Financial ratios can be used to examine the financial health of all healthcare companies. Choose a ratio from the lecture or reading that you found very useful. Describe how it is calculated and what it shows. Explain why you can’t use just that one ratio to make a judgment call on the financial condition of a company. Compare your findings to an opposing view of a fellow classmate.
Please reply in a few sentences to this classmate:
I believe that activity ratios can be very useful. Activity ratios demonstrate how much every dollar invested in assets generate revenue. They assess how effectively a company is able to generate revenue in the form of sales and cash based on its asset, capital and liability share accounts. Examples of how activity ratios can be calculated include the inventory turnover ratio and the accounts receivable turnover ratio, using information from a company’s financial statements. A higher ratio means a company is using its assets efficiently, while lower ratios indicate a company’s use of its assets may be negatively affecting its business. Activity ratios are also critical in evaluating a company’s fundamentals because, in addition to expressing how well a company generates revenue. They also indicate how well the company is being managed. I think it is important to use more than one financial ratio to make a judgement call because all four ratios, measure/demonstrate different things within financial analysis.
Activity Ratio. (2019). Retrieved from https://investinganswers.com/financial-dictionary/…