Consider the following balance sheet: BestCare HMO Balance Sheet June 30, 2011 (
ID: 2384064 • Letter: C
Question
Consider the following balance sheet:
BestCare HMO
Balance Sheet
June 30, 2011
(in thousands)
Assets
Current Assets:
Cash $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 382
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. How does this balance sheet differ from the one presented in Exhibit 4.1 for Sunnyvale?
b. What is BestCare’s net working capital for 2011?
c. What is BestCare’s debt ratio? How does it compare with Sunnyvale’s debt ratio?
Exhibit 4.1
Assets 2011 2010 Current Assets Cash and cash equivalents $12,102.00 $6,486.00 Short term investments $10,000.00 $5,000.00 net patient accounts receivable $28,509.00 $25,927.00 investories $3,695.00 $2,302.00 total current assets $54,306.00 $39,715.00 long term investments $48,059.00 $25,837.00 net property and equipment $52,450.00 $49,549.00 total assets $154,815.00 $115,101.00 Liabilities and equity current liabilities notes payable $4,334.00 $3,345.00 account payable $5,022.00 $6,933.00 accrued expenses $6,069.00 $5,037.00 total current liabilitiees $15,425.00 $15,315.00 long term debt $85,322.00 $53,578.00 total liabilities $100,747.00 $68,893.00 Net assets (equity) $54,068.00 $46,208.00 total liabilities and equity $154,815.00 $115,101.00Explanation / Answer
Solution-a
The difference in the balance sheets for BestCare is that they do not have short and long term investments compared to Sunnyvale. Sunnyvales’s shot and long term investments make up for $58,059,000 of their assets.
BestCare also has net assets, which are unrestricted. What this means for BestCareis that they have funds that are derived from operating activities (retained earnings) and unrestricted contributions. In other words, funds that are not contractually required to be used for a specific purpose. Such funds, as they are generated, are available to Best Care to pay operating expenses, acquire new property and supplies, or for any other legitimate purpose.
Solution-b
Net Working Capital = Current Assets - Current Liabilities
Net Working Capital = $3,945,000 - 3,456,000
Net Working Capital = $489,000,000
Solution-c
Debt Ratio = Total Liabilities / Total Assets
Debt Ratio = $7,751 / 9,869
Debt Ratio = 0.7854
Comparision with Sunnyvale’s debt ratio?
Sunnyvale = Total Liabilities $100,747,000 / Total Assets $154,815,000 = 0.6508 = 65%
BestCare’s = Total Liabilities $7,751,000 / Total Assets $9,869,000 = 0.7854 = 79%
BestCare compares to Sunnyvale’s debt ratio in the fact that each dollar of assets was financed by 79 cents of debt, which is a 14% debt ratio difference.
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