Statement and Indicator Analysis
Analysis of financial statements is of extreme importance for hospitals, as it helps to understand the trends in performance. In 2013, the hospital’s total revenues were $361.1 million, which signified a 14.2% increase in comparison with 2012. At the same time, in 2013, operating expenses were $340.4 million, which signified an 11.9% increase. Since the growth of revenues was faster than the growth of expenses, the hospital experienced a 78.4% growth in net income and total profit margin, which grew from 3.67% in 2012 to 5.73% in 2013. The hospital’s profitability was almost twice as high as the industry average of 2.9%
The hospital also experienced growth in total assets from $113.6 million in 2012 to $127.2 million in 2013. The asset turnover ratio also grew from 2.78 in 2012 to 2.84 in 2013. However, despite the overall growth of assets and revenues, the management team was not using assets to generate revenue effectively, as the asset turnover ratio in 2013 was lower than the industry average of 3.1. Nevertheless, the hospital’s return on equity measured using DuPont analysis was 36.32% in 2013, which was higher than the industry average of 28.41%. In summary, the hospital demonstrated a positive trend in all key financial figures and indicators in 2013 compared with 2012.
Examples of Different Significance of Ratios
Liquidity ratios are of extreme importance for the analysis of hospitals, as it demonstrate I the company can pay off its current debt. However, liquidity ratios are of little importance to the Commonwealth. Liquidity ratios include the current ratio and cash flow coverage ratio.
Strengths and Weaknesses
Commonwealth’s strengths include liquidity and profitability. In particular, Commonwealth’s total margin was 5.7%, which was above the state median value of 4.7%. At the same time, the Commonwealth’s current ratio was 1.4, which was above the national upper quartile of 1.3. Additionally, the Commonwealth’s debt ratio was lower than the national lower quartile, which also demonstrates a significant strength. As for the weaknesses, Commonwealth has low efficiency of asset use, which is demonstrated in the total asset and current asset turnover ratios.
Major Problems of Analysis
There are numerous problems associated with financial and operating indicator analyses one may encounter. On the one hand, it may be challenging to select the most important indicators for analysis. Hospitals disclose a large amount of data, and it may be difficult for a person with insufficient experience to make sense of the data. On the other hand, one may find it confusing to select benchmark values for analysis (Carini et al., 2020). The possible benchmarks are last year’s performance, national averages, state averages, and key competitors.
Key Learning Points
In my opinion the key learning points are the following:
- Opportunity to practice financial analysis. The case study provided me with the opportunity to receive a lived experience of financial analysis using real data.
- Selecting the relevant indicators. There are numerous datapoints present in the financial statements and indicators and it was up to me to decide which were important to mention in the analysis.
- Summarizing and drawing conclusions. The case study allowed to unite the analysis of numerous indicators into a short summary and draw conclusions about the strengths and weaknesses of the hospital’s perfromance.
References
Carini, E., Gabutti, I., Frisicale, E. M., Di Pilla, A., Pezzullo, A. M., De Waure, C.,… & Specchia, M. L. (2020). Assessing hospital performance indicators. What dimensions? Evidence from an umbrella review. BMC health services research, 20(1), 1-13.