Assignment: Short-term Liquidity

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Assignment: Short-term Liquidity

Assignment: Short-term Liquidity

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capacity, but a ratio that is too high may mean that the organization could invest excess current assets more wisely. The primary disadvantage of the current ratio is that it does not take into account the relative liquidity of the particular types of current assets.

• Collection Period

Net receivables Net patient services revenue /365

The collection period is also called days in accounts receivable and is a measure of how long the average patient (or payer) takes to pay the bill after discharge. It is directional; higher values indicate that the organization is collecting its bills slowly, which may indicate liquidity problems; lower values indicate more rapid collections, which lead to more available cash.

• Days Cash on Hand, Short-Term Sources

Cash Temporary investments

Total expenses Depreciation expenses / 365

Days cash on hand, short-term sources is a measure of how long an organization could meet its obligations from cash and temporary investments. Higher values indicate short-term liquidity.

• Days Cash on Hand, All Sources

Cash Temporary investments Unrestricted long-term investments (Total expenses Depreciation expenses) / 365

Days cash on hand, all sources is a measure of how long an organization could meet its obligations if cash, temporary investments, and unrestricted long-term investments were discontinued. Higher values indicate short-term liquidity.

• Average Payment Period

ProfItAbIlIty rAtIos

Profitability ratios reflect an organization’s ability to exist and grow by measuring the relation- ship of revenues to expenses. Profitability is a double-edged sword for not-for-profit healthcare organizations in that too much profit brings criticism from the community (and possibly the Internal Revenue Service) and too little profit brings criticism from the governing body.

• Operating Margin

Operating income Total operating revenue.Operating margin is operating income divided by total operating revenue and reflects profits from only operations. Higher values indicate profitability.

• Total Margin

Excess of revenues over expenses Total operating revenue

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