St. Marys Financial Report Analysis

Table of Contents

Introduction
Profitability
Liquidity
Efficiency
Capital structure
Conclusion
References

Introduction

The following report is based on available financial and operating indicators that have been calculated from the financial statements of St. Marys Hospital for the four years 1990 to 1993. The comparisons are made with comparative benchmarked information for a similar period in consideration. The analysis is based on the calculated ratios that are based on the face value of the financial statements. The report ends with the highlight on the area where the hospital needs to improve and the recommendation on the Hospitals management.

Profitability

The overall profitability of St. Marys Hospital is seen to improve from -30.24% in 1990 to 4.81% in 1993. This is a credible improvement considering that the Hospital has maintained positive growth for all its profitability indicators. The gross profit margin grew from -24.65% to 7% in the same period while the return on equity improved from -69.62% to 14.88%. The calculation of the asset turnover and the profitability margins indicate the positive growth has originated from increased profit margins from both the operating and gross levels since both the current and fixed asset turnover of St. Marys Hospital has improved for the period in consideration. However, when we compare the Hospitals indicators with the National Benchmarks; in the former years when the Hospital was recovering from a period of loss-making, the management had performed dismally. However, the Hospital management performance improved and surpassed the benchmarks by the end of the period in consideration.

Thus, based on the profitability indicators, the companys management has performed exceptionally well to drive the company from a period of loss-making to profitability and surpass the industrys performance benchmarks. The improvement has been witnessed in all the profitability indicators under consideration i.e. operating margin, gross margin and return on equity.

Liquidity

A continued improvement trend is displayed by the liquidity indicators of the Hospital. Both the current ratio and quick ratio or the acid test ratios have improved slightly for the four-year period in consideration. The current ratio has improved by 43% while the quick ratio has improved by 54%. The improvement in the ratios indicates that the Hospital has sufficient liquid resources to repay its current liabilities when they fall due (Robert, 2000). When we analyze more deeply the composition of the ratios; the average collection period has improved by 22 days while the current asset turnover has improved by 15%.

When we consider the Hospitals liquidity ratios with the benchmarked liquidity data; the Hospital has performed poorer in both the current and quick ratios. This indicates that the Hospital has a significant room for improvement to attain the benchmarked level of liquidity.

Efficiency

The efficiency indicators of the Hospital have all improved; however, the average age of the plants has increased indicating that the Hospital is utilizing older assets that may be less efficient. The increased age of the plants may be used to explain the improvement in the fixed asset turnover and thus, a careful evaluation of the ratio should be undertaken with the incorporation of other factors that impact the ratio (Barry & Jamie, 2005).

The comparison of the efficiency of the Hospital with the benchmarked data is only limited to the last year of the period under consideration. The performance of the Hospital is better compared to the benchmarks. Moreso, when we compare the average collection period, the Hospital has performed well over the entire period in consideration since it has collected its debts faster.

Capital structure

The Hospital has continuously improved on its capital structure by reducing the amount of debt or increasing the amount of equity in the capital structure. The Hospitals capital structure ratios have all improved in the period under consideration. This indicates that the company has reduced the proportion of debt in its capital structure; this has the impact of reducing the riskiness of the Hospital.

The comparison of the Hospitals capital structure with the benchmarked information indicates that the company is not performing optimally. The Hospital is underutilizing the potential of debt in the capital structure. Conventionally, debt is cheaper than equity and thus there is an optimal trade-off between debt and equity in the capital structure (Barry & Jamie, 2005). Thus, the Hospital should increase the amount of debt in its capital structure to at least the benchmarked percentage to optimally utilize the advantage of debt in the capital structure.

Conclusion

In conclusion, the comparison of St. Marys Hospital financial information with the benchmarked information indicates that the Hospitals management is performing quite well and is commendable. Notwithstanding, the managements underutilization of debt; the management has surpassed the benchmarked financial and operating indicators and thus should be retained. The good performance is amplified by the fact that the company has led the Hospital from a period of loss-making to profitability.