The organization selected for this Assignment is “Bloomington Clinic .” Bloomington Clinic seeks financial assistance and support from a number of finance sources. However, each of these sources may have certain implications such as source control, ownership and tax effect on the newly set-up business and its operations.
Financial Ratios in Decision Making for Bloomington Clinic
During given time period, Bloomington Clinic posted a current ratio of 1.67, which shows a relatively better liquidity position. In addition to this, acid test ratio of the firm was reported to be the same, which means that Bloomington Clinic has adopted JIT or other appropriate system to improve the efficiency of inventory management.
Current Ratio
Formula
Current Assets
Current Liabilities
Working
750
450
Current Ratio=
1.67
Current Ratio for Bloomington Clinic
Acid Test Ratio
Formula
Cash + A/R + Short term Investments
Current Liabilities
Working
350+140+260
450
750
450
Acid Test Ratio=
1.67
Acid Test Ratio for Bloomington Clinic
Bloomington Clinic 's ROCE was noted to be 17%, which shows better profitability and improved business efficiency in managing capital investments. The firm posted 61% gross profit margin that reflected well managed control over production costs and business sales. In addition to this, the firm reported 20% net profit margin, which showed improved business performance.
Return on Capital Employed (ROCE)
Formula
EBIT
Assets - Current Liabilities
Working
180
1500-450
180
1050
ROCE=
17%
ROCE Ratio for Bloomington Clinic
Gross Profit Margin
Formula
Gross Profit
Sales
Working
550
900
GP Margin=
61%
GP Margin Ratio for Bloomington Clinic
Net Profit Margin
Formula
Net Profit
Sales
Working
180
900
NP Margin=
20%
NP Margin Ratio for Bloomington Clinic
Analysis of Capital Structure of Bloomington Clinic
Bloomington Clinic may determine gross profit by deducting COGS from revenue. On the second step, the firm may add other income sources and deduct business expenses in order to estimate the net profit for the business (Middlesex Manor Nursing Centre, 2009, p. 3). On the contrary, a business may use single step format to identify various business expenses and incomes in order to calculate income before tax. A clear distinction ...