Untitled document (22)
docx
keyboard_arrow_up
School
Houston Community College *
*We aren’t endorsed by this school
Course
2319
Subject
Accounting
Date
Feb 20, 2024
Type
docx
Pages
2
Uploaded by DrSnailMaster1019
●
Explain how someone could compare profitability of two hospitals of different sizes. A company's financial statements or individual line items within financial statements can be analyzed using ratio analysis. While many ratios are available, investors and analysts use the price-to-earnings ratio and the net profit margin more frequently. The price-to-earnings ratio compares a company's share price to
its earnings per share, while the net profit margin compares net income to revenues. To get a trustworthy picture of the present and possible future financial
performance of different companies, comparing different ratios of those companies over time is helpful. The five publicly traded hospital companies and hospitals by ownership type, comparing their financial performance with other industries using metrics like profit margins, ROE, total capitalization, and debt-to-
equity ratios. Investopedia (2015) looked at stock returns to investors, and the hospital utilized the hospital debt and equity in the new financing. We found that investor-owned hospitals had significantly higher ROE and margins than other industries. According to PubMed(n.d), investor-owned hospitals were significantly more highly leveraged than their government and voluntary counterparts and other industries. Between 1972 and 1983, stock returns on the five chosen hospital companies were more than twice as significant as returns on
different industries. However, following 1983, these companies' returns, both in absolute terms and in comparison to other industries, fell precipitously ●
Are there limitations to ratio analysis? Ratio analysis has limitations, including balance sheets that only display historical data and businesses that use different accounting techniques. According to TheBalance (2011), all ratio analyses use data from past performance, meaning that future results may differ. I am not considering business size and contingent liabilities. ●
Describe any pros or cons of using ratio analysis as a comparative tool for analyzing financial statements of different organizations. Ratio analysis has several benefits, including assisting with forecasting and planning through trend analysis, estimating a firm's budget by analyzing past trends, and assessing how efficiently an organization or firm is running. It also gives users of accounting information essential insights into the performance of the business, facilitates the comparison of two or more firms, and aids in determining the firm's liquidity and long-term solvency. According to Byjus (n.d.),
some drawbacks of ratio analysis: financial statements appear to be complex; multiple organizations operate in different enterprises, each with a unique environmental position regarding things like market structure, regulation, etc.; these factors are significant enough to make comparing two organizations from different industries unclear. Views and hypotheses impact financial accounting data. Accounting criteria offer distinct accounting approaches, reducing comparability and making ratio analysis less useful. Ratio analysis shows the
relationships between previous data, but users are more interested in current and
future data. References Advantages And Disadvantages Of Ratio Analysis. What Is Ratio Analysis?
byjus.com. Retrieve on February 13, 2024, from https://byjus.com/commerce/advantages-and-disadvantages-of-ratio-
analysis/
Links to an external site.
Hospital profitability and capital structure: A comparative analysis
. (August). PubMed. Retrieve on February 13, 2024, from https://pubmed.ncbi.nlm.nih.gov/3403274/
Links to an external site.
Six limitations of using financial ratio analysis
. (2011, October 23). The Balance. Retrieved on February 13, 2024, from https://www.thebalancemoney.com/limitations-of-financial-ratio-analysis-
393236
Links to an external site.
. Using ratio analysis to compare different companies
. (2015, March 23). Investopedia. Retrieved on February 13, 2024, from https://www.investopedia.com/ask/answers/032315/how-does-ratio-analysis-
make-it-easier-compare-different-companies.asp
Links to an external site.
●
●
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
Related Documents
Related Questions
For each individual ratio for each company, Your comments for each ratio should include more than just a definition or increase or decrease of the ratio. You should focus on interpreting each ratio numberfor the company and support your comments.
Use the ratio results by category to form and support conclusion by Liquidity, Solvency and Profitability. Then use to complete the Overall Conclusion as to the financial results of the company (ratios described in the chapters covered and summarized in Chapter 14 of your textbook). Conclude by stating whether the company is the better employment /investment opportunity and why.
