SLP 1 – Health Care Finance

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Fraud examiners and credit analysts are concerned with these ratios to measure the ability of the institution to honor its maturing obligations Ratios relating to solvency- these Ratios indicate the institution ‘s ability to come up with cash flows Limitations of ratio analysis as a form of detecting financial frauds Many fraud examiners will differ in the interpretation of ratios Ratios are static this is because ratios report what happened historically Institutions operating as monopolies do not have competitors to compare with Ratios do not account for price level changes Application of ratio analysis to case study company Sales growth index

These categories are :- Ratios relating to Profitability – these ratios are used to show a company ‘s profitability a good example of these ratios , is the gross profit margin ratio Ratios relating to Operations-this ratios use the value of the turnover to measure the efficiency of the company on its operations Ratios relating to leverage -these ratios indicate the level of debt used by the company

These deviations could be indicators of frauds and errors the categories are :- A private institution can be compared with the industry at large Industrial analysis- The fraud examiners will compare the company ‘s ratios with those of similar institutions in the industry A Private institution versus a public institution

A private institution is compared with a public institution of the same size Trend analysis- This involves comparing the performance , of the previous years , with the current year A listed company is compared with other listed companies From the comparisons , if fraud examiners find , unexplained variations the fraud examiners , concentrate much of their substantive procedures in areas where deviations , have occurred

Paper Topic: SLP 1 – Health Care Finance Running Head : Role of ratio analysis in detecting financial statements fraud Name University Course Tutor Date Introduction In determining the importance of financial information , financial experts , carry out financial analysis , which involves calculating and comparing financial ratios

Ratios can be used by fraud examiners to verify whether the company will continue with operations in the near future Categories of comparisons /analysis Fraud examiners , after computing the company ‘s ratios , then carry out various comparisons in to detect any deviations

Ratio analysis is used in carrying out of quantitive analysis of the institution ‘s financial information

Fraud examiners make use of ratio analysis to detect errors and frauds

A good example is the time interest earned ratio Ratios relating to liquidity – these ratios indicate the institution ‘s ability to meet its short term obligations

Not all deviations are indicative of frauds for example a decrease in selling prices could lead to a decrease in sales this will not be an indicator of frauds or errors Categories of ratios These categories are aimed at reflecting the relationship that exists between the operations of the company

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