Hospital For Happy Living Hhl Case Study Solution
Day in account payable ratio indicates the payment method of the hospital that how quickly the hospital pays its debt. Days in account payable ratio shows that the hospital is making advance payment to its client. Early payments and late receivables might be one of the reason behind the disturbance of the liquidity position of the hospital.
The assets turnover ratio seems to be satisfactory, which represents that the hospital is efficiently utilizing its assets in order to generate its revenues. The efficiency ratio of HHL shows that the hospital is making early or advance payments to its clients, while collecting them late from its clients and being delayed in collections.
Solvency ratio of the hospital shows the debt paying ability of the hospital. The interest coverage ratio of the hospital shows that the hospital is paying its interest on time. Furthermore, the hospital has paid its all long term debt.
The profitability ratio shows that how much the hospital earns through the efficiently usage of its resources. The profitability ratio of the hospital seems favorable however it also does seem to be lower. One of the possible reason behind the low profitability ratio mightbe the reason that the hospital is a non-profitable organization, which is why the aim of the hospital is to serve its services to patients instead of earning high profit margins. The total margin and the operating margins of the hospital are similar. Dividing the net operating income by the revenue we get the operating margins of the hospital. The return on net assets and the return on current assets are also indicating the stable position of the hospital. The hospital is earning a little profit through the utilization of its resources.
Conclusion
On the basis of above analysis, it is concluded that HHL should improve its liquidity position in the upcoming years otherwise the hospital face cash crunches in future. Furthermore, the hospital is earning the small amount of profit due to the non-profitable organization. In addition to this, it might seem that some of the transactions of the hospital contain errors that disturb the accounts of the hospital.
Appendix-1: Calculation of NPV
| Option 1 | |||||
| Investment | Year 1 | Year 2 | Year 3 | Year 4 | |
| Initial Contract | -250,000 | ||||
| Annual Contract Cost | (100,000) | (100,000) | (100,000) | (100,000) | |
| Estimated Savings | 175,000 | 175,000 | 175,000 | 175,000 | |
| Net Cash Flow | -250,000 | 75,000 | 75,000 | 75,000 | 75,000 |
| Cost of Capital | 6% | ||||
| NPV | 9,324 | ||||
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