Question

Use the values below to answer questions 1-5 Net Receivables $20,000 Current Ratio 3:1 Current Liabilities $15,000 Operating Cash $10,000 Unrestricted Cash $5,000 Cash Equivalents $40,000

1. Calculate the Cash in hand for a year.

2. Determine a Current Assets value using the figures above.

3. Determine a Quick Ratio.

4. Explain how each solvency ratio reflects the financial standing of an organization.

5. Briefly explain forecasting and how it is important to the operation of a healthcare facility.

Answer 1

ANSWER:

1. Cash Equivalents are not cosidered as Cash in Hand.

Hence, Cash in Hands = $5,000 (Unrestricted Cash)

2. Current Ratio = Current Assets/ Current Liabilities

3/1 = Current Assets / 15,000

Current Assets = 15,000 * 3

Current Assets = $45,000

3. Quick Ratio = Quick Assets / Current Liabilities

(NOTE: Quick Assets are the current assets which are most liquid in nature and can be converted into money in less than 90 days)

Quick Assets = Unrestricted Cash(5,000) + Cash Equivalents(40,000)

Quick Assets = 45,000

Quick Ratio = 45,000 / 15,0000

Quick Ratio = 3:1

4. Solvency Ratio

The solvency ratio indicates whether an organisation's cash flow to meet its short-term and long-term liabilities. The lower an organisation's solvency ratio, the greater the probability that it will default on its debt obligations.

However Solvency Ratio deals with cash flows and not with net income.

5. Forecasting:

Forecasting means predicting the future trends or estimates by using the historical data. Forecasting helps in preparation of budgets and also in drafting strategies.

Importance of forecasting in healthcare facility operations:

Like every other business, healthcare business also uses forecasting in its operational decisions.

Socio-economic , demographic, climatic , disease trends and government health policies are some important forecasts used in healthcare facilities. By considering all these forecasts, the healthcare facility will take decisions like expansion or reducing the particular clinical services.