Organizations use financial statements and ratio analysis assess financial performance viability. The ratio analysis are used to identify trends and to perform organizational comparison (financial) with other companies within same industry. Ratio analysis, using data reported on the financial statements, are divided into five major categories: common size, liquidity, solvency, efficiency, and profitability. This paper will assess the financial stability of John Hopkins Hospital (JHH) using the five ratio analysis.
Overview: Johns Hopkins Hospital
Johns Hopkins Hospital is a teaching and biomedical research health care facility located in Baltimore, Maryland. Founded in 1889, JHH is named after the renowned philanthropist and visionary enthusiast Johns Hopkins, who provided the initial funds for construction. JHH was the first hospital to incorporated teaching, learning, patient care, and research into the health care model. Today, JHH is billion-dollar health care system and is known (nationally and internationally) for distinction in health care excellence, teaching, and research.
The financial statements from Johns Hopkins Hospital (JHH) were used to calculate and analyze the meaning of the financial health of the organization from the years 2010-2012 (Appendix A). The following five major types of ratios were used: common size, liquidity, solvency, efficiency, and profitability
Common size ratios. According to Finkler, Kover, and Jones (2007), “The goal of common sizing is to make an organization comparable to other organizations of different sizes… by putting everything into perspective based on organizational size,” (p. 117). These ratios alson can be used used by the organization to compare trends over time. The following ratios are reviewed:
A. Cash to total assets = Cash/Total assets
B. Total expenses to total revenues = Total expenses/Total revenues
Cash to total assets in three years’ time indicates a significant downward trend reflecting JHH has less cash on hand in relationship to their total assets, form 10.81% to 1.48% (Figure 1). The total expenses to total revenues ratio has a moderately flat trend that indicates a stable financial environment for the organization.
Figure 1. JHH Financial Ratios
Liquidity ratios. Current ratios and quick ratios determine the organization’s short-term financial solvency. The is to determine if JHH has enough cash and other liquid resources to meet their current obligations (Finkler et al., 2007). The following liquidity ratios are examined:
A. Current ratio = Current assets/Current Liabilities
B. Quick ratio = Cash + Market securities (short-term investments) + Accounts receivable/Current liabilities
According to Finkler et al. (2007), the “current ratio of 2.0 has become widely accepted” (p. 118). JHH shows a downward trend of current ratio over three years’ time that is concerning in such a short period. The quick ratio also follows this...