ECO 605 Assignment 6.2: Ratio Analysis Introduction In this assignment, you will perform ratio analysis using the balance sheet for XYZ Hospital. Use the Assignment 6.2 Document (Word)Links to an external site. to record your responses.

The current ratio is a liquidity ratio that measures a company’s ability to pay short-term obligations using its current assets. The quick ratio is a more stringent liquidity ratio that measures a company’s ability to pay short-term obligations using only its most liquid assets. The debt ratio is a leverage ratio that measures how much debt a company has relative to its total assets. The calculation of the current ratio, quick ratio, and debt ration are as follows:

Current Ratio = Current Assets / Current Liabilities (Kliestik et al., 2020)

Quick Ratio = (Liquid Assets – Inventory) / Current Liabilities

Debt Ratio = Total Debt / Total Assets

The purpose of this paper is to calculate current ration, quick ratio, and debt ratio and make the interpretation thereafter.

    1. Review the following table:
XYZ Hospital
Balance Sheet
December 31, 20xx
  Description Amount
Current Assets Cash and investments (savings/checking) $80,000
  Patient revenue (money owed to hospital) $472,000
  Inventory (on the shelf) $16,400
  Subtotal $568,400
  Less  
  Bad debt ($57,200)
  Charitable allowance ($14,100)
  Contractual allowance ($269,300)
  Subtotal ($340,600)
  Total Current Assets $227,800
Fixed Assets Land $29,000
  Buildings (plant) $805,000
  Equipment $610,000
  Construction in progress $37,000
  Total Fixed Assets $1,481,000
  Less accumulated depreciation ($880,800)
  Net Fixed Assets $600,200
  Total Assets $828,000
Current Liabilities Accounts payable salaries, supplies, pharmaceutical $36,560
  Accrued compensation and benefits $10,900
  Accrued liabilities (interest, physician contracts) $10,870
  Total Current Liabilities $58,330
Debt Long-term debt $38,000
  Short-term debt $2,100
  Total Debt $40,100
  Total Liabilities (Total Current Liabilities + Debt) $98,430
  Net Worth (Assets − Liabilities) $729,570
  Total Liabilities and Net Worth $828,000
     
    1. Use the Assignment 6.2 Document (Word) (Links to an external site.) to record your answers to the following prompts based on the information provided in the table:

 

  1. Calculate the current ratio, quick ratio, and debt ratio.

Current Ratio =

= 227,800/58,330

= 3.9

Quick Ratio =

= (227,800- 16,400)/58,330

= 211400/58330

= 3.6

Debt Ratio =

 

=

Order this paper