Question

In 2020, the financial statements of Ultimate Medical Center reported $960,000 in total revenues and $305,000 in net income with consistent increase in patient volume each month. In fact, during your leadership meeting, you were able to report that there were $400,000 in collections and $820,000 in monthly charges for the monthly of August. Calculate the gross collection ratio and the operating ratio for Ultimate Medical Center:

Answer 1

To calculate the gross collection ratio, we need to divide the total collections by the total charges. In this case, the gross collection ratio would be $400,000 / $820,000 = 0.49.

To calculate the operating ratio, we need to divide the total operating expenses by the total revenues. Since the net income is given, we can use it to calculate the total operating expenses by subtracting it from the total revenues. In this case, the total operating expenses would be $960,000 - $305,000 = $655,000. Therefore, the operating ratio would be $655,000 / $960,000 = 0.68.