The four important financial ratios that I will examine to help decide if I will join the practice are asset turnover ratio, the profit margin, current ration, and the debt/equity ratio. The asset turnover ratio is a vital pointer of practice activity and falls into the category of activity or asset management ratio group. The asset turnover ratio measures the degree to which a practice uses its assets (Goel, 2015). Therefore, the ratio indicates the ability of an organization to utilize its assets to generate net income. A more substantial value indicates a more favorable financial outcome. If the practice has an asset turnover ratio of 1 and above, I will consider joining the practice.
The profit margin is that other ration I will consider before joining the practice. The profit margin is a vital profitability ratio because it indicates the organization’s ability to earn sufficient net revenue to offer a return on investment (Setianto, 2016). A higher profit margin is necessary for guarding infrastructure to ensure the delivery of quality healthcare.
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The current ratio will also be another essential consideration. It is a liquidity ratio that shows the ability of a firm to transform its non-cash assets into cash. Considering that short-term liabilities are due within the following year, the current ratio measures an organization’s ability to meet its existing debts. According to Goel (2015), a current ratio ranging between 1.2 and 2 is an ideal one. Finally, the debt/equity ratio will be the last consideration. The debt/equity ratio falls under the long-term solvency ratio category, and it measures a firm’s ability to meet its long-term obligations. The ratio is significant because it indicates its financial stability and the capability to raise more capital for growth.
References
Goel, S. (2015). Financial Ratios . New York: Business Expert Press.
Setianto, B. (2016). Benchmarking Financial Ratios Public Company on the Stock Exchange Basic Industry sector with Public company on the NYSE: Financial reports Q3 and Q4 2015 . BSK Capital.
