Explain how the financial ratio is calculated.
f you have ever applied for a credit card or a loan, you have had your credit profile reviewed and you had to give information to the lender about your income and expenses. The lender used this information to perform a ratio to determine if you qualified for the loan. Essentially, the lender wants to know if you can afford the loan payments over a long period.
This same principle is applied to business. The financial information can be obtained from a health care organization by reviewing their financial statements. Financial statements can tell a lender if the organization is making enough money (revenue) to afford the debt associated with a loan.
Select 1 of the following financial ratios listed below to use for this discussion:
- Current ratio
- Debt to asset ratio
- Free cash flow ratio
- Price-earnings ratio
- Profit margin ratio
- Return on total assets ratio
- Working capital ratio
Use your selected financial ratio and respond to the following in a minimum of 175 words:
- Explain how the financial ratio you selected is calculated.
- Explain why a financial institution or investor would use the financial ratio.
- Explain what the result of the financial ratio calculation would tell you about the organization’s financial status.
- Give an example of how you would use 1 of the financial ratios in your personal finances or current profession.
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