Explain how the financial ratio is calculated.

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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.