Ratio Analysis: US Physical Therapy Inc – Health System Example

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"Ratio Analysis: US Physical Therapy Inc" is a marvelous example of a paper on the health system. Ratio analysis is considered an effective tool in evaluating the financial performance and position of an organization. By virtue of ratio analysis, a variety of comparisons is possible such that the financial performance of the company can be compared with the industry averages, or other competitors, or even its own past performance (Brigham, 2008). This paper highlights the financial performance of a US healthcare organization namely US Physical Therapy Inc. (NYSE: USPH). Ratio analysis of this company has been carried out for the periods covering 2009, 2010, and 2011.

Ratios computed are derived from the financial statements of the company published in Annual Report and Form 10-K in the respective periods. Ratios included in the analysis For the purpose of this particular paper, four broad categories of ratios are outlined such that two ratios from each of liquidity, efficiency, profitability, and solvency ratios are included in the analysis. In the subsequent paragraphs, a brief explanation of each of the ratios is provided. Liquidity Ratios Liquidity ratios are mainly computed and analyzed in order to investigate the patterns of liquidity, i.e.

the overall estimates of cash conversion and working capital position of the organization (Jeff et al, 2004). Following are the two ratios that have been selected for this analysis. It is important to mention that Quick Ratio (Acid Test Ratio) is not included in the analysis because of the unavailability of inventory in the current assets of this particular company. Current Ratio The current ratio examines how worthy are the current assets of the company to ensure the payment of the current liabilities.

In other words, how much current assets are available in order to finance the current liabilities of the company. Net Working Capital to Sales Ratio This ratio expresses net working capital as a percentage of sales. In order to run the routine operations of the business, it is investigated as to how much percentage of those funds is required as a percentage of sales. Efficiency Ratios Efficiency ratios tend to highlight the effectiveness and efficiency of the working capital of the organization such that how frequently current assets and liabilities are rolling over in a given period (Eckbo, 2008).

Receivable Turnover and Payable Turnover are the two major ratios that have been included in this analysis. Following is a brief explanation of both these ratios. Receivable Turnover This turnover ratio describes the overall frequency of the receivable in a particular reporting period. It expresses how many times the receivable cycle is completed in a reporting period. Payable Turnover This ratio investigates the payment cycle of the company such that it investigates how many times in a reporting period the company managed to pay off its payables.   Profitability Ratios Profitability is the ultimate concern especially for the owners of the company, as every shareholder wants its stake to be profitable.

Net Profit Margin and Return on Equity are the ratios included in the analysis. Net Profit Margin Net Profit Margin describes how much percentage of sales a company is managing to generate profits. Return on Equity Return on Equity describes the profits in terms of percentage of the total equity of shareholders. It is examined as to how much profits are generated by the company as a percentage of equity. Solvency Ratios Solvency ratios mainly explain the riskiness of the company due to leverage in the form of obtaining debts.

These ratios keep a check on the likely solvency of the company. Long-term Debt to Asset and Interest Cover ratios are computed and analyzed. Long-term Debt to Asset Ratio This ratio describes what percentage of total assets are mainly financed by the long-term debt of the company. The higher the ratio, the riskier will be the company. Interest Cover Interest cover expresses the number of profits available to cover the interest expense of the company. Ratio   Formula   2011   2010   2009 Activity Ratios                             Current Ratio   Current Assets   45,667 = 2.80   39,284 = 2.76   33,019 = 2.24     Current Liabilities   16,324       14,231       14,764                                   Net Working Capital to Sales   Current Assets – Current Liabilities   45667-16324 = 12.38%   39284-14231 = 11.86%   33019-14764 = 9.06%     Sales   237,006       211,233       201,409                                   Efficiency Ratios                             Payable Turnover   Sales   237,006 = 131.01   211,233 = 170.76   201,409 = 155.89     Payable   1,809       1,237       1,292                                   Receivable Turnover   Sales   237,006 = 7.91   211,233 = 8.01   201,409 = 8.52     Receivable   29,947       26,369       23,631                                   Profitability Ratios                             Net Profit Margin   Profit After Tax   20,974 = 8.85%   15,645 = 7.41%   11,767 = 5.84%     Sales   237,006       211,233       201,409                                   Return on Equity   Profit After Tax   20,974 = 17.25%   15,645 = 13.44%   11,767 = 12.76%     Shareholders' Equity   121,580       116,383       92,225                                   Leverage Ratios                             Long-term Debt to Asset Ratio   Long-term Debt   25,348 = 15.53%   10,247 = 7.27%   4,440 = 3.98%     Total Assets   163,252       140,861       111,429                                   Interest Cover   Profit After Tax   20,974 = 42.29   15,645 = 66.29   11,767 = 33.43     Interest Expense   496       236       352                                   Interpretation Liquidity Ratios As far as the liquidity ratios are concerned, both the Current Ratio and Net Working Capital to Sales Ratio have increased.

The current ratio increased from 2.24 to 2.80 in the given period and Net Working Capital Ratio increased from 9.06% to 12.38%. These results state that the liquidity position of the company is on an improving trend. Efficiency Ratios Payable Turnover has shown mixed results in the given period such that it worsened from 155 periods to 170 periods from 2009 to 2010 but then it improved to 131 periods in the last year.

Receivable Turnover on the other hand remained stable on 8 periods per year in all the three years. Profitability Ratios Net Profit Margin has experienced bright improvements in the last three years such that it improved from 5.84% to 8.85% in three years' time. A similar trend can also be observed in terms of Return on Equity where the company managed to attain 17.25% in 2011 as compared to 12.76% in 2009, which is a very positive indicator for the shareholders of the company. Solvency Ratios The long-term Debt to Asset ratio of the company has increased from 3.98% to 15.53% in the given reporting period showing a threatening sign for the company.

Interest cover also showed struggling results such that it decreased from 66 times in 2010 to 42 times in 2011. Conclusion From the above ratio analysis of US Physical Therapy Inc. , the performance of the company has shown all sorts of results.

Liquidity and Profitability position of the company has improved whereas Efficiency position has remained a bit stable. However, the solvency position of the company poses significant risks to the future of the company and this area needs to be improved in order to reduce the concerns of solvency.


Brigham, Eugene F. & Ehrhardt, Michael C., (2008). Financial management: theory and practice. 12th ed. New York: Cengage Learning.

Eckbo, BE., (2008). Handbook of corporate finance: empirical corporate finance. Oxford: Elsevier.

Jaffe, J. & Ross, R Westerfield., (2004). Corporate Finance. New Delhi: Tata McGraw-Hill Education.

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