1 qn in finance

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17.4 – 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, 2011

 

 

 

                  (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, 2011

 

 

 

                  (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 (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 (ROA)

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 (TIE) ratio

2.8

 

Fixed asset turnover ratio

5.2

 

 

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