Sara Williams has recently applied for the position of administrator of Winter P
ID: 2783081 • Letter: S
Question
Sara Williams has recently applied for the position of administrator of Winter Park Rehabilitation and Nursing Home and has been invited for an interview. Because Sara wants to be well prepared for the interview, she compiled the following 2016 financial data for Winter Park Rehabilitation and Nursing Home with the intent of performing a rough financial condition analysis.
Total revenue
$20,264,268
Net income
$1,215,856
Total assets
$13,509,512
Total liability
$6,004,228
Also, she identified the following industry average data:
Total margin
5.2%
Total asset turnover
1.4
Equity multiplier
2.3
Return on equity
13.5%
Using Du Pont analysis, what judgement should Sara make about Winter Park Rehabilitation and Nursing Home’s financial condition? Please show your work.
Total revenue
$20,264,268
Net income
$1,215,856
Total assets
$13,509,512
Total liability
$6,004,228
Explanation / Answer
Equity = Assets - Liabilities
Profit margin = Net profit / Revenue
Asset turnover = Revenue / Assets
Equity multiplier = Assets / Equity
Profit margin = 1215856 / 20264268 = 6% (better than industry)
Asset turnover = 20264268 / 13509512 = 1.5 (better than industry)
Equity = 13509512 - 6004228 = 7505284
Equity multiplier = 13509512 / 7505284 = 1.8 (Lower than industry)
Return on equity = Profit margin * Asset turnover * Equity multiplier
= 6.00% * 1.5 * 1.8 = 16.2% (Better than indutry)
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