Exhibit 4.16a Key Financial Ratios Liquidity ratios Formulas Current ratio Curre
ID: 2779096 • Letter: E
Question
Exhibit 4.16a Key Financial Ratios
Liquidity ratios Formulas
Current ratio Current Assets / Current Liabilities
Quick ratio (Cash + Marketable Securities + Net Receivables) / Current Liabilities
Acid test ratio (Cash + Marketable Securities) / Current Liabilities
Days in accounts receivable Net Patient Accounts Receivables / (Net Patient Revenues / 365)
Days cash on hand [(Cash + Marketable Securities + Long-Term Investments/Operating Expenses Depreciation and Amortization Expenses) / 365]
Average payment period, days Current Liabilities / [(Operating Expenses Depreciation and Amortization Expenses) / 365]
Revenues, expenses, and profitability Formulas
Operating revenues per adjusted discharge Total Operating Revenues / Adjusted Discharges
Operating expense per adjusted discharge Total Operating Expenses / Adjusted Discharges
Salary and benefit expense as percentage of operating expense Total Salary and Benefit Expense / Total Operating Expenses
Operating margin Operating Income / Total Operating Revenues
Nonoperating revenue ratio Nonoperating Revenues and Other Income / Total Operating Revenues
Return on total assets Excess of Revenues over Expenses / Total Assets
Return on net assets Excess of Revenues over Expenses / Net Assets
Activity Ratios Formulas
Total asset turnover ratio Total Operating Revenues / Total Assets
Net fixed assets turnover ratio Total Operating Revenues / Net Plant and Equipment
Age of plant ratio Accumulated Depreciation / Depreciation Expense
Capital Structure ratios Formulas
Long-term debt to net assets ratio Long-Term Debt / Net Assets
Net assets to total assets ratio Net Assets / Total Assets
Times interest earned ratio (Excess of Revenues over Expenses + Interest Expense) / Interest Expense
Debt service coverage ratio (Excess of Revenues over Expenses + Interest Expense + Depreciation and Amortization Expenses) / (Interest Expense + Principal Payments)
a Adjusted Discharges = (Total Gross Patient Revenue / Total Gross Inpatient Revenues) × Total Discharges. b In for-profit health care organizations, calculated as Net Income / Total Assets.
c Called return on equity in for-profit health care organizations, and calculated as Net Income / Owners’ Equity. d Called long-term debt to equity in for-profit health care organizations, and calculated as Long-Term Debt / Owners’ Equity.
e Called equity to total assets in for-profit health care organizations, and calculated as Owners’ Equity / Total Assets.
f In for-profit health care organizations, calculated as (Net Income + Interest Expense) / Interest Expense.
g In for-profit health care organizations, calculated as (Net Income + Interest Expense + Depreciation and Amortization Expenses) / (Interest Expense + Principal Payments
Horizontal, vertical, and ratio analyses. Exhibits 4.27a and 4.27b show the statement of operations and balance sheet for the 310-bed Wakeland Community Hospital for 20X0 and 20X1. Adjusted discharges for 20X0 and 20X1 are 25,000 and 26,000, respectively.
a. Perform a horizontal analysis on both statements.
b. Perform a vertical analysis on both statements relative to 20X0
c. Compute all the selected ratios listed in Exhibit 4.16a, and compare them with the industry benchmarks.
Using these financial performance measures, evaluate the financial state of Wakeland Community. The debt principal payments each year are $5.5 million, whereas adjusted discharges, as mentioned, are 25,000 in 20X0 and 26,000 in 20X1.
EXHIBIT 4.27a STATEMENT OF OPERATIONS FOR WAKELAND COMMUNITY HOSPITAL
Wakeland Community Hospital
Statement of Operations for the Years Ended December 31, 20X1 and 20X0 (in thousands)
Particulars
20x1
20x0
Revenues
Net patient service revenue
$225,000
$210,000
Other operating revenue
6,400
5,700
Total operating revenues
231,400
215,700
Operating expenses
Salaries and benefits
124,173
110,167
Supplies and other expenses
85,000
61,000
Depreciation
12,000
11,300
Interest
4,500
2,500
Total operating expenses
225,673
184,967
Income from operations
5,757
30,733
Nonoperating income
Investment income/contributions
7,500
8,500
Excess of revenue over expenses
13,227
39,233
Net Income
13,227
39,233
Exhibit 4.27b Balance Sheet for Wakeland Community Hospital
Particulars
20x1
20x0
Current assets
Cash and cash equivalents
$40,500
$35,500
Net patient A/R
39,500
36,400
Inventories
3,800
4,000
Other current assets
6,500
5,200
Total current assets
90,300
81,100
Plant, property, and equipment
Gross plant, property, and equipment
215,000
175,500
Less Accumulated depreciation)
(65,000)
(107,000)
Net property, plant, and equipment
12,000
11,300
Interest
4,500
2,500
Total operating expenses
225,673
184,967
Income from operations
5,757
30,733
Funded depreciation/board-designated funds
Cash and short-term investments
185,000
110,000
Total assets
$425,300
$259,600
Current liabilities
Account Payable
$14,500
$8,500
Salaries payable
4,500
3,500
Notes payable
4,300
4,500
Total current liabilities
23,300
16,500
Long-term liabilities
Bonds payable
60,000
27,500
Total long-term liabilities
60,000
27,500
Net assets
342,000
215,600
Total liabilities and assets
$425,300
$259,600
Particulars
20x1
20x0
Revenues
Net patient service revenue
$225,000
$210,000
Other operating revenue
6,400
5,700
Total operating revenues
231,400
215,700
Operating expenses
Salaries and benefits
124,173
110,167
Supplies and other expenses
85,000
61,000
Depreciation
12,000
11,300
Interest
4,500
2,500
Total operating expenses
225,673
184,967
Income from operations
5,757
30,733
Nonoperating income
Investment income/contributions
7,500
8,500
Excess of revenue over expenses
13,227
39,233
Net Income
13,227
39,233
Explanation / Answer
(a) Horizontal analysis
(b) Vertical analysis
NOTE: There are 3 multi-part questions out of which the first 2 are answered in full.
STATEMENT OF OPERATIONS 20x1 ($) 20x1 (Common Size) 20x0 ($) 20x0 (Common Size) Revenues Net patient service revenue 2,25,000 107 2,10,000 100 Other operating revenue 6,400 112 5,700 100 Total operating revenues 2,31,400 107 2,15,700 100 Operating expenses Salaries and benefits 1,24,173 113 1,10,167 100 Supplies and other expenses 85,000 139 61,000 100 Depreciation 12,000 106 11,300 100 Interest 4,500 180 2,500 100 Total operating expenses 2,25,673 122 1,84,967 100 Income from operations 5,757 19 30,733 100 Nonoperating income 7,500 88 8,500 100 Investment income/contributions 13,227 34 39,233 100 Net Income 13,227 34 39,233 100Related Questions
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