FINANCIAL RATIOS AND INTERPRETATION OF RESULTS

FINANCIAL RATIOS 2017 2016

1. Liquidity Ratio
a. Current Ratio 1.17 1.31
b. Acid Test Ratio 1.13 1.27
2. Debt Management Ratio
c. Debt Ratio 0.43 0.38
3. Profitability Ratio
d. Basic Earnings Power Ratio 0.03 0.01

Analysis pertaining to above ratios:

1. Under Liquidity Ratio;
a. Current Ratio indicates the extent to which current liabilities are covered by those
assets expected to be converted to cash in near future. Information from the table, we
can imply that there’s a drastic decrease in the Current Ratio of PhilHealth Inc. from
years 2016 to 2017. It indicates that there would be deteriorating financial condition.
In years 2016 and 2017, the amount of current liabilities exceeds the amount of
current assets resulting to a declining ratio.
b. Acid Test Ratio (Quick Ratio) measures how well a company can meet its obligation
without having to liquidate or depend too heavily on its inventory. A declining ratio is
evident because there’s an eventual increase in amount of current liabilities that
exceeds its contrary. Despite of having a decrease in ratio, a quick ratio higher than 1
can instantly get rid of its current liabilities.
2. Under Debt Management Ratio;
c. Debt Ratio measures the extent of a company’s leverage. Information from the table,
we can imply that there’s an increase in ratio. A ratio below 1 indicates that a greater
portion of an entity’s assets is funded by equity. In its contrary, a ratio above 1
indicates that the entity’s assets are funded under liabilities. The entity may also be able
to withstand losses, and incur lower financial risk.
3. Profitability Ratio
d. Basic Earnings Power Ratio indicates the ability of the firm’s assets to generate
operating income. An increase in ratio of PhilHealth does not indicate a material
effect on its ability to generate operating income. The increase isn’t yet significant to
imply that the entity is doing well.
 HORIZONTAL AND VERTICAL ANALYSIS OF THE FINANCIAL
STATEMENTS
1. Balance Sheet Analysis
The most significant change in the comparative balance sheet is the Available
for Sale Investments. This had decreased by -100% in 2017. The termination and
liquidation was in accordance with Investment Management Agreement, in which
PhilHealth’s Board of Directors had approved to hire external local fund managers to
manage a portion of the investment reserve fund.
For the comparative balance sheet in the assets portion, the account that had the
most significant change for both years as compared to the total assets is the Current
Asset, specifically the Cash Account. The Cash Account represents the collections
which are to be deposited on the following working day. It is also composed of Petty
Cash Fund to be used for miscellaneous expenditure which cannot be conveniently
paid by check. Cash in Bank is also present for various bank deposits that can be used
for current operations.
In liabilities and equity portion, the account that had the most significant change
for both years as compared to the Total Liabilities nad Equity is under the liability
portion, specifically the Benefits Claim Payable. This account is composed of Benefit
Claims Processed, Benefit Claims Reported – In Course of Settlement, and Benefit
Claims Incurred But Not Yet Received. The Benefit Claims Processed represent benefit
payment checks still in the possession of the corporation, , Benefit Claims Reported
– In Course of Settlement are benefit claims in process at the end of the month, and
Benefit Claims Incurred But Not Yet Received are claims which are estimated to be in
the possession of the Health Care Institutions as of the end of the month.
2. Income Statement Analysis
The most significant change in the comparative income statement is the Benefit
Claims Expense. This represents the benefits incurred by the corporation for health
care services, in-patien, out-patient, PCB and Z benefit packages availed of by the
members and their dependents. For the year 2017, there was an increase of 303% in
its percentage because most of the accounts in connection with Benefit Claims Expense
had increased resulting to a bigger claims expenses.
For the comparative income statement, the account that had a significant change
for both years, aside from Benefit Claims Expense, is the Personal Services. The
increase in amout of services is due to an increase in salaries and wages, other
compensation, statutory contributions, and other personal services of employees to
make them motivated in doing their work in order to have a quality service to the
public.