Healthcare Finance and Accounting - Essay Example

Seven categories of operating indicators are profitability, price, length of stay, volume, intensity of service, input cost, and efficiency. Both the financial statement analysis and the operating indicator analysis are significant tools because they allow managers to quantify different aspects of the performance of the company. There are several financial ratios that managers can use to assess the financial performance of a business entity. The current ratio is a liquidity ratio that can be used to determine the ability of a company to pay off its short term debt.

The basic premise regarding this ratio is that ratios above 1.0 are good. The current ratio is calculated dividing current assets by current liabilities (Besley & Brigham, 2000). Another important ratio is return on assets. “Return on assets measures how well assets have been employed by management” (Garrison & Noreen, 2003, p. 784). Return on assets is calculated dividing net income by total sales. A third ratio that management can calculate to evaluate the efficiency of a company is the inventory turnover ratio.

The inventory turnover ratio tells management how many times inventory has been sold during a year. A high inventory turnover ratio is the desirable outcome. . al statement analysis is a very useful tool that can be used by managers to draw conclusions about the financial position of an enterprise, but despite its usefulness it also has limitations. One of the limitations of financial statement analysis is comparability of financial data. “Differences in accounting methods between companies sometimes make it difficult to compare the companies' financial data” (Accounting4management, 2012).

An example of differences in accounting methods is the different depreciation methods such as LIFO, FIFO, and weighted average method. A second limitation of financial statement analysis is that it ignores the qualitative aspects of running a company and it does not show changes in the structure of the company (Independent-stock-investing, 2012). An asset can be defined as anything that has value that can be converted to cash (Millionaireacts, 2011). The assets of a company can be used for production purposes.

In the retail world the goods available for sale are assets that can be resold to turn a profit. Goods at retail stores are categorize as inventory. There are different types of assets that are recognized in the accounting books of a company. The assets recognized in the balance sheet of a corporation are referred to as economic assets. Three categories of assets are non-financial produced assets, non-financial non produced assets, and financial assets (Europa). In the balance sheet two categories of assets are current assets and long term assets.

Current assets are assets that can be converted to cash easily such as marketable securities and inventory. An example of a long term assets is machinery and equipment. A current asset can be defined as a balance sheet account that represents the value of all assets that