Use the financial statement of your company to compute the following ratios for the past 5 years: Return on Assets, Cash Return on Assets, Return on Equity and Debt to Assets. Analyze the trends of the ratios and relate any trends to the strategic plan, demand analysis and any other aspects that you have uncovered over the past the weeks.
My company is Acadia Healthcare
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Financial Ratios: Acadia Healthcare
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Financial Ratios: Acadia Healthcare
Financial ratios are significant tools in a business. They offer a way to evaluate a company’s financial and operational performance. Financial ratios also allow a company to benchmark itself against other similar companies and understand its strength, weaknesses, opportunities, and threats. In this paper, I will analyze the financial performance of Acadia Healthcare in the past five years (
2016
–
2020
) using the following ratios: Return on assets, cash return on assets, return on equity, and debt to assets.
Return on Assets
(Write about Acadia Healthcare Return on assets below and remove what is in red)
The return on assets (ROA) ratio is a type of profitability ratio that indicates how profitable an organization is in relation to its total assets. ROA is calculated by dividing a company’s net income by its average total assets (Jufrizen & Al Fatin, 2020). The result is multiplied by 100.
2016
6.143/3,014.5026 ×100 = 0.2038%
2017
199.835/6,224.614 ×100 = 3.210%
2018
-175.75/6,298.503 × 100 = -2.7903%
2019
108. 928/6,525.823 × 100 = 1.6691%
2020
-672.132/6,689.252 ×100 = -10.0479%
Cash Return on Assets
(Write about Acadia Healthcare Cash return on assets below and remove what is in red)
Cash return on assets (ROA) is a type of ratio used to determine if an organization uses its assets efficiently to create profits. Cash ROA is calculated by dividing cash from operating activities by average total assets. The result is multiplied by 100.
2016
383.59/3,014.5026 ×100 = 12.7248%
2017
417.82/6,224.614 ×100 = 6.7%
2018
377.69/6,298.503 × 100 = 5.996%
2019
352.22/6,525.823 × 100 = 5.5921%
2020
495.68/6,689.252 ×100 = 7.4100%
Return on Equity
(Write about Acadia Healthcare Return on Equity below and remove what is in red
The return to equity ratio measures the ability of a company to generate income from shareholders’ investments. It is calculated by dividing net income by shareholder’s equity (Jufrizen & Al Fatin, 2020). The result is multiplied by 100.
2016
6.143/2,167.724 ×100 = 0.2833%
2017
199.835/2,572.724×100 = 7.7674%
2018
-175.75/2,333.307 × 100 = -7.5322%
2019
108. 928/2,505.381 × 100 = 4.3476%
2020
-672.132/1,899.456 ×100 = -0.3538%
Debt to Assets
(Write about Acadia Healthcare debt to assets below and remove what is in red
The debt to assets ratio shows the percentage of the company’s total assets that are financed through borrowed money. It is calculated by dividing total debt by total assets. The results in multiplied by 100.
2016
3,857.002/6,024.726 × 100 =64%
2017
3,851.631/6,424.502×100 =59%
2018
3,839.197/6,172.504 × 100 = 62%
2019
4,373. 761/6,879. 142× 100 = 64%
2020
4,599. 906/6,499.362×100 = 70%
Analysis
One major trend of the ratios is the increase in the debt to assets ratio in the past years. An increase in the debt to assets ratio is not favorable. It shows that a higher percentage of the company’s assets are financed through borrowed money. Also, Acadia Healthcare has been recording a decrease in the cash return on assets ratio in the past years. This is a clear indication that the company is not making enough cash from operating activities. As indicated earlier, part of the company’s strategic plan is to expand its healthcare services. Expansion of healthcare services will increase cash flow from operating activities. Also, an increase in demand for behavioral health services will increase cash flow from operating activities.
References
Jufrizen, J., & Al Fatin, I. N. (2020). Pengaruh Debt To Equity Ratio, Return On Equity, Return On Assets Dan Ukuran Perusahaan Terhadap Nilai Perusahaan Pada Perusahaan Farmasi. Jurnal Humaniora: Jurnal ilmu sosial, ekonomi dan hukum, 4(1), 183-195.
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