Financial Analysis

ABC MEDICAL CENTER

REPORT

From : Chief Executive Officer

To : Chief Financial Officer Accountant

Date : 29th March 2007

Subject : Financial Health of ABC Medical Center

Introduction - Financial Sections Covered

The financial health of ABC Medical Center was analyzed in four main sections , Profitability , Activity , Liquidity and Stability . In to examine the financial health of the organization , we computed the ratios of the last two years of operations in to highlight increases /decreases in efficiency , effectiveness and financial stability . These are shown in the latter section of this report p

Profitability of ABC Medical Center

The primary profitability ratio adopted , which is the return on capital employed shows that efficiency of management in resource utilization slightly deteriorated during the years . It is imperative that management sustains a good percentage on the return on capital employed and performance on the firm , because a decrease in revenue can quickly lead to financial losses arising from changes in the external environment like for example economic slowdown . Presently such profit ratios are still high , but they are decreasing and thus the aforementioned risk is higher . Tighter control on costs should be exercised

Activity of ABC Medical Center

The activity ratio worked out also shows the efficiency in the use of the firm 's assets . This also decreased during the past years complimenting the previous ratio and indicating diminished efficiency Such efficiency issue has to be considered thoroughly before taking drastic actions . For instance , if ABC Medical Center is presently using a centralized organizational system , such approach may hinder efficiency due to lack of decentralized decision making . In such a situation changes in the organization structure to widen decentralization are necessary

Liquidity of ABC Medical Center

The ratio of current assets in relation to current liabilities remained quite stable during the years . However , the days in accounts receivables nearly doubled , with an increase of 24 days . This indicates that the clients are taking more to pay the amounts due . This is very bad for the working capital of the firm . It is thus imperative that appropriate credit control policies and procedures are enacted in to diminish this ratio . If it is left out of hand the risk of liquidity problems will increase and such issues cannot be tackled lightly because they may end up ABC Medical Center into bankruptcy

Stability of ABC Medical Center

This financial section denotes the capability of ABC Medical Center to meet its long-term financial commitments . In such area we can see that the financial stability of the firm is improving , which is a positive feature for the going concern of the organization . In 2005 the proportion of debts to problems . Indeed it was higher than the the year management took good grasp of such issue and was able to improve the firm 's stability drastically , by decreasing such ratio by 43 .57

The cash flow to debt ratio decreased faintly during the years . This is also a stability ratio , which indicates the firm 's ability to meet future debts . Such...