Moreno Medical Centers Budget Management Analysis

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The financial statements for Moreno Medical Center are from the year 2012 to the year 2013. They indicate the financial status of the company. They are also helpful to make decisions for the future of the company. The financial ratios will help to explain further how the company has been performing.

Return on Sales Ratio

The ratio helps to identify the net income of the company and how the net sales have contributed towards its achievement. Moreno Medical Center had a net income of $627 (Averina, Komogorova, & Mihaylova, 2015). Its net sales were $462,982.

Return on Sales = Net Income/ Net Sales = 627/ 462,982 = 0.00135426 = 0.14%

Asset Turnover Ratio

The results of the calculations indicate that Moreno Medical Center is making a lot of sales but the income on the sales is just a paltry 0.14% (Cengiz, 2014). It may not be enough to enable the company to reinvest in the business. However, the medical center has a long term debt that is reducing its income.

It is a ratio that provides information about the total assets of the business and how they contribute towards making the companys net sales (Dontoh, Ronen, & Sarath, 2013). The center has enough average total assets that contribute towards the net sales.

Asset Turnover = Net Sales/ Average Total Assets = 462,98/ 548,535 = 0.844033653 = 84.40%

Current Ratio

The results indicate that Morenos ration on asset turnover is 84.4% (EE & I, 2015). It has a good number of assets that can prolong the lifetime of the sales in the business. The assets support the business because they act as security.

The results indicate that Morenos ration on asset turnover is 84.4% (EE & I, 2015). It has a good number of assets that can prolong the lifetime of the sales in the business. The assets support the business because they act as security.

2012

Current Ratio = Total Current Assets/ Total Current Liabilities = 130,026/ 8,380 = 15.51622912

2013

Current Ratio = Total Current Assets/ Total Current Liabilities = 127,867/ 23,807 = 5.370983324

Quick Ratio

Liquidity ratios show the ability of an entity to sustain positive cash flow while satisfying short term obligations, that is, the availability of cash to pay short term liabilities. It is necessary to maintain optimal liquidity ratios since either low of very high liquidity can be detrimental. The value of the current ratio was 15.5 in 2012 and later dropped to 5.37 in 2013. The values of current ratio were greater than 1for the two financial years. It is evident that the center can meet current obligations using current assets.

2012

Quick Ratio = (Current Assets- Inventories)/ Current Liabilities = (130026-8370)/ 8,380 = 14.51742243

2013

Quick Ratio = (Current Assets- Inventories)/ Current Liabilities = (127867-18396)/ 23,807 = 4.598269417

Revenue Growth Ratio

The value of the quick ratio dropped as well. However the values of the quick ratios were not less than 1. And hence, they can meet the current obligations using the liquid assets. A company with a sound liquidity position should be able to meet short term obligations using both the current and liquid assets. Thus, it true to say that Moreno Center has a strong liquidity position.

Revenue Growth Ratio = (This years net sales- Last years net sales)/ Last years net sales = (451030-421314)/ 421,314 = 0.070531717 = 7.053171744

Return on Asset

The centers growth was positive. The revenue growth ratio indicates that it grew by a small. It had only 0.07 (Garrett & James, 2013). The management should start strategizing on how to increase the revenue growth margins. Perhaps the center can expand its services and create more sectors that are income generating.

2013

Return on Asset = Net Income/ Total Assets = 627/ 548,535 = 0.001143045

Cash Ratio

The ratio helps to understand how the assets contribute towards income generation. The result is less than 1. Therefore, it seems that the majority of the assets that the center has, they do not assist much to bring income to the organization.

2013

Cash Ratio = Cash + Cash Equivalents/ Current Liabilities = 22,995/ 23,807 = 0.965892385

2012

Cash Ratio = Cash + Cash Equivalents/ Current Liabilities = 41,851/ 130,026 = 0.321866396

A companys leverage is explained by the amount of debt financing it holds. The ratios are significant because they give information on the extent of exposure of equity financing. A high leverage ratio is not favorable because it reduces the amount of profit attributed to the shareholders.The cash ratio measures the extent to which the companys capital is in cash and cash equivalents. It shows the ability of the cash or near cash assets to pay for the current obligations (Garrett & James, 2013). The ratio is less than 1. The Health Center is having problems in settling its current liabilities. It may be taking long to pay up its current liabilities. According to the information, the organization could be relying on credit terms to purchase its stock. There is the need to find more investment into the organization. It can raise funds through the shareholders or issue an Initial Public Offer.

On the other hand, very low ratios are not favorable because they show that the management is not willing to exploit the potentials of the company. Therefore, a company needs to maintain an optimal leverage level. The total debt ratio for the firm fluctuated during the period.

Long Term Debt to Capital Structure

2012

Long- Term Debt to Capital Structure = Long-term debt/ Shareholders equity = 205,069/ 335,035 = 61.21%

2013

Long- Term Debt to Capital Structure = Long-term debt/ Shareholders equity = 438,346/ 125,564 = 349.1%

Opinion

The ratio measures the long-term component of capital structure. The ratio increased from 61% to 349%. In 2012 the long-term debt was less than the shareholders equity. However, in 2013 the debt grew further by almost half. The shareholders equity went down during the 2013 financial year.

Efficiency is directly related to profitability. A company with a high level of efficiency is likely to have a high level of profitability. During the two years the company had a relative level of efficiency.

The ratios indicate some successes and weaknesses in the companys financial structure. The organization needs an overhaul in its financial system (Garrett & James, 2013). It can reach profitability by increasing cash into the system. The company needs to convince its shareholders to invest more or find more capital from new shareholders.

The health center also needs to cut down on long-term borrowing. It can continue to service the current date at the stipulated period. Another method is to turn the debt into shares. The lenders can become shareholders in the company. They can also increase their shares in the company in the long run.

There is every possibility that Moreno Medical Center can work on its financial formulas to change the way it operates. The ratios reveal a lot of things that need changes to make the organization profitable. They are pointers to areas that need correction.

References

Averina, T., Komogorova, I., & Mihaylova, E. (2015). Using cash flow Statement for evaluating financial position and creditworthiness of an organization. Economics, 3(5), 58-63.

Cengiz, H. (2014). Effects of international financial reporting standards application on financial ratios in Turkey. Ijmeb, 10(21), 30-32

Dontoh, A., Ronen, J., & Sarath, B. (2013). Financial statements insurance. Abacus, 49(3), 269-307.

EE, S. & I, A. (2015). Financial ratios (Accounting ratios) and survival of microfinance institutions in Ghana. J Bus Fin Aff, 04(03).

Garrett, S. & James III, R. (2013). Financial ratios and perceived household financial satisfaction. Journal of Financial Therapy, 4(1).

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