| Course | WMBA 6608 Healthcare Financial Management and Economics |
|---|---|
| Week | Week 2 |
| Paper type | Ratio memo |
| Length | About 770 words, 4 pages |
| Format | Memo, APA 7 citations |
| School | Walden University |
| Program | Master of Business Administration (MBA) |
| Updated | October 2026 |
Free sample paper for WMBA 6608 Week 2
Memorandum
To: Finance Committee, Prairie Ridge Medical Center
From: Senior Financial Analyst
Date: March 9, 2026
Re: Interpretation of FY2025 financial ratios
Summary
Prairie Ridge Medical Center, a made-up 180-bed hospital serving central Iowa, ended fiscal 2025 in sound condition by most measures and comfortably inside its bond covenants. But its core operations are weakening. The operating margin dropped 1.4 points, to 2.0 percent, and the hospital reached a 4.9 percent excess margin only because investment income was strong. Collections slowed, and days cash on hand fell for the first time in four years. The committee should treat fiscal 2025 as a warning, not a success.
The Calculations
All inputs are from the audited fiscal 2025 statements. Dollar figures are in millions. Revenue-based ratios use net patient revenue rather than gross charges, because list charges bear little relation to what hospitals collect (Reinhardt, 2006).
Table 1
Key Ratios, FY2025 Against FY2024 and Covenants
| Ratio | Formula and inputs | FY2025 | FY2024 | Covenant | |
|---|---|---|---|---|
| Operating margin | Operating income $6.2 / total operating revenue $312.0 | 2.0% | 3.4% | None | |
| Excess margin | (Operating income $6.2 + nonoperating income $9.4) / (operating revenue $312.0 + nonoperating income $9.4) | 4.9% | 4.6% | None | |
| Days cash on hand | Cash and board-designated investments $142.5 / daily cash expenses ((operating expenses $305.8 minus depreciation $18.4) / 365) | 181.0 | 196.0 | At least 75 | |
| Days in accounts receivable | Net patient receivables $38.6 / (net patient revenue $296.0 / 365) | 47.6 | 44.1 | None | |
| Current ratio | Current assets $82.0 / current liabilities $51.0 | 1.61 | 1.74 | None | |
| Debt to capitalization | Long-term debt $96.0 / (long-term debt $96.0 + unrestricted net assets $210.0) | 31.4% | 33.9% | None | |
| Debt service coverage | (Net surplus $15.6 + depreciation $18.4 + interest $3.9) / (principal $4.6 + interest $3.9) | 4.46 | 4.10 | At least 1.25 | |
| Average age of plant, years | Accumulated depreciation $230.0 / depreciation expense $18.4 | 12.5 | 12.0 | None | |
Composite figures for a classroom case; prior-year figures from the FY2024 statements.
Reading the Ratios by Group
Profitability
The operating margin is the measure that matters most for the hospital's future, because it shows whether patient care pays for itself. At 2.0 percent, down from 3.4 percent, it leaves little room for a bad year. The excess margin rose slightly, but the difference between the two, almost three percentage points, comes from investment returns. Investment income depends on markets, not on how the hospital is run, and Bai and Anderson (2016) found that hospital profitability varies widely with factors such as markup and payer mix that reflect market position as well as management. A surplus produced by a strong market year does not repeat on demand.
Liquidity
Days cash on hand of 181 is well above the covenant minimum of 75 and remains a strength. But it fell 15 days in one year, mainly because capital spending was funded from cash. Days in accounts receivable rose from 44.1 to 47.6, meaning the hospital waits three and a half days longer to collect. On net patient revenue of $296 million, each day is worth about $0.8 million in cash, so the slowdown holds roughly $2.8 million that would otherwise sit in reserves. The current ratio, still above 1.5, declined for the same reason.
Debt
The debt position improved. Debt to capitalization fell to 31.4 percent on principal repayments and growth in net assets. Debt service coverage of 4.46 is more than three times the covenant minimum. Reiter and Song (2021) note that lenders and rating agencies read coverage and debt levels together, and both favor Prairie Ridge.
Where the Measures Disagree
Two tensions deserve the committee's attention. First, the excess margin and the operating margin point in opposite directions. The excess margin says the hospital had a good year; the operating margin says its operations had a worse one. The operating figure is the better guide. Second, debt service coverage is strong, but it includes investment income. Recomputed on operating income alone, coverage is 3.35, still comfortable but lower, and would fall further if the operating trend continues.
