Ratio Analysis

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Patton-Fuller Ratio Analysis

There is a _$_1 million__ difference between the “unaudited” and the “audited” financial reports.

The subsequent audit adjustment __increase bad debt_____expense by $__1 milion___ and changed the operating results for 2009 from _a gain to a loss_, as compared to the unaudited financial statements. This audit adjustment reduced _the profitability_by 1 mil_and weakens the __creditability_ of the CEO’s report to the Board in December.

The CEO’s statement that “all financial ratios have improved”__ is not accurate. Still, the $__ 16 mil___ “turnaround” from the previous year’s loss is remarkable and indicates a good management team. And its handling of some large and potentially damaging events during the year __justifies__ the CEO’s statement that “The physician owners have received the benefits of aggressive management of their hospital”.

We are not told the amount of the cash distribution for the recent year. The timing of the cash distribution and bonus payments (in November) reflect the extraordinary financial events in the nation and prove the business maxim that “cash is king”. The cash distribution to owners and management was one factor in _the sharp decline of cash reserves and may prove to have been __unwise__ for the Hospital’s long-term financial health. However, the physician-owners (via their Board) would have made the distribution decision and—as owners—are free to do so.

Based on the unaudited financial statements, the eight ratios show that:

1. The Current Ratio goes down because of decrease in assets and increase in liabilities.

2. The Quick Ratio goes down because it excludes inventories

3. The Days Cash on Hand goes down because they used the cash on inventory and equipment.

4. The Days Receivables went up by removing Cash from the facility to the

5. The Debt Service Coverage Ratio went down due to non-cash expenses...
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