Financial assessment report 18th medical group
1.1 Profitability and efficiency of 18th Medical Group
Even though 18th Medical Group is a non-profit seeking organization, profitability is still an important facet for the firm because without profits the business enterprise will fail, unless additional finance from providers of capital is obtained. Unfortunately this type of finance is not always the available, thus rendering profitability an important business aspect to ensure the going concern of the corporation.
The profit margin ratio of the 18th Medical Group decreased by 6.48% from 2005 to 2006. This indicates that the profit generated from every $100 of sales diminished. This can arise from a number of reasons, such as a reduction in service charges, lack of control on costs or provision of services which provide a lower profit margin. The operating costs to patient revenue ratio, which is calculated in section 1.3 of this report, show an increase of 6.23% during the years. Such increase mean that the operating costs in relation to revenue have increased indicating that lower control on costs was carried out. In this respect, accounting cost exercises should be carried out in order to identify the area in which such excessive expenditure is arising. Once it is noted, appropriate control measures should be adopted to minimize such expenses and sustain the firm’s profitability.
The organization however revealed an overall improvement in the efficiency with which the resources of the firm were managed. The return on capital employed showed a slight increase, indicating that the efficiency with which the resources are utilized to generate profits improved. Yet, the return on capital employed of 18th Medical Group is less than 1%. A high percentage in the return on capital employed is always desirable because it means that the firm’s profits are substantially safe from unexpected changes in the business environment, such as new competitive measures, adverse economic changes and more. Before rushing into drastic conclusions it is important that we examine this ratio with one of similar companies in the same industry. We have to keep in mind that in certain industries a low percentage of return on capital employed is derived due to the substantial amount of capital assets needed to operate. Therefore further investigation need to be carried out with respect to this ratio.
The utilization of fixed assets, current assets and net current assets also improved during the years. This entails that the ability with which the firm’s assets have been used to generate patient revenue improved. Such good managerial efforts can help the financial health of the business enterprise.
1.2 Financial Position of 18th Medical Group
The current ratio of 18th Medical Group is very high and increasing. This portrays a sound financial position of the firm. The current ratio, also known as the working capital ratio highlights the ability of the current assets of the firm to cover the current obligations the company is facing. A good financial position is important for all organizations, because without cash and working capital the company cannot operate.
The current assets and current liabilities that 18th Medical Group holds are basically cash and cash equivalents trade receivables/payables. The cash and cash equivalents increased by 3.06% indicating an improvement in the cash flow balance. The reasons for such improvement stem from a variety of factors, such as better operating activities, receipt of additional equity or debt finance and more. A financial report that sheds light on such areas and ought to be examined is the cash flow statement, which was not provided for in this question.
With respect to the trade receivables and payables, appropriate accounting ratios have been adopted in the following section. The difference between the time taken to receive the money from our debtors and the time taken to pay our creditors is enormous, which is a positive feature for the financial position of the firm. The creditors ratio decreased drastically during the years. However, the days in accounts receivable also diminished to compliment such movement. Indeed the difference between the two leaves a substantial margin of safety for decrease in the creditors ratio. Management should be acclaimed in this area of working capital management for their good work.
1.3 Determination of accounting ratios
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Wood F.; Sangster A. (2002). Business Accounting 1. Ninth Edition. London: Prentice Hall