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Explain how someone could compare profitability of two hospitals, of different sizes.
There are two different margins that are frequently used as measures of over-all profitability in health care: (1) total margin, and (2) operating margin. "Non-operating income," which includes revenue from investments, public appropriations and other transfers from the government, income from subsidiaries and affiliates, and revenue from contributions, is included in the total margin, (
A primer on Interpreting Hospital Margins - Sheps Center
2003). The term "operating margin" refers to the difference between operating revenue and costs expressed as a percentage of operating revenue, and it is typically used to describe a hospital's margin when it is exclusively calculated using revenues and costs associated with patient care. ●
Are there limitations to ratio analysis? Describe any pros or cons of using ratio analysis as a comparative tool for analyzing financial statements of different organizations.
Potential issues with accounting and the information in the financial statements themselves make ratio analysis difficult. Errors and accounting mismanagement, which entails manipulating the unprocessed data used to create financial ratios, are examples of this. Using ratio analysis by a company also has few disadvantages. First of the disadvantage of using ratio analysis is difference in accounting methodologies, (
What are the advantages and disadvantages of using ratio analysis
2024).
Reference:
A primer on Interpreting Hospital Margins - Sheps Center
. A Primer on Interpreting Hospital Margins. (2003, July 1). https://www.shepscenter.unc.edu/wp-content/uploads/2014/10/Primer.pdf
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