Bestcare Health Maintenance Organization Net Working Capital

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BestCare Health Maintenance Organization (HMO) Net Working Capital Totals current assets- total current liabilities $3,945,000-$3,456,000=$489,000 BestCare Health Maintenance Organization (HMO) Debt ratio Total debt (liabilities) / total assets $7,751/$9,869=0.79=79% Balance sheet lists assets, liabilities and owner’s equity. The assets listed on the balance sheet are acquired either by debt (liabilities) or equity. “Companies that use more debt than equity to finance assets have a high leverage ratio and an aggressive capital structure. A company that pays for assets with more equity than debt has a low leverage ratio and a conservative capital structure. That said, a high leverage ratio and/or an aggressive capital structure can also lead …show more content…

Net working capital represents organization’s operating liquidity. In order to compute the net working capital, total current assets are divided from total current liabilities. When there is sufficient excess of current assets over current liabilities, an organization might be considered sufficiently liquid. Another ratio that helps in assessing the operating liquidity of as company is a current ratio. The ratio is calculated by dividing the total current assets over total current liabilities. When the current ratio is high, the organization has enough of current assets to pay for the liabilities. Yet, another mean of calculating the organization’s debt-paying ability is the debt ratio. To calculate the ratio, total liabilities are divided by total assets. The computation gives information on what proportion of organization’s assets is financed by a debt, and what is the entity’s ability to pay for current and long term liabilities. Lower debt ratio is better, because the low liabilities require low debt payments. To be able to lend money, an organization’s current ratio has to fall above a certain level, also the debt ratio cannot rise above a certain threshold. Otherwise, the entity will not be able to lend money or will have to pay high penalties. The following steps can be undertaken by a company to keep the debt ratio within normal

In this essay, the author

  • Explains that the balance sheet lists assets, liabilities, and owner's equity. companies that use more debt than equity to finance assets have a high leverage ratio and an aggressive capital structure.
  • Explains how data and ratios from different financial statements provide information needed to analyze organization's financial position in order to make a decision on organization’s debt-paying ability.
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