Finance only please

Chapter 17

    1. A. Modern Medical Devices has a current ratio of 0.5. Which of the following actions would improve (i.e. increase) this ratio?

·         Use cash to pay off current liabilities

·         Collect some of the current accounts receivable

·         Use cash to pay off some long term debt

·         Purchase additional inventory on credit. (i.e. accounts payable)

·         Sell some of the existing inventory at cost

         b. Assume that the company has a current ratio of 1.2. Now which of the above actions would improve this ratio?

    1. Consider the following financial statements for Best Care HMO, a not-for profit managed care plan

Best Care HMO

Statement of Operations and Changes in Net Assets

Year Ended June 30, 2011

(In thousands)

Revenue:

 Premiums earned                                                     $26,682

Co-insurance                                                                   1,689

Interest and other income                                                    242

     Total revenue                                                                   $28,613

 

Expense:

      Salaries and benefits                                                    $15,154

         Medical supplies and drugs                                         7,507

          Insurance                                                                     3,963

           Provision for bad debt                                                19

            Depreciation                                                               367

            Interest                                                                       385

                    Total Expenses                                                 $27,395

          Net income                                                                 $1,218

          Net asset, beginning of year                                       $900

          Net assets, end of year                                                $2,118

 

 

 

Best Care HMO

Balance Sheet

June 30, 2011

(In thousands)

Assets

Cash and cash equivalents                                              $2,737

Net premiums receivable                                                       821

Supplies                                                                               387

               Total current assets                                             $3,945

Net property and equipment’s                                              $5,924

Total assets                                                                         $9,869

 

Liabilities and Net Assets

Accounts payable- medical services                                  $2,145

Accrued expenses                                                                     929

Notes payable                                                                            141

Current portion of long-term debt                                              241

Total current liabilities                                                          $3,456

Long term debt                                                                       $4,295

  Total liabilities                                                                       $7,751

Net assets  (equity)                                                                  $2,118

Total liabilities and net assets                                                   $9,869

 

a.       Perform a Du Point analysis on Best Care. Assume that the industry average ratios are as follows:

Total margin 3.8%

Total assets turnover     2.1

Equity multiplier 3.2

Return on equity (ROE) 25.5%

b.       Calculate and interpret the following ratios for Best Care:

 

                                Industry Average

Return on assets (ROE)                                           8.0%

Current ratio                                                             1.3

Days cash on hand                                                   41 days

Average collection period                                             7days

Debt ratio                                                                     69%

Debt to equity ratio                                                       2.2

Time interest earned (TIE) ratio                                    2.8

Fixed asset turnover ratio                                               5.2

    1. Consider the following financial statements for Green Valley Nursing home, Inc, a for profit, long-term care facility.

Green Valley Nursing Home, Inc.

Statement of Income and Retained Earnings

Year Ended December 31,2011

Revenue:

Net patient service revenue                                           $3,163,258

Other revenue                                                                        106,146

  Total revenues                                                                   $3,269,404

 

Expenses:             

Salaries and benefits                                                             $1,515,438

Medical supplies and drugs                                                       966,781

Insurance and other                                                                      296,357

Provision for bad debts                                                                  110,000

Depreciation                                                                                      85,000

 Interest                                                                                             206,780

    Total expenses                                                                              $3,180,356

Operation income                                                                             $89,048

Provision for income taxes                                                                 31,167

 

Net income                                                                                      $57,881

 

Retained earnings, beginning of year                                            $199,961

Retained earnings, end of year                                                        $257,842

          

 

Green Valley Nursing Home, Inc.

Balance Sheet

December 31, 2011

Assets

Current Assets:

Cash                                                                              $105,737

Market securities                                                             200,000

Net patient account receivable                                        215,600

Supplies                                                                               87,655

  Total current assets               &nbs

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