HW

Activity Ratios

Activity ratios are crucial to an organization’s financial success. The activity ratios are set up to help you see how efficient an organization is with using assets to produce revenue. These ratios are important in determining whether a company's management is doing a good enough job of generating revenues from its existing resources.

The first of the activity ratios would be the total asset turnover ratio. This ratio measures the efficiency of the organization’s assets to produce revenue. According to the financial statements provided by the state, Jay County Hospital is below the benchmark for similar hospitals. They are currently 20% below the benchmark. The positive side is that there was an increase between 2011 and 2012. This indicates that Jay County Hospital is trending in the right direction.

The second of the activity ratios is the net fixed asset turnover ratio. This ratio is used to measure to what extent do fixed assets assist in the generation of revenues. The financial statements indicate that Jay County Hospital is drastically below the benchmark standard. They fall 292% below the benchmark. These numbers indicate that steps need to be made to improve in this area. They did increase from 2011 to 2012 indicating that the company is trending in the right direction.

The final activity ratio would be the age of plant ratio. This ratio is used to tell how old your equipment is and is also an indicator of future capital investment needs. Jay County Hospital financial statements show that Jay County Hospital is ahead of the benchmark standard in the area of the plant age. From the number it was found that Jay County is 1% above the standard. Most likely they will be below the benchmark in 2013 due to another year of accumulated depreciation. This indicates that capital may need to be invested in the next few years on equipment or possibly new buildings.