Stargel Inc.
Comparative Balance Sheet
December 31, 20Y2 and 20Y1
20Y2
20Y1
Assets
Current assets:
Cash
$500,000
$400,000
Marketable securities
1,010,000
1,000,000
Accounts receivable (net)
740,000
510,000
Inventories
1,190,000
950,000
Prepaid expenses
250,000
229,000
Total current assets…
arrow_forward
TRUE OR FALSE: Read each sentence carefully and determine whether the statement True or False. Write your
answers in the space provided before the number.
1. Financial statement analysis uses computational and analytical techniques to evaluate the company's
risks, performance, financial health, and future prospects with the objective of making economic decisions.
2. Return on asset is an operational efficiency ratio.
3. Profitability ratios measure the ability of the company's assets to generate sales.
4. Gross profit margin provides an indication of the company's average pricing policy
5. Given equal gross profit margin, the company with the lower operating income margin has higher
operating expenses as a percentage of sales and has leaner operations.
Written Works
Below are the comparative Statement of Comprehensive Income & Statement of Financial Position of
Ellane Company & Lanie Company:
Statement of Comprehensive Income
Ellane Company
2013
Melanie Company
2014
2013
2014
Net Sales…
arrow_forward
. Explain the factors used in the formula, how the ratio assists the investor in evaluating a company’s performance, and whether it assesses liquidity, solvency, or profitability.
arrow_forward
Your Task…
Using your assigned financial statements calculate the required ratios below
Indicate if the change from year to year is favorable or unfavorable.
All values should be accurate to at least two decimal places.
The expectation is to submit a professional report free of grammar and spelling errors and easy to read. Think of this as a menu you would be handing to a customer.
All calculations are to be represented.
Analysis of Profitability
Gross Profit Ratio
Operating Profit Ratio
Net Profit Ratio
Sales to Total Assets Ratio
Return on Total Assets
Return on Equity
Earnings Per Share
arrow_forward
To evaluate a company’s performance, investors need a benchmark to which they can compare its financial ratios. What are some of the problems associated with these comparisons?
arrow_forward
Explain why balance sheet accounts are generally “averaged” and income statement figures are just lifted from the income statement when using them as factors in a particular financial statement ratio?
How do the DuPont technique helps the firm’s managers to further analyze its returns?
arrow_forward
Here you will find some income statements and balance sheets for Sears Holdings (SHLD) and Taget Corp (TGT). Assume that you are a financial manager at Sear and want to compare your firm’s situation with that of Target. Calculate represenatative ratios for liquidity, asset management efficiency, financial leverage (capital structure), and profitability for both Sears and Target. How would you summarize the financial performance of Sears compared to target (its benchmark firm)?
Include Sears and Targets current ratio, acid-test ratio, average collection period, accounts receivable turnover, inventory turnover, debt ratio, timed interest earned, total asset turnover, fixed asset turnover, gross profit margin, operating profit margin, net profit margin, operating return on assets, and return on equity.
arrow_forward
not use ai please
arrow_forward
There are different tools for analyzing the financial statements of a company, such as horizontal analysis, vertical analysis, ratios for measuring financial health, and so forth. But before we begin using these tools, it is important to know the purpose of each tool.
Please discuss one of these tools.
arrow_forward
We have all heard of Return on Investment or (ROI). Please research anddescribe five other business metrics that you may use in your analysis withyour business plan.Also, please describe how these ratios are calculated for example...Quick Ratio or Acid Test, Cash + Accounts Receivable ÷ Current Liabilities.
arrow_forward
Please answer this question
arrow_forward
One of the most important applications of ratio analysis is to compare a company’s performance with that of other players in the industry or to compare its own performance over a period of time. Such analyses are referred to as a comparative analysis and trend analysis, respectively.
A) A common size analysis requires the representation of financial statement data relative to a single financial statement item (or base account or value).
What is the most commonly used base item for a common size balance sheet?
