Hopeful Happy Health Care Systems Inc



Hopeful Happy Health Care Systems Inc

Liquidity Analysis: Calculate the following:

a. Current ratio: a measure of the degree to which current assets cover current liabilities. (Bodie, 2007)

= Current Assets /Current Liabilities

For 2001

= $427,501/$256,723

= 1.665

For 2000

=$410,433/$240,873

=1.70

Conclusion

It has been seen that the current ratio is decreasing A high ratio indicates a good probability the enterprise can retire current debts. A ratio of 2.0 or higher is a comfortable financial position for most enterprises.

b. Quick Ratio: a measure of the amount of liquid assets available to offset current debt

= (Cash + Accounts Receivable) / Current LiabilitiesFor 2001

= ($35,740 + $316,499)/ $256,723

= 1.372

For 2000

= ($13,740 + $309,826)/ $240,873

= 1.343

Conclusion

A healthy enterprise will always keep this ratio at 1.0 or higher. Generally, the acid test ratio should be 1:1 or better. Here we may see that the quick ratio has increased a bit, and as it is higher than 1.0, hence it indicates a good sign.

c. Days Cash on Hand: A quick and effective measurement of the cash needed is days cash on hand. This is shorthand for the average number of days it takes to deplete the cash a business has.

To calculate the ratio:

Determine the average cash expense per day. Take a typical time period, such as 365 days, and total up the cash used on normal operations. This would include payroll expenses, payroll taxes, supplies and purchased services. Do not include depreciation or other unusual expenses such as large equipment items. (Groppelli, 2008)

Divide that number by the total cash available at the end of the period. Cash includes paper money and coins, but also checking and savings accounts, and other items that are easily convertible to cash, such as certificates of deposit. Do not include accounts receivable and inventory; these should be collectable, but are not immediately available.

The resulting number is days cash on hand at the end of the period

For 2001

= (($705,644-$43,094) /365) / ($35,740+ $73,592)

= 1815.20/109332

= 0.0166 Days Cash on Hand

For 2000 = (($552,219-$33,910)/ 365 / ($13,740+$85,011)

= $1420.02/$98751

= 0.0143 Days Cash on Hand

Conclusion

A quick and effective measurement of the cash needed is days cash on hand. This is shorthand for the average number of days it takes to deplete the cash a business has. However, through the calculations, we may see that there is a minor increase in the days cash on hand, which is feasible for the company itself.

d. Debt Ratio: is a financial ratio that indicates the percentage of a company's assets are provided via debt.

= Total Debt / Total Assets

For 2001

= *$1500245/$2,281,756

= 0.657

*$2,280,086- $779,841=$1500245

For 2000

=*$1457663/$2,215,693

=0.065

*$2,213,837-$756,174=$1457663

Conclusion

A debt ratio of greater than 1 indicates that a company has more debt than assets, meanwhile, a debt ratio of less than 1 indicates that a company has more assets than debt. As seen from these calculations, we may say that it is good for the company because the company has more assets than its debts. The company has however sustained the debt ratio from year 2000 to 2001.

Profitability Analysis:

a. Return on Sales: is widely used to ...