Financial Analysis of Patton Hospital, Research Paper Example

Analyzing Patton Hospital’s financial position is the purpose of this article. Comparative analysis has been employed for this purpose. The financial positions for 2009 have been compared with those of 2008. The hospital’s income statements for 2009 as well as 2008 have been compared in order to assess the dollar differences. The change is then presented as the 2009 percentage over the 2008 percentage. Its’ balance sheets for those two years have also been compared so that the dollar amount difference can be determined. The variations in the percentages have been shown in contrast to those of 2008. In the comments, the strengths as well as weaknesses have been emphasized for 2009 in comparison to 2008. Lastly, the recommended courses of action have been listed.

Analysis

In 2009 the organization net loss decreases by 98% compare to 2008. The reason of this decrease was the increase in revenues by 10%. Other than depreciation and bad debt expenses, other expenses went up between 3 to 5%. In 2009 they went up by 44% and 11% respectively compare to 2008. Also in 2009 because of the increased in fixed assets, the depreciation expense also increased as compare to 2008. In 2009 the bad debt expense increases because of the increase in amount receivable as compare to 2008. In 2009 the decrease of interest income by 123% due to interest expenses as compare to 2008. The net loss may have been transferred into net income, only if it was decreased in 2009 as compared to previous year of 2008. In both years 2008 and 2009 the net income decrease has impacted the assets ratio return and return on equity ratio; and for both ratios they are approximately 0% in 2009 and -3% in 2008. Because of the increase in revenues and net income the ratios increased from negative to 0%.

In the increase in assets in the year 2009 is 7% due to rise in account receivable by 56%, by 100% increase in inventories, 41% increase in property plant and equipment. To increase the revenues, the hospital should provide more credit to customers and more fixed assets and inventories investments to enhance the revenues. As far as from the data we can see that company is successful but not 100%. They could increase their revenues only by 10%. The rise in fixed and current assets have been financed by debt financing, which is very clear from the growth in accounts payable and accrued expenses by 120% and compare to previous year the net long term debt was increased by 114%. It is obvious from the company’s data that it is depending on debt financing which can be seen by the decrease in retained earnings by the amount of  63%, so , the debt to total assets and its ratios have been disturbed in 2009 compare to 2008.

While the total percentage of assets financed from debt financing was 39% in 2008, it increased by 102% in 2009 to 79%. The ratio for debt to equity displayed a similar pattern in 2008. This was better than the debt to total assets numbers as it increased drastically by 478% from 64% to 368%. This is the key factor behind the net interest expense in 2009 which, in 2008, was the net interest income.

The management needs to ensure that, in the forthcoming period, all of the resources are fully utilized in order to make sure enough net income is generated by the revenues; or they must decrease their investments, specifically in the inventories and account receivable.

Therefore, they need to aim their focus towards the return of total number of assets which is a combination of total assets turnover as well as the profit margin.

Also, they should keep an eye on the return equity ratio. They can analyze the actions other organizations of the same sector in similar circumstances have implemented. The debt financing should be decreased. Financing should be done from equity which will result in a decrease in the interest expenses as well as the organization’s profit margin.

They should aim at bringing the debt to equity and debt to total asset ratios under control. They should once again analyze organizations’ capital structure within their industry and compare the results for that with those for Patton.

Reference:

Income Statement and Balance Sheet of 2009 and 2008