Chapter

13

--

Financial

Condition

Analysis

PROBLEM

5

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,

2XXX

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

Rent

$110,000

Depreciation

$85,000

Interest

$206,780

Total

expenses

$3,180,356

Operating

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

Year

Ended

December

31,

2XXX

Assets

Current

assets:

Cash

$105,737

Marketable

securities

$200,000

Net

patient

accounts

receivable

$215,600

Supplies

$87,655

Total

current

assets

$608,992

Property

and

equipment

$2,250,000

Less

accumulated

depreciation

$356,000

Net

property

and

equipment

$1,894,000

Total

assets

$2,502,992

Liabilities

and

Shareholders'

Equity

Current

liabilities:

Accounts

payable

$72,250

Accrued

expenses

$192,900

Notes

payable

$100,000

Current

portion

of

long-term

debt

$80,000

Total

current

liabilities

$445,150

Long-term

debt

$1,700,000

Shareholders'

equity:

Common

stock,

$10

par

value

$100,000

Retained

earnings

$257,842

Total

shareholders'

equity

$357,842

Total

liabilities

and

shareholders'

equity

$2,502,992

a.

Perform

a

Du

Pont

analysis

on

Green

Valley.

Assume

that

the

industry

average

ratios

are

as

follows:

Total

margin

3.5%

Total

asset

turnover

1.5

Equity

multiplier

2.5

Return

on

equity

(ROE)

13.1%

b.

Calculate

and

interpret

the

following

ratios:

Industry

average

Return

on

assets

(ROA)

5.2%

Current

ratio

2.0

Days

cash

on

hand

22

days

Average

collection

period

19

days

Debt

ratio

71%

Debt-to-equity

ratio

2.5

Times

interest

earned

(TIE)

ratio

2.6

Fixed

asset

turnover

ratio

1.4

c.

Assume

that

there

are

10,000

shares

of

Green

Valley's

stock

outstanding

and

that

some

recently

sold

for

$45

per

share.

-

What

is

the

firm's

price/earnings

ratio?

-

What

is

its

market/book

ratio?

ANSWER with analyzing details

D IE UNDERSTANDING HEALTHCARE FINANG Chapter 13-Financial Condition A PROBLEMS Consider the following financial statements for Green Valle care facility Green Valley Nursing Statement of Income and Re Year Ended December Revenue: Net patient service revenue $3,163,258 Other revenue $106.146 Total revenues 3269,70 Expenses Salaries and benefits $1,515,438 Medical supplies and drugs $966,781 Insurance and oth $296,357 Rent $110.000 Depreciation $85,000 Interest Total expens 3180356 Operating in Provision for in Net Income ES51 Retained earnings, beginning of year $199,961 Retained earnings, end of year__ $257842 Valley Nursing Balance Shee Ended December Assets Current assets $105,737 Marketable securities $200.000 Net patient accounts receivable $215,600 Supplies 587.655 Total current assets $608,992 Property and equipment $2250,000 Les secumulated depreciation Net property and equipment $1.894.000 otal assets $2.500 EEEEE S2067 SIDE Total current assets Property and equipment Less accumulated depreciation Net property and equipment Total assets S215021092 Llabilities and Shareholders' Equity Current liabilities: Accounts payable $72,250 Acerued expenses S192,900 Notes payable $100,000 Current portion of long-term debt $80.000 Total current liabilities $145.150 Long-term debt $1,700.000 Shareholders' equity: Common stock, $10 par value $100,000 Retained earnings $257.842 Total shareholders' equity $357842 Total liabilities and shareholders' equity $2.502.992 a. Perform a Du Pont analysis on Green Valley. Assume tha Total margin Total asset turnover Equity multiplier Return on equity (ROE) 13.1% b. Calculate and interpret the following ratios: Industry as Return on assets (ROA) Current ratio Days cash on hand 22 days Average collection period Debt ratio Debt-to-equity ratio Times interest earned (TIE) ratio Fixed asset turnover ratio e. Assume that there are 10,000 shares of Green Valley's sto for $45 per share. What is the firm's pricelearnings ratio? - What is its market book ratio? ANSWER 3.5% 1.5 5.2% 2.0 19 days