Organizational Performance of Universal Health Services
Financial ratios are important tools that judge the profitability, efficiency, liquidity and solvency of a business. Profitability ratios help determine the overall effectiveness of management regarding returns generated on sales and investments. Commonly used profitability ratios are gross profit margin, operating profit margin and net profit margin. Gross profit margin consider the cost of goods sold, while operating profit margin measures profitability based on earnings before tax expenses and interest. The Bottom Line of a business is seen in the Net profit margin takes all expenses into account.
There are also Efficiency Ratios that measure the effectiveness of management decisions. Efficiency ratios evaluate the return on investments and inventory turnover, sales to receivables, and return on assets. Inventory turnover measures the number of times an entire stock of inventory is repurchased while sales to receivables compares trade receivables to revenues. In both situations, a higher number indicates a higher level of efficiency when selling inventory and collecting receivables. Return on assets compare net income before taxes are removed to total assets. It helps to show the efficiency of management when using assets to generate profits.
Another type of financial ratio is Liquidity Ratios which help to evaluate a company’s ability to meet its current financial obligations. In other words, liquidity ratios evaluate the ability of a company to convert their current assets into cash and pay its current obligations. Common liquidity ratios are the current ratio and the quick ratio. The current ratio is calculated by dividing current assets by current liabilities. The quick ratio helps determine a company’s ability to pay obligations that are due immediately.
Solvency Ratios are a company’s debt to worth and working capital, determine whether an entity is able to pay its debts. Banks often include this ratio as debt covenants in contract agreements.
There are also Efficiency Ratios that measure the effectiveness of management decisions. Efficiency ratios evaluate the return on investments and inventory turnover, sales to receivables, and return on assets. Inventory turnover measures the number of times an entire stock of inventory is repurchased while sales to receivables compares trade receivables to revenues. In both situations, a higher number indicates a higher level of efficiency when selling inventory and collecting receivables. Return on assets compare net income before taxes are removed to total assets. It helps to show the efficiency of management when using assets to generate profits.
Another type of financial ratio is Liquidity Ratios which help to evaluate a company’s ability to meet its current financial obligations. In other words, liquidity ratios evaluate the ability of a company to convert their current assets into cash and pay its current obligations. Common liquidity ratios are the current ratio and the quick ratio. The current ratio is calculated by dividing current assets by current liabilities. The quick ratio helps determine a company’s ability to pay obligations that are due immediately.
Solvency Ratios are a company’s debt to worth and working capital, determine whether an entity is able to pay its debts. Banks often include this ratio as debt covenants in contract agreements.