Financial Analysis Case Study Complete Case 1, River Community Hospital (A): Rev
ID: 2718600 • Letter: F
Question
Financial Analysis Case Study
Complete Case 1, River Community Hospital (A):
Review Case 1, pages 3--12, You will find a case spreadsheet model via the Student Spreadsheets.
Write a case review that assesses hospital financial performance. Your review should be approximately three pages.
CASE 1 Student Version Copyright 2014 Health Administration Press 11/28/2015 RIVER COMMUNITY HOSPITAL (A) Assessing Hospital Performance Case 1 presents the opportunity to conduct an extensive financial statement and operating indicator analysis on a 210-bed not-for-profit hospital. The case includes statement of cash flows analyses, Du Pont analyses, ratio analyses, and economic value added analyses. The instructor version of the model is the same as this model. The key to student success in this case lies in interpretation of the data presented rather than number crunching. However, there is ample opportunity for students to extend the model to include percentage change analysis and common size analysis, as well as to create graphs (charts) as needed to present their findings. Note that the industry data used in this case are for instructional use only, and do not represent actual industry data for the time period of the case. Statements of Operations (Millions of Dollars): Revenues 2011 2012 2013 Net patient service revenue $ 28.796 $ 30.576 $ 34.582 Other revenue 1.237 1.853 1.834 Total revenues $ 30.033 $ 32.429 $ 36.416 Expenses Salaries and wages $ 12.245 $ 12.468 $ 13.994 Fringe benefits 1.830 2.408 2.568 Interest expense 1.181 1.598 1.776 Depreciation 2.350 2.658 2.778 Medical supplies and drugs 0.622 0.655 0.776 Professional liability 0.140 0.201 0.218 Other 9.036 10.339 11.848 Total expenses $ 27.404 $ 30.327 $ 33.958 Net income $ 2.629 $ 2.102 $ 2.458 Balance Sheets (Millions of Dollars): Assets 2011 2012 2013 Cash and investments $ 4.673 $ 5.069 $ 2.795 Accounts receivable (net) 4.359 5.674 7.413 Inventories 0.432 0.523 0.601 Other current assets 0.308 0.703 0.923 Total current assets $ 9.772 $ 11.969 $ 11.732 Gross plant and equipment $ 47.786 $ 55.333 $ 59.552 Accumulated depreciation 11.820 14.338 17.009 Net plant and equipment $ 35.966 $ 40.995 $ 42.543 Total assets $ 45.738 $ 52.964 $ 54.275 Liabilities and Net Assets Accounts payable $ 0.928 $ 1.253 $ 1.760 Accruals 1.460 1.503 1.176 Current portion of long-term debt 0.110 1.341 1.465 Total current liabilities $ 2.498 $ 4.097 $ 4.401 Long-term debt $ 15.673 $ 19.222 $ 17.795 Net assets $ 27.567 $ 29.645 $ 32.079 Total liabilities and net assets $ 45.738 $ 52.964 $ 54.275 Statements of Cash Flows (Millions of Dollars): Cash Flows from Operating Activities 2012 2013 Net income $ 2.102 $ 2.458 Depreciation 2.633 2.756 Change in accounts receivable (1.315) (1.739) Change in inventories (0.091) (0.078) Change in other current assets (0.395) (0.220) Change in accounts payable 0.325 0.507 Change in accruals 0.043 (0.327) Net cash flow from operations $ 3.302 $ 3.357 Cash Flows from Investing Activities Investment in plant and equipment $ (7.686) $ (4.328) Cash Flows from Financing Activities Change in long-term debt $ 3.549 $ (1.427) Change in current portion of long-term debt 1.231 0.124 Net cash flow from financing $ 4.780 $ (1.303) Net increase (decrease) in cash and investments $ 0.396 $ (2.274) Beginning cash and investments 4.673 5.069 Ending cash and investments $ 5.069 $ 2.795 Note: The depreciation and fixed asset acquisitions data in the statements of cash flows are somewhat different than they would be if calculated directly from the other financial statements because of asset revaluations. Operating Revenue and Expense Allocation (Millions of Dollars): 2011 2012 2013 Operating revenue Gross inpatient service $ 26.117 $ 29.148 $ 33.216 Gross outpatient service 6.535 9.130 11.912 Gross patient service revenue $ 32.652 $ 38.278 $ 45.128 Contractual allowances $ 1.729 $ 5.196 $ 7.516 Bad debt and charity care 2.127 2.506 3.030 Total revenue deductions $ 3.856 $ 7.702 $ 10.546 Net patient service revenue $ 28.796 $ 30.576 $ 34.582 Operating expenses Inpatient service $ 20.573 $ 22.229 $ 24.771 Outpatient service 6.831 8.098 9.187 Total operating expenses $ 27.404 $ 30.327 $ 33.958 Selected Operating Data: 2011 2012 2013 Medicare discharges 2,721 2,860 2,741 Total discharges 8,784 8,318 8,576 Outpatient visits 32,285 32,878 36,796 Licensed beds 210 210 210 Staffed beds 193 197 178 Patient days 44,085 42,434 40,062 All-payer Case Mix Index 1.2869 1.2993 1.3161 Full-time equivalents 610.8 625.8 619.3 Selected Financial Ratios: 2013 Industry Data (200-299 Beds) 2011 2012 2013 +Quartile Median -Quartile Profitability Ratios Total margin 8.75% 6.48% 6.75% 5.58% 3.48% 0.53% Return on assets 5.75% 3.97% 4.53% 5.80% 3.10% 0.40% Return on equity 9.54% 7.09% 7.66% 15.66% 6.01% 0.62% Deductible ratio 