The average age of plant, 12.5 years and rising, adds a third consideration. An aging plant will need reinvestment, which will draw on the same cash that is now declining.
Conclusion
Prairie Ridge is financially sound today, with strong liquidity and moderate debt. Its weakness is operating performance, masked by investment income, and slower collections. The committee should ask management for a plan to restore the operating margin toward 3 percent and to return days in accounts receivable to 44 or below, and should review the capital plan in light of declining cash.
References
Bai, G., & Anderson, G. F. (2016). A more detailed understanding of factors associated with hospital profitability. Health Affairs, 35(5), 889-897. https://doi.org/10.1377/hlthaff.2015.1193
Reinhardt, U. E. (2006). The pricing of U.S. hospital services: Chaos behind a veil of secrecy. Health Affairs, 25(1), 57-69. https://doi.org/10.1377/hlthaff.25.1.57
Reiter, K. L., & Song, P. H. (2021). Gapenski's healthcare finance: An introduction to accounting and financial management (7th ed.). Health Administration Press.
The Walden WMBA 6608 Week 2 instructions
The ratio memo asks students to calculate and interpret a set of financial ratios from supplied statements. Calculations should appear in a small table, each with its formula, inputs traced to a statement line and a consistent number of decimals, so the prose stays free of arithmetic. Interpretation follows in groups, liquidity together, then profitability, then debt, rather than ratio by ratio. Every comparison should name its reference point, such as a prior year, a benchmark or a covenant. Instructors also expect a section on where two measures disagree and what that suggests. The memo closes with a conclusion and a recommendation for the reader, often a board or finance committee. Because hospitals report both operating and nonoperating income, the memo should say which margin it relies on and why that choice suits the reader's question.
How this WMBA 6608 Week 2 example is built
The memo opens with a summary judging the year a warning rather than a success. A note explains the use of net patient revenue, citing Reinhardt on charges. A table presents eight ratios with formulas, inputs, current and prior year results and covenant thresholds. A profitability section contrasts the falling operating margin with the rising excess margin and cites Bai and Anderson. A liquidity section reads days cash, receivables and the current ratio together and prices the collection slowdown at about $2.8 million. A debt section notes improving coverage and borrowing levels, citing Reiter and Song. A section on disagreements recomputes coverage on operating income alone and notes the aging plant. The conclusion recommends targets. Margin comments flag the summary and the grouped reading.
Where the marks sit in the WMBA 6608 Week 2 rubric
Graders reward accurate calculations with formulas and traceable inputs, presented cleanly. Grouping the interpretation by category, and naming a reference point for every comparison, carries significant weight. Identifying where measures disagree, and explaining the tension, shows analytical depth. A conclusion with a clear judgment and specific recommendations demonstrates management purpose. Instructors also check that covenant thresholds and prior-year figures are used correctly. Concise memo writing and correct citations complete the expectations. A memo that recomputes a key ratio under a different definition, such as coverage on operating income alone, often stands out.
WMBA 6608 Week 2 help: mistakes that cost marks
Compute each ratio carefully and note exactly where each input came from on the statements. Put the calculations in a table. Then group the ratios by what they measure and read each group together, comparing with the prior year or a covenant. Look for two measures that tell different stories and explain why. Students often lose marks by interpreting each ratio in isolation, by comparing to nothing or by letting a strong bottom line hide weak operations. Another common gap is a conclusion with no recommendation. Say what the reader should do. If you would like a custom sample ratio memo for your course's statements, send us the figures.
Get a WMBA 6608 Week 2 example written to your instructions
Send the supplied statements together with the Week 2 prompt and the grading rubric; a memo carrying a worked exhibit and full interpretation returns inside 24 to 48 hours, free the first time. Spreadsheet templates and named ratio lists are worth attaching, since the sample then computes exactly what your classroom asked for.
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WMBA 6608 Week 2 questions, answered
Where can I find a free WMBA 6608 Week 2 sample paper?
The financial ratio interpretation memo for a composite Iowa hospital is reproduced in full below.
What happened to the operating margin?
It fell from 3.4 percent to 2.0 percent.
Why did the excess margin rise?
Because investment income was strong, masking weaker operations.
What does the receivables slowdown cost?
About $2.8 million in cash that would otherwise be in the bank.
What does the memo recommend?
Restoring the operating margin toward 3 percent and returning days in receivables to 44 or below.