Financial Statement Analysis: Average Payment Period Ratio
In this assignment you will compare year-over-year payment trends using the average payment period ratio which is calculated as follows:
Average Payment Period Ratio = Current Liabilities / ([Total Operating Expenses Depreciation and Amortization Expenses] / 365)
The average payment period measures how long it takes on average for a business to pay back its creditors or in essence to pay its bills.
Review the following scenario:
You are the department head for the finance department for Anytown Hospital a not-for-profit community hospital in an urban community. The hospital administrator reviewed the most recent average payment period report (for fiscal year 2012 [FY2012]) and noted a variance between the FY2011 and FY2012 reports. The hospital administrator is not well versed in financial reports.
As the chief finance officer (CFO) and financial expert you are tasked to explain the variance to the Administrator. You must answer whether the variance is positive or negative as compared with the industry benchmark of 45 days. What are the risks if the trend is negative between FY2011 and FY2012? What are the benefits if the trend is positive from FY2011 to FY2012? You will present your findings in a PowerPoint presentation to the Hospital Administrator and other hospital department heads.
Part 1:Average Payment Period Ratio Report Development
For this assignment you will develop and analyze financial statements. Part 1 of the assignment includes describing what an average payment period is and how it is calculated. Use the years and the dollar amounts provided in the table below:
Operating Expenses
Depreciation and Amortization
Difference
Days per Year
Average Cash Expense per Day
15255263.00
553219.00
365
12589823.00
665393.00
365
Year
Current Liabilities
Average Cash Expense Per Day
Average Payment Period Days
2011
2550263.00
2012
4553681.00
Using an Excel spreadsheet (or any other tool for performing calculations) determine the average payment period for FY2011 and FY2012. Use the following steps:
Part 2: Risks and Benefits Analysis
Develop an 810-slide PowerPoint presentation (excluding the title and reference slides).
Include the completed average payment period ratio table in your presentation. Include detailed speaker notes with APA format including references. Use a properly formatted APA 6th edition figure caption for the table or any other figures or charts. Use at least 57 scholarly sources in your research.
Write your document in a clear concise and organized manner; demonstrate ethical scholarship in accurate representation and attribution of sources; and display accurate spelling grammar punctuation and references page. Apply APA standards to citation of sources.
Use the following file naming convention: LastnameFirstInitial_M3_A2.ppt.
ByWednesday June 28 2017 deliver your assignment to theM3A2: Required Assignment 1 Dropbox.