Net income
Earnings before interest and taxes
Total assets
Net sales
Suppose you are conducting an analysis of the financial performance of Blue Hamster Manufacturing Inc. over the past three years.
The company did not issue new shares during these three years and has faced some operational difficulties. The company has thus pilot tested some new forecasting strategies for better operations management. You have collected the company’s relevant…
arrow_forward
Select the term from the list provided that best matches each of the following descriptions or definitions:
Another term for the current ratio
Definition or Description
Calculated by dividing dividends per share by the market price per share
Presentation of too much information may serve to confuse users of the information
Measure of efficiency in using assets; calculated as net sales divided by average total assets
Measures of immediate debt paying ability
A profitability measure, net income divided by net sales
Measures the profitability of a company's assets base, also known as return on assets
Analysis technique that compares an item from the financial statements with a key amount from the
same year's financial statements
Indicates the number of times, on average, that inventory is totally replaced during the year.
Net income available for common stock divided by average number of outstanding shares
Current assets minus current liabilities
Ratio that measures how quickly a company…
arrow_forward
What do these ratios tells us about Target. What impact does this analysis have on your perceptions of Target, both as a customer and as an investor or potential investor.
arrow_forward
One of the most important applications of ratio analysis is to compare a company’s performance with that of other players in the industry or to compare its own performance over a period of time. Such analyses are referred to as a comparative analysis and trend analysis, respectively.
A common size analysis requires the representation of financial statement data relative to a single financial statement item (or base account or value).
What is the most commonly used base item for a common size balance sheet?
A. Earnings before interest and taxes
B. Total assets
C. Net sales
D. Net income
Suppose you are conducting an analysis of the financial performance of Blue Hamster Manufacturing Inc. over the past three years.
The company did not issue new shares during these three years and has faced some operational difficulties. The company has thus pilot tested some new forecasting strategies for better operations management. You have collected the company’s…
arrow_forward
One of the most important applications of ratio analysis is to compare a company's performance with that of other players in the industry or to
compare its own performance over a period of time. Such analyses are referred to as a comparative analysis and trend analysis, respectively.
A common size analysis requires the representation of financial statement data relative to a single financial statement item (or base account or value).
What is the most commonly used base item for a common size balance sheet?
O Earnings before interest and taxes
ONet sales
ONet income
O Total assets
Suppose you are conducting an analysis of the financial performance of Cute Camel Woodcraft Company over the past three years.
The company did not issue new shares during these three years and has faced some operational difficulties. The company has thus pilot tested some
new forecasting strategies for better operations management. You have collected the company's relevant financial data, made reasonable…
arrow_forward
When converting dollar amounts on our financial statements to percentages for vertical analysis, what is it that makes this an easier way to compare companies to each other?
A
It provides a way for outside stakeholders to understand the numbers better in an easier format
B
It forces us to look closer at our financial statements to ensure we don't have missing amounts
C
It allows us to compare things based on growth or decline easier than comparing dollar amounts that could be vastly different values
D
It allows the analysis of numbers too large to comprehend by most stakeholders
arrow_forward
SEE MORE QUESTIONS
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
Managerial Accounting: The Cornerstone of Busines...
