CA 1 - Principles of Accounting

: CA 1 - Principles of Accounting

As the new Chief Executive Officer of OHC Medical Center , I would have to make use of the financial information of the organization to assess the financial health of OHC and make important decisions regarding current and future operations of OHC . Since the present financial information for 2006 and 2007 of the organizations is a reflection of what happened in the past , I must use the same to guide the company to help attain its objectives especially on the financial aspect

To the do the same

I will have to evaluate first the profitability , liquidity and then solvency of the organization using following financial ratios as extracted from the company 's financial statements 2006 2007 Net Income 37 ,370 ,000 34 ,177 ,000 16 ,718 ,000

Net Profit Margin 0 .64 0 .69

Return on Assets 0 .84 0 .69

Return on Equity 11 .58 2 .04

Current Ratio 1 .51 2 .11

Debt to Equity Ratio 12 .77 1 .95 Profitability tells whether the company is earning well in accordance with expectations and objectives . The medical center appears to be very profitable at the net profit margins of 0 .64 and 0 .69 for the years 2006 and 2007 respectively . This means that the company is earning more than half of its revenues which if expressed in simple terms could mean that for every ten-dollar revenue , the company is earning 64 cents and 69 cents for the years 2006 and 2007 respectively , which are very high . No wonder the return on assets reflected 0 .84 and 0 .69 for the years 2006 and 2007 respectively . The same observation is more evident in the very high return on equity which was reflected at 11 .58 and 2 .04 for the years 2006 and 2007 respective . In practical terms , investors earn more than eleven times from their 2006 investment while more than double in 2007

The very obvious profitability is also obvious in its impact on company 's liquidity which was reflected at 1 .51 and 2 .11 for the years 2006 and 2007 respectively . Since liquidity (Helfert , 1994 ) measures the capacity of the company to meets its currently maturing obligations it goes without saying creditors need not worry since they have a very low risk in extending credits to the company

The good impact of the company 's profitability (Brigham and Houston ,2002 ) is further reflected in the company 's solvency (Meigs and Meigs , 1995 ) which speaks for the long-term health of the organization A debt to equity ratio of 12 .77 in 2006 which significantly improved to 1 .97 in 2007 could only show a proven strength and stability of the organization

On the basis of the company 's proven profitability , it may be concluded that the company is delivering the expectation of owners and managers and other decision makers are expected . An earning company is a sign of healthy one that could assure the company of its short term and long term...