Financial Analysis

[Name of the Institute]Financial Analysis

Introduction

The following paper discussed about the financial performance of the firm “Universal Health Services”. The paper also describes about the most commonly used ratios that helps in the determination of the firm financial position and are commonly used by the financial analyst. It also discusses about the forecasting of the firm over the five years period in order to determine the financial position of the firm to meet its short and long term obligations.

Discussion

The following are the ratios commonly used by the financial analyst.

Operating Income to Net Sales Ratio

Operating Income

= Operating Income to Net Sales Ratio

Net Sales

The ratio provides an estimation of the increase in sale or the profitability in the sales from the regular business. It does not include the loss in sales or the extra ordinary items, income taxes, long term obligations.

Profitability Ratios

Net Operating Profit Ratios

Net Profit on Net Sales

EAT*

= Net Profit on Net Sales Ratio

Net Sales

The ratio measures the primary estimation and the evaluation of the net profit that is related with the investment. If the basic expenses of the firm are covered then the profit will rise disproportionately greater as compared to the sales above the breakeven point of the operation.

*EAT= earnings after taxes (Gonzalez, R., 2011).

Liquidity Ratios

While liquidity ratios are most helpful for short-term creditors/suppliers and bankers, they are also important to financial managers who must meet obligations to suppliers of credit and various government agencies. A complete liquidity ratio analysis can help uncover weaknesses in the financial position of your business.

Current Ratio

Current Assets*

= Current Ratio

Current Liabilities*

This ratio measures the current asset and the current liabilities. This ratio helps in the determination of the firm whether the firm is able to meet its short term obligation. It is calculated by using the above formula in which the current assets are divided by the current liabilities. It should be equal to 1 which indicates the firm has ability to pay off its debt and meet its short term obligation. If it is lower than 1 then it determines the poor performance of the firm. The higher the current ratio of the firm the firm ability to pay off its debt will be stronger and also the firm's financial position will be strong (Chadwell, 2011).

Quick Ratio

Cash + Marketable Securities + Accounts Receivable (net)

= Quick Ratio

Current Liabilities

The quick ratio is also called as the acid test ratio. It is calculated by using the formula of (current assets - inventories) / Current Liabilities. It estimates whether the assets are equal to the liquidity of the firm. If the quick ratio is higher the financial performance of the firm is strong and if it is lower the financial performance of the firm will be poor.

Working Capital Ratios

Working Capital Ratio

This ratio determines the ability of the business firm to meet its current obligation. It is determines by using the following formula

Current Assets - Current Liabilities.

Bankruptcy Ratios

Sales to Total Assets

Total Sales

= Sales to Total Assets Ratio

Total ...