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Problem 4.5
 

Consider the following balance sheet
 
Assets
Current Assets
 

Cash $2,737
Net premiums receivable 821
Supplies 387
Total current assets $3,945
Net property and equipment $5,924
Total assets $9,869
 
Liabilities and Net Assets
Accounts payable-medical
Services $2,145
Accrued expenses 929
Notes payable 382
Total current liabilities $3,456
Long-term debt $4,295
Total liabilities $7,751
Net assets-unrestricted
(equity) $2,118
Total liabilities and net
Assets $9,869
 

a. How does this balance sheet differ from Exhibit 4.1 for Sunnyvale?
b. What is BestCare’s net working capital for 2011?
c. What is BestCare’s debt ratio? How does it compare with Sunnyvale’s debt ratio?
 
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Problem 4.1 (Sunnyvale)
 

Middleton Clinic had total assets of $500,000 and an equity balance of $350, 000 at the end of 2010. One year later, at the end of 2011, the clinic had $575,000 in assets and $380, 000 in equity. What was the clinic’s dollar growth in assets during 2011, and how was this growth financed?
 
Problem 4.6: Consider this balance sheet:
Green Valley Nursing Home In.
Balance Sheet
December 31, 2011
Assets
Current Assets
 

Cash $105,737
Investments 200,000
Net patient accounts receivable 215,600
Suppliers 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 Shareholder’s Equity
Current liabilities
 

Accounts payable $ 72,250
Accrued expenses 192,900
Notes payable 180,000
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 $2502.992
 

a. How does the balance sheet differ from the ones presented in Exhibit 4.1and Problem 4.5?
b. What Is Green Valley’s net working capital for 2011?
c. What is Green Valley’s debt ratio? How does it compare with the debt ratios from Sunnyvale and BestCare?
d. Problem 17.4
e. Consider the following financial statements for BestCare HMO, a not-for-profit managed care plan
 

BestCare HMO
statement of Operations and Chang 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
Expenses: Salaries and benefits $15,154
Medical supplies and drugs 7,507
Insurance 3,963
Provision for bad debts 19
Depreciation 367
Interest385
Total Expenses $27, 395
Net income 1,218
Net assets, beginning of year 900
Net assets, end of year 2,118
 
f. Assets
Cash and cash equivalents $2,737
Net premiums receivable 821
Supplies 387
Total Current assets $3,945
Net property and equipment $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 $9,869
 

a. Perform a Du Pont analysis on BestCare. Assume that the industry average ratios are as follows
 

Total margins 38%
Total asset 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 80%
Current ratio 1.3
Days cash on hand 41 days
Average collection period 7 days
Debt ratio 69%
Debt-to-equity ratio 2.2
g. Times interest earned (TIE) ratio 2.8
Fixed asset turnover ratio 5.2
 
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