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ACC 291 Patten Fuller ratio analysis memo

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Accounting

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ACC 291 Patten Fuller ratio analysis memo
1. Current Ratio (Unaudited)
2009 Current Assets $128,867 ÷ Current Liabilities $23,807= 5.4129877 or
5.413 (5 to 1)
2008 Current Assets $130,026 ÷ Current Liabilities $8,380 = 15.516229 or
15.516 (15 to 1)
Current Ratio (Audited)
2009 $128,867 ÷ $23,807= 5.3709833 or 5.371(5 to 1)
2008 $130,026 ÷ $8,380= 15.516229 or 15.516 (15 to 1)
Disagree:
This ratio is consistently a measure of short-term debt paying ability (Baker &
Baker, 2011). However, it must be carefully interpreted (Baker & Baker, 2011).
Observationally, the CEO’s report to the board that all financial ratios have
improved is inaccurate; in all actuality, the ratios have not. In effect, the
numbers simply do not back up the declaration. The unaudited and audited
current ratios show that in 2008 the hospital’s assets were greater than those in
2009 were. This ratio also shows the current assets in 2008 were much higher
than the current liabilities for the same year, a ratio of 15 to 1. In 2009 the
current assets to current liabilities ratio was only 5 to 1. The hospital’s assets
were lower in 2009 and yet the liabilities in 2009 were higher. The hospital’s
assets were higher in 2008 and the liabilities in 2008 were lower. This shows the
hospital was more profitable in 2008, not 2009.
2. Quick Ratio (Unaudited)
2009 Cash and Cash Equivalents $22,995 + Net Receivables $59,787= $82,782
÷ Current Liabilities $23,807= 3.4772125 or 3.477 (3 to 1)
2008 Cash and Cash Equivalents $41,851 + Net Receivables $37,666= $79,517
÷ Current Liabilities $8,380= 9.4889021 or 9.489 (9 to 1)
Quick Ratio (Audited)

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2009 $22,995 + $58,787= $81,782 ÷ $23,807= 3.4352081 or 3.435 (3 to 1)
2008 $41,851 + $37,666= $79,517 ÷ $8,380= 9.4889021 or 9.489 (9 to 1)
Disagree:
This ratio is an even more severe test of short-term debt paying ability (even
more than the current ratio) (Baker & Baker, 2011). The statements made in the
CEO’s report to the board prove to be incorrect. Although the cash and cash
equivalents plus net receivables were a higher dollar value in 2009, the
liabilities were also higher in 2009. More inflow of revenue is good but does not
necessarily mean the hospital was more profitable. Both the unaudited and
audited statements show PFCH had a higher dollar value of liabilities in 2009
than in 2008. The ratio of cash and cash equivalents plus net receivables versus
current liabilities in 2009 was only 3 to 1. In 2008, it was a whopping 9 to 1.
Again, this shows the hospital was more profitable in 2008.
3. DCOH (Unaudited)
2009 $462,293- $36,036=$426,257 ÷365=1,168, 22,995 ÷ 1,168=19.6 days
2008 $437,424- $24,955=$412,469 ÷ 365= 1,130, 41,851 ÷ 1,130= 37 days
DCOH (Audited)
2009 $463,293-36,036= $427,257 ÷ 365= 1,171, 22,995 ÷ 1,171= 19.6 days
2008 $437,424-$24,955= $412,469 ÷ 365= 1,130, 41,851 ÷ 1,162= 36.0 days
Disagree:
The unaudited financial statements show that all financial ratios have made
improvements. The CEO states, that this year shows a success with over $16
million in gains. However, disagreement lies on the subject of the use of the
money and in what area it successfully accomplished objectives. It does not say
if days when cash on hand fell were due to the money paid out, or spent.
4. Days Receivable (Unaudited)
2009 $462,982 *90% = 416,683.8 ÷ 365= 1,141, 59,787 ÷ 1,141= 52.3 days
2008 $421,314 *90% = 379,182.6= 1,038, 37,666 ÷ 1,038= 36.2 days

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Days Receivable (Audited)
2009 $462,982 *90% =416,683.8 ÷ 365= 1,141, 58,787 ÷ 1,141= 52 days
2008 $421,314 *90% =379,182.6 ÷ 365= 1,038, 37,666 ÷ 1,038= 36 days
Agree & Disagree:
Even though there was, a 9% increase in revenue and a 6% increase in expenses
the new arrangement for the Patient Accounts Receivable shows a sharp rise.
The writer agrees on the numbers for the increase. However, there is
disagreement at to the new arrangement for the following year. This is not
exactly as profitable as the board declares. Future revenues or collections will
take a greater amount of time; therefore, payments will take longer to receive. It
is with agreement that the evaluation shows the millions are not the
responsibility of the facility but the responsibility of the payers.
5. DSCR (Unaudited)
2009 627+3,708+36,036= 40,371, 40,371 ÷ 14,609= 2.76
2008 15,846+3,597+24,955= 44,398, 44,398 ÷ 4,195= 10.5
DSCR (Audited)
2009 36,036+3,708+373= 40,117, 40,117 ÷ 14,609= 2.74
2008 24,995+3,597+15,846=44,438, 44,438 ÷ 4,195= 10.59
Disagree:
Evaluation of the report shows that the CEO's report to the board is not
completely accurate. In 2008, the numbers show that 2008 looks to be more
profitable than in 2009. The annual debt was far less in 2008 than in 2009. In
2009 the liabilities almost double from 2008. When an organization is paying
more liabilities and expenses, they are going to have a lot more debt if their
revenue is not equal to the expenses. This shows the hospital was more
profitable in 2008.
6. Liabilities to Fund Balance (Unaudited)
2009 $462,153 ÷ 126,564= 3.65

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