt	(85,816 + 62,505) / (291,969 + 624,670) 16%	(92,441 + 60,880) / (266,158 + 554,353) 19%	25%

Long term to capitalization ratio remained constant in 2014 and 2015. However, there was a slight decline in debt service coverage. This can be attributed to a decline in net income. Finally, cash flow to debt ratio also deteriorated. Thus, the capital structure ratios dropped.

References

Atrill, P., & McLaney, E. (2013). Accounting and finance for non-specialists (8th ed.). Harlow, UK: Pearson Publishing.

Hackensack University Health Network. (2015). Consolidated financial statements December 31, 2015 and 2014. Web.

Exhibit

Balance sheet

Income statement