Accounting
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Cengage Learning
Related Questions
- For each individual ratio for each company, Your comments for each ratio should include more than just a definition or increase or decrease of the ratio. You should focus on interpreting each ratio numberfor the company and support your comments. Use the ratio results by category to form and support conclusion by Liquidity, Solvency and Profitability. Then use to complete the Overall Conclusion as to the financial results of the company (ratios described in the chapters covered and summarized in Chapter 14 of your textbook). Conclude by stating whether the company is the better employment /investment opportunity and why. Stargel Inc. Comparative Balance Sheet December 31, 20Y2 and 20Y1 20Y2 20Y1 Assets Current assets: Cash $500,000 $400,000 Marketable securities 1,010,000 1,000,000 Accounts receivable (net) 740,000 510,000 Inventories 1,190,000 950,000 Prepaid expenses 250,000 229,000 Total current assets…arrow_forwardTRUE OR FALSE: Read each sentence carefully and determine whether the statement True or False. Write your answers in the space provided before the number. 1. Financial statement analysis uses computational and analytical techniques to evaluate the company's risks, performance, financial health, and future prospects with the objective of making economic decisions. 2. Return on asset is an operational efficiency ratio. 3. Profitability ratios measure the ability of the company's assets to generate sales. 4. Gross profit margin provides an indication of the company's average pricing policy 5. Given equal gross profit margin, the company with the lower operating income margin has higher operating expenses as a percentage of sales and has leaner operations. Written Works Below are the comparative Statement of Comprehensive Income & Statement of Financial Position of Ellane Company & Lanie Company: Statement of Comprehensive Income Ellane Company 2013 Melanie Company 2014 2013 2014 Net Sales…arrow_forward. Explain the factors used in the formula, how the ratio assists the investor in evaluating a company’s performance, and whether it assesses liquidity, solvency, or profitability.arrow_forward
- Your Task… Using your assigned financial statements calculate the required ratios below Indicate if the change from year to year is favorable or unfavorable. All values should be accurate to at least two decimal places. The expectation is to submit a professional report free of grammar and spelling errors and easy to read. Think of this as a menu you would be handing to a customer. All calculations are to be represented. Analysis of Profitability Gross Profit Ratio Operating Profit Ratio Net Profit Ratio Sales to Total Assets Ratio Return on Total Assets Return on Equity Earnings Per Sharearrow_forwardTo evaluate a company’s performance, investors need a benchmark to which they can compare its financial ratios. What are some of the problems associated with these comparisons?arrow_forwardExplain why balance sheet accounts are generally “averaged” and income statement figures are just lifted from the income statement when using them as factors in a particular financial statement ratio? How do the DuPont technique helps the firm’s managers to further analyze its returns?arrow_forward
- Here you will find some income statements and balance sheets for Sears Holdings (SHLD) and Taget Corp (TGT). Assume that you are a financial manager at Sear and want to compare your firm’s situation with that of Target. Calculate represenatative ratios for liquidity, asset management efficiency, financial leverage (capital structure), and profitability for both Sears and Target. How would you summarize the financial performance of Sears compared to target (its benchmark firm)? Include Sears and Targets current ratio, acid-test ratio, average collection period, accounts receivable turnover, inventory turnover, debt ratio, timed interest earned, total asset turnover, fixed asset turnover, gross profit margin, operating profit margin, net profit margin, operating return on assets, and return on equity.arrow_forwardnot use ai pleasearrow_forwardThere are different tools for analyzing the financial statements of a company, such as horizontal analysis, vertical analysis, ratios for measuring financial health, and so forth. But before we begin using these tools, it is important to know the purpose of each tool. Please discuss one of these tools.arrow_forward
- We have all heard of Return on Investment or (ROI). Please research anddescribe five other business metrics that you may use in your analysis withyour business plan.Also, please describe how these ratios are calculated for example...Quick Ratio or Acid Test, Cash + Accounts Receivable ÷ Current Liabilities.arrow_forwardPlease answer this questionarrow_forwardOne of the most important applications of ratio analysis is to compare a company’s performance with that of other players in the industry or to compare its own performance over a period of time. Such analyses are referred to as a comparative analysis and trend analysis, respectively. A) A common size analysis requires the representation of financial statement data relative to a single financial statement item (or base account or value). What is the most commonly used base item for a common size balance sheet? Net income Earnings before interest and taxes Total assets Net sales Suppose you are conducting an analysis of the financial performance of Blue Hamster Manufacturing Inc. over the past three years. The company did not issue new shares during these three years and has faced some operational difficulties. The company has thus pilot tested some new forecasting strategies for better operations management. You have collected the company’s relevant…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENTIntermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage LearningManagerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
Managerial Accounting: The Cornerstone of Busines...
Accounting
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Cengage Learning