Ratio and Budget Management Analysis

Ratioand Budget Management Analysis

Ratioand Budget Management Analysis

Financialratios are used to determine the financial performance of a givencompany (Kaplan,&amp Atkinson, 2015).In this case of Moreno Medical Centre Virtual Organization, I willperform a financial analysis using liquidity ratios, efficiencyratios, profitability ratios and solvency ratios.

LiquidityRatios

CurrentRatio

AcidTest Ratio

EfficiencyRatios

InventoryTurnover Ratio

ProfitabilityRatios

NetProfit Margin

SolvencyRatios

Debtto Equity Ratio

of What Each Ratio Measures

Liquidityratios measure the liquidity of the company that is if its liquidcurrent assets can be able to meet the firm`s short-term obligationswhen they fall due (Kaplan,&amp Atkinson, 2015).The liquidity ratios include current ratio, acid test ratio, workingcapital ratio, and so forth. In the case of Moreno Medical CentreVirtual Organization, I performed an analysis of the current ratioand acid test ratio. Moreno Medical Centre Virtual Organization has acurrent ratio of 15.32 in 2012 and 5.37 in 2013. This shows adecrease in the liquidity of the company. It is, therefore, evidentthat Moreno Medical Centre Virtual Organization met its financialobligations more in 2012 than in 2013. Moreno Medical Centre VirtualOrganization also has an acid test ratio of 14.49 in 2012, whichdecreased to 4.59 in 2012. This shows that Moreno Medical CentreVirtual Organization met its short-term liabilities more in 2012 thanin 2013.

Efficiencyratios measurethe ability a company to use its current assets and manage itsshort-termand long-term liabilitieseffectively. They include the inventory turnover&nbspratio,asset turnover&nbspratio&nbspandaccounts receivables turnover&nbspratio(Kaplan,&amp Atkinson, 2015). Inthis case of Moreno Medical Centre Virtual Organization, I performedan analysis of theinventory turnover&nbspratio.MorenoMedical Centre Virtual Organization has an inventoryturnover&nbspratioof 5.42 times in 2012 and 5.66 times in 2013. This shows an increasein theinventory turnover&nbspratio,which implies that MorenoMedical Centre Virtual Organization is more efficient in 2013 than in2012.

Profitabilityratios area class of financial ratios that are used to assess the ability of abusiness to generate earnings or profit compared to its operatingexpenses incurred during a particular period. They include the netprofit margin, the gross profit margin, the return on equity, thereturn on total assets and so forth (Kaplan,&amp Atkinson, 2015). Inthe case of Moreno Medical Centre Virtual Organization, I performedan analysis using thenet profit margin. MorenoMedical Centre Virtual Organization has a netprofit margin of -3.82% in 2012 and 0.15% in 2013. This shows anincrease in the net profit margin, which can be attributed to areduction in the hospital`s lossbytwo-third.

Solvencyratios measure a firm`s ability to sustain its businessoperations. Ideally, it shows a company`s ability to pay off itslong-term obligations (Kaplan,&amp Atkinson, 2015). The higher, the better, whichwould indicate a more creditworthy and financially sound company inthe end. They include debt to equity ratio, debt to total assetsratio and so forth. In this case of Moreno MedicalCentre Virtual Organization, I performed an analysis using the debtto equity ratio. The company has a debt to equity ratio of 0.64 in2012 and 3.72 in 2013. This implies that in 2012 and 2013, the firmwas financed by more debt than equity.

BenchmarkAnalysis

Thehealthcare industry had an acid test ratio of 0.81 in 2013. Whencompared to Moreno Medical Centre VirtualOrganization that has an acid test ratio of 4.59, thecorporation is more liquid. The healthcare industry also had a totaldebt to equity ratio of 0.08 in 2013 while MorenoMedical Centre Virtual Organization’s total debt to equityratio was 3.72. Based on this, it is evident that MorenoMedical Centre Virtual Organization was financed by more debtas compared to the industry.

CostVariances

LaborCost Variance

MaterialCost Variance

VariableOverhead Cost Variance

Comparisonof Cost Variances with Variance Report

Whenwe compare the cost variances with the variance report, there is adeviation of 0.09% in the labor cost variance, 2.42% in the materialcost variance and 17.18% in the variable overhead cost variance fromthe variance report.

Analysisof Cost Variances

Thecompany had a labor cost difference of $ 199, which is adverse. Thisimplies that Moreno Medical Centre VirtualOrganization incurred more labor cost thanthey had budgeted. The firm also had a material cost variance of $1,075, which is adverse. This shows that Moreno Medical CentreVirtual Organization incurred more material cost than they hadbudgeted. Lastly, the corporation had a variable overhead costvariance of $ 5,270, which is adverse (Kaplan,&amp Atkinson, 2015). This showsthat Moreno Medical Centre Virtual Organization incurred morevariable overhead cost than they had budgeted.

HowBenchmark would Improve Budget Management

Inconclusion, benchmarking would improvebudget management in that the company wouldbe able to compare itself with the industry and determine where theyare overspending (Kaplan,&amp Atkinson, 2015).

Reference

Kaplan,R. S., &amp Atkinson, A. A. (2015).&nbspAdvancedmanagement accounting.PHI Learning. Retrieved on 10 December 2016.