need to figure out part a and b. Consider the following financial statements for
ID: 2773163 • Letter: N
Question
need to figure out part a and b.
Consider the following financial statements for BestCare HMO, a not-for-profit managed care plan:
BestCare HMO
Statement of Operations and Change in Net Assets
Year Ended June 30, 2012
(in thousands)
Revenue:
Premiums earned $26,682
Coinsurance $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
Interest $385
Total expenses $27,395
Net income $1,218
Net assets, beginning of year $900
Net assets, end of year $2,118
BestCare HMO
Balance Sheet
Year Ended June 30, 2012
(in thousands)
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 - unrestricted (equity) $2,118
Total liabilities and net assets $9,869
a. Perform a Du Pont analysis on BestCare. Assume that the industry average ratios are as follows:
Total margin 3.8%
Total asset turnover 2.1
Equity multiplier 3.2
Return on equity (ROE) 25.5%
b. calculate and interpret the following ratios for BestCare:
Industry Average
Return on assets 8.0%
Current Ratio 1.3
Days cash on hand 41 days
Average collection period 7 days
Debt ratio 69%
Debt-to-equity ratio 2.2
Times interest earned ratio 2.8
Fixed asset turnover ratio 5.2
Explanation / Answer
(1) Total margin = Net Income/Revenue = 1218/28613 =4.26%
(2) Total Asset turnover = Revenue/Assets = 28613/9,869 = 2.9
(3)Return on equity =1218/ 2118 = 57.51%
(4) Return on assets = 1218 / 9869 = 12.34%
(5) Current ratio = 3,945/ 3,456 = 1.14
Net premiums receivable 821 Supplies 387
(6) days in Inventory = 387*365/(3,963 = 3.65
days in Receivable = 821*365/28619=10.47
days in Payables = 141*365/3963 = 12.98
Days cash on hand =10.47 + 3.65 - 12.98 = 1.14 days
(7) Average collection period 7days = 10.47 days
(8) Debt ratio = ( 241 + 4,295)/9869 = 0.46
(9) Times interest earned ratio = (1218 - 385)/ 385 = 2.164
(10) Fixed asset turnover ratio =28619/$5,924 (Land) = 4.831
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