Posted: March 12th, 2023

Respond to the two student discussion post 1-2 paragraphs for each.

Week Four discussion replies. Please respond to the
TWO students post below.

Erin Kuhns

An important financial statistic for hospitals is the operational ratio since it provides information on a facility’s efficiency and profitability. The ratio is calculated by dividing operating expenses by net sales. This ratio computes a hospital’s cost of revenue generation and provides a trustworthy indicator of the institution’s overall profitability. A hospital is said to have a high operational ratio if its operating expenses exceed its revenue. This can mean that the hospital’s operations are inefficient or that its service fees are excessively high. A low operational ratio, on the other hand, indicates that a hospital is producing more money than it is spending on overhead. The return on assets is yet another significant financial metric for hospitals. This ratio is calculated by dividing net income by total assets. This ratio acts as an accurate indicator of the facility’s financial viability because it determines how much profit a hospital makes for every dollar of assets it owns. For every dollar of assets it possesses, a hospital with a high return on assets ratio is making a lot of money. This is a sign of a hospital that is effectively run, well-managed, and able to generate a high return on its assets. A low return on assets ratio, on the other hand, indicates that a hospital is not making much money for each dollar of assets it holds. These two ratios play a key role in determining a hospital’s financial health and profitability. I believe these are crucial investment indicators since they reveal a hospital’s efficiency and profitability.

References:

Murphy, C. B. (2022, July 13).

A healthy operating profit margin defined. Investopedia. Retrieved February 22, 2023, from https://www.investopedia.com/ask/answers/041415/what-considered-healthy-operating-profit-margin.asp

Return on assets & roa formula. Corporate Finance Institute. (2023, February 15). Retrieved February 22, 2023, from https://corporatefinanceinstitute.com/resources/accounting/return-on-assets-roa-formula/

Yuridia Avena

If I were to invest in a hospital based only on one financial ratio and one operating ratio, they would be the profitability ratio total margin and the operating ratio profit per discharge. The total margin measures the capability of an organization to produce revenue from all their sources and to control expenditures. Total margin is calculated by dividing net income by total revenues: Total margin = Net income/Total revenues. Once calculated, the total will be the percentage the organization will make on each dollar of revenue. Total revenues include net operating revenues and nonoperating income. When the total margin is high, the expenses related to revenues are lower (Gapenski & Reiter, 2016). I believe the ratio is a key investment indicator because it calculates the organizations profit from all sources within the organization. The operating ratio profit per discharge is the amount of profit on inpatient services paid per discharge (Gapenski & Reiter, 2016). The ratio is calculated by dividing inpatient profit by total discharges: Profit per discharge = Inpatient profit/Total discharges. Inpatient profit is the inpatient service revenue subtracted by the inpatient cost. I believe the ratio is a key investment indicator because it gives the total profit made after discharging a patient. Knowing how much is made after discharging can help assess what areas bring most profit or need improvement

Gapenski, L. C., & Reiter, K. L. (2016). 
Healthcare Finance: An introduction to Accounting & Financial Management. Health Administration Press.

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