0.12 0.20 0.23 0.34 0.26 0.18 Liquidity Ratios Current ratio 3.91 2.92 2.67 2.53 1.99 1.48 Days cash on hand 68.08 66.87 32.72 32.35 15.89 6.24 Debt Management Ratios Debt ratio 39.73% 44.03% 40.90% 62.90% 48.40% 35.20% Debt to equity 56.85% 64.84% 55.47% 127.00% 64.70% 26.90% Times interest earned 3.23 2.32 2.38 4.29 2.23 1.14 Cash flow coverage 5.22 3.98 3.95 5.32 3.22 1.76 Asset Management Ratios Fixed asset turnover 0.84 0.79 0.86 2.20 1.76 1.49 Total asset turnover 0.66 0.61 0.67 1.04 0.89 0.75 Current asset turnover 3.07 2.71 3.10 3.94 3.38 2.88 Days in patient accounts receivable 55.25 67.73 78.24 87.53 75.67 63.33 Average payment period (days) 36.39 54.05 51.52 71.24 56.52 45.84 Other Ratios Average age of plant (years) 5.03 5.39 6.12 8.86 7.39 6.14 Selected Operating Indicators: 2013 Industry Data (200-299 Beds) 2011 2012 2013 +Quartile Median -Quartile Profit Indicators Profit per inpatient discharge $280.03 $126.72 $79.61 $89.04 ($21.30) ($120.08) Profit per outpatient visit ($33.07) ($24.49) ($1.60) $6.22 $0.66 ($7.01) Net Revenue Indicators Net revenue per discharge $2,622 $2,799 $2,968 $4,091 $3,411 $2,815 Net revenue per visit $179 $222 $248 $201 $139 $98 Medicare revenue percentage 30.98% 34.38% 31.96% 43.47% 36.60% 31.25% Bad debt / charity care percentage 6.51% 6.55% 6.71% 7.89% 4.76% 2.97% Contractual allowance percentage 5.30% 13.57% 16.65% 25.27% 20.02% 12.12% Outpatient revenue percentage 20.01% 23.85% 26.40% 25.26% 21.03% 17.44% Volume Indicators Occupancy rate 62.58% 59.01% 61.66% 67.12% 58.10% 47.84% Average daily census 120.78 116.26 109.76 173.23 144.73 114.39 Length of Stay Indicators Average length of stay (days) 5.02 5.10 4.67 6.80 6.07 5.41 Adjusted length of stay 3.90 3.93 3.55 6.48 5.36 4.52 Expense Indicators Expense per discharge $2,342 $2,672 $2,888 $3,937 $3,392 $2,972 Expense per adjusted discharge $1,820 $2,057 $2,195 $3,417 $2,924 $2,572 Expense per visit $212 $246 $250 $202.23 $141.97 $111.53 All-payer Case Mix Index 1.2869 1.2993 1.3161 1.2795 1.1756 1.0259 Efficiency Indicators FTEs per occupied bed 4.04 4.10 4.15 4.59 4.15 3.77 Labor hours/visit 7.88 9.44 9.24 8.66 5.84 4.68 Unit Cost Indicators Salary per FTE $20,047 $19,923 $22,596 $24,447 $22,517 $20,347 Fringe benefits percentage 14.94% 19.31% 18.35% 19.58% 17.04% 15.18% Liability expense per discharge $15.94 $24.16 $25.42 $80.94 $42.05 $18.31 Note: The quartile values are based on the upper and lower numerical values regardless of whether that value is good or bad. The interpretation is left to the analyst.Explanation / Answer
After Looking at Statement of Operation we can notice that the Net Income though is Positive it has not recovered afer the Previous year fall as far as % of Revenue. Though the revenue is showing continous growth the Net income has come done compare to two years back. Another Factor to notice is the Net Income compare to Assets of the company which has improved compared to last year however I was much better a year before Previous year . This shows that top to bottom growth is not consistant and Expenses needs to be checked out most likely the Fringe Benefits. Return on Equity which is in the range of 7% to 9 % needs to be comapared with the economic growth rates and interest rates prevailng in the market and though the trend is not so good actual profit making process of the Operation is still there. 7-8 % retun can be considered good for a non profit making organisation
Balance Sheet & Cash Flow- Looking at the balance sheet one thing which is a concern is the increasing Accounts receivable with decreasing cash and cash equivalents and thus showing that the collection Process is not showing desired result as cash position has come down by 40% in 2 years. Operating Revenue and Expense Allocation shows that there is an acceleration in the Gross outpatient service which gives an opportunity to convert these services more efficiently to increase the revenue. Contractual allowances is another area which needs to control as the cost has gone too high in two years.
Most of the Financial Ratios shown in the case shows a downward trend specially Previous year and a recovery this year however not upto the level where it was prior to previous year however as per the benchmarking the ratios are goods and represent better position if standards are considered example Current ratio though gone down from 3.91 to 2.67 in two years but still it is better than the standards which is 2 ideally . Profitability Ratios which we already discussed shows downward trend. Among Debt Management Ratios are Debt to equity ratios are average however Times Interest earned is Solid with Good 3.23 though slipping to 2.38 this year . Asset turnover ratios are fine however the biggest concern is the Days Accounts receivable which has gone way to high from 55.25 to 78.24 days which will increase the risk of Bad debts
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