Hope Community Hospital Benchmarka Ratio 20X1 20X0 [Exhibit 4-16a] Liquidity Ratios Current Ratio 1.78 1.81 2.02 Quick Ratio 1.29 1.39 1.65 Acid Test Ratio 0.18 0.25 0.31 Days in Accounts Receivable 82 60 52 Days Cash on Hand 60 70 84 Average Payment Period (Days) 50 50 52 The CFO presented the following analysis to the Board about Hope's liquidity position. The CFO's statement is True or False. Hope Community's liquidity position is problematic, with the current, quick, and acid test ratios both remaining very unfavorably below industry benchmarks (by 12%, 22%, and 42% respectively) and dropping. The current and quick ratios are likely affected by the increase in days in accounts receivable, which is considerably above the industry standard. This may also be contributing to the erosion of days cash on hand (by 10 days from 20X0 to 20X1) which has fallen further below the industry benchmark. On a positive note, average payment period remains below benchmark, which indicates that the hospital is still paying its bills in a timely manner True False
Review the following
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Hope Community Hospital |
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Benchmarka |
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Ratio |
20X1 |
20X0 |
[Exhibit 4-16a] |
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Liquidity Ratios |
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1.78 |
1.81 |
2.02 |
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Quick Ratio |
1.29 |
1.39 |
1.65 |
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Acid Test Ratio |
0.18 |
0.25 |
0.31 |
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Days in |
82 |
60 |
52 |
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Days Cash on Hand |
60 |
70 |
84 |
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Average Payment Period (Days) |
50 |
50 |
52 |
The CFO presented the following analysis to the Board about Hope's liquidity position. The CFO's statement is True or False.
Hope Community's liquidity position is problematic, with the current, quick, and acid test ratios both remaining very unfavorably below industry benchmarks (by 12%, 22%, and 42% respectively) and dropping. The current and quick ratios are likely affected by the increase in days in accounts receivable, which is considerably above the industry standard. This may also be contributing to the erosion of days cash on hand (by 10 days from 20X0 to 20X1) which has fallen further below the industry benchmark. On a positive note, average payment period remains below benchmark, which indicates that the hospital is still paying its bills in a timely manner
True
False
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