The board of directors for the hospital has asked you to complete the financial analysis workbook and then write a brief that interprets your calculations and evaluates the clinic's business performance. You will send your financial analysis to the board of directors to support your recommendation on whether the hospital should purchase the clinic.

Financial Analysis Workbook
First, read the Lueders Medical Clinic 2017–2018 Financial Statements, which is linked in the Supporting Materials section. Then, perform the financial analysis of the clinic using the Financial Analysis Workbook Excel spreadsheet, which is also linked in the What to Submit section. This way, you can apply the ratios and vertical and horizontal analyses to the clinic’s annual financials.

The board will review your report to verify that you:

Use the base amounts from the financial statements to perform the vertical analysis

Calculate the ratios accurately using the formulas provided in the workbook

Validate the accuracy of the ratios by showing the calculations and using the appropriate units

As you complete each section, it may be helpful to take notes about what you learn. Then, you can use your notes to evaluate the business’s financial status and write your brief to the board of directors.

Brief to the Board of Directors
Once you have completed your financial analysis, interpret the ratios and vertical and horizontal analyses to evaluate the business performance of Lueders Medical Clinic.

In your brief, make sure to refer to your financial analysis workbook. It is important that you explain what each ratio tells you about the clinic’s performance. Then, recommend whether it is a good investment for the hospital to purchase the clinic. Use your financial analysis workbook to explain your decision.

Specifically, address the following in your brief:

Examine the clinic’s financial performance.

How does the clinic’s financial performance compare against industry averages and past performance?

What are the strengths and weaknesses of the clinic’s financial performance?

Recommend appropriate actions using your financial analysis as support.

Is purchasing the clinic is a good or bad investment?

What are some potential areas of improvement?

What to Submit

Every project has a deliverable or deliverables, which are the files that must be submitted before your project can be assessed. For this project, you must submit the following:

Financial Analysis Workbook
Download and complete the Financial Analysis Workbook Excel spreadsheet with two worksheets. Use the first worksheet to perform the horizontal and vertical analyses. Use the second worksheet to perform the ratio analysis. Refer to the Lueders Clinic 2017–2018 Financial Statements to calculate each ratio. Your workbook must include two completed worksheets (Horizontal and Vertical Analysis and Ratio Analysis). It should be presentable and annotated for your audience.

Brief to the Board of Directors
Your brief to the hospital’s board of directors should be 250–500 words or about 1–2 pages in length. Cite your sources appropriately.

Lueder’s Medical Clinic 2017–2018 Financial Statements

Lueder’s Medical Clinic – Income Statement

Year Ended December 31

Operating Revenue 2017 2018

Gross patient service revenue $775,000.00 $844,000.00

Less: Contractual allowances 465,000.00 505,200.00

Net patient service revenue 310,000.00 338,800.00

Other operating revenue 18,000.00 28,000.00

Total operating revenue 328,000.00 366,800.00

Operating Expenses 2017 2018

Salaries and wages 139,279.00 165,320.00

Employee benefits 13,041.00 14,062.00

Supplies expense 17,376.00 17,058.00

Purchased services 29,200.00 26,756.00

Other operating expenses 105,076.00 117,806.00

Provision for bad debts 18,440.00 11,500.00

Depreciation and amortization 17,650.00 12,500.00

Interest expense 2,750.00 1,819.00

Total Expenses $342,812.00 $366,821.00

Revenue over expenses from operations (14,812.00) (21.00)

Nonoperating gains: Investment income 15,325.00 1,445.00

Net income (loss) $513.00 $1,424.00

Lueders Medical Clinic – Balance Sheet

Year Ended December 31

Assets

Current Assets 2017 2018

Cash and investments $12,000.00 $13,650.00

Patient accounts receivable, net allowance 75,675.00 66,135.00

Supplies inventory 30,100.00 19,340.00

Total current assets 117,775.00 99,125.00

Property and equip, net of accumulated depreciation 37,672.00 60,321.00

Total assets $155,447.00 $159,446.00

Liability and Equity

Current Liabilities 2017 2018

Accounts payable $41,254.00 $65,450.00

Accrued salaries and expenses 15,200.00 7,600.00

Due to third-party payors 21,345.00 15,350.00

Total current liabilities 77,799.00 88,400.00

Long-term liabilities 12,355.00 15,000.00

Pension liabilities 11,124.00 5,500.00

Total Liabilities 101,278.00 108,900.00

Equity 54,169.00 50,546.00

Total liabilities and equity $155,447.00 $159,446.00

Ratios Calculation 2018 Calculation 2017 Industry Average Notes

Liquidity Ratios Current Ratio 1.29

Current Assets / Current Liabilities

Quick Ratio (Acid Test) 0.68

(Current Assets - Supplies Inventory) / Current Liabilities

Debt Ratios Debt to Total Assets 0.4

Total Debt / Total Assets

Times Interest Earned 2.5

(Net Income + Interest Charges) / Interest Charges

Asset Management Ratios Inventory Turnover 25

Net Patient Service Revenue / Supplies Inventory

Average Collection Period 55.4

Accounts Receivable / Net Patient Service Revenues Per Day

Fixed Assets Turnover 5.2

Net Patient Service Revenue / Fixed Assets

Total Assets Turnover 3

Net Patient Service Revenue / Total Assets

Profitability Ratios Profit Margin on Revenue 0.59

Net Income / Net Patient Service Revenue

Return on Total Assets 4.8

Net income / Total assets

Return on Equity 0.0975

Net income / Equity