Discussion – Ratio Analysis
There are three financial statements that are prepared regardless of the business structure (nonprofit, private; nonprofit, public; for-profit, private; or for-profit, public):
These statements are used by health services managers to assess how well the leadership team is doing in managing assets, properly leveraging debt and equity, maintaining liquidity and solvency, and achieving profitability. This is done by examining the relationship between figures on the statements and through a process known as ration analysis. There are many stakeholders interested in certain financial ratios, such as lenders, vendors, leadership, personnel, and the community.
There is a fourth financial statement referred to as the statement of change in equity, which provides explanations for changes in a firm’s equity; however, it isn’t typically used in performing ratio analysis.
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