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Feb 20, 2024

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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.
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