esider the following 2014 and ll 2015. financial statements for BestCare HMO, a
ID: 2406953 • Letter: E
Question
esider the following 2014 and ll 2015. financial statements for BestCare HMO, a t-for-profit managed care plan: BestCare HMO Statement of Operations and Change in Net Assets, Year Ended June 30, 2015 (in thousands) Revenue $26,682 1,689 242 $28,613 Interest and other income Total revenues Expenses: Salaries and benefits Medical supplies and drugs Insurance Provision for bad debts Depreciation Interest Total expenses Net income $15,154 7,507 3,963 19 n croár it. ntory at ont urrent rbo of 11 $27,395 S 1,218 Net assets, beginning of year Net assets, end of year S 900 S 2,118 BestCare HMO Balance Sheet, June 30, 2015 (in thousands) Assets Cash and cash equivalents Net premiums receivable Supplies Total current assets Net property and equipment Total assets $2,737 821 387 $3,945 9,869 (continued)Explanation / Answer
.a Du pont analysis:
Return on equity=Total Margin*Asset Turnover ratio*Equity Multiplier
Return on Equity=(Net Income/Total revenue)*(Total revenue/Total Assets)*(Total Assets/Average Equity)
A
Net Income
$1,218
B
Total revenue
$28,613
C
Total assets
$9,869
D
Average Equity
1509
(900+2118)/2
E=A/B
Total margin
0.042568
F=B/C
Asset Turnover Ratio
2.899281
G=C/D
Equity Multiplier
6.54
H=E*F*G=A/D
Return on Equity
0.81
Return on Equity
81%
Total Margin of 4.3% is higher than industry average
Asset Turnover ratio at 2.9 is higher than industry average
Equity Multiplier at 6.5 is higher than industry average
Return on Equity at 81% is higher than industry average of25.5%
.b
Return on asset(ROA)= Net income/Total assets=1218/9869= 0.123417=12.3%
This is higher than Industry average
Current Ratio=(Current assets)/(Current Liabilities)=3945/3456=1.141493
Current Ratio is lower than Industry average
Days cash on hand=365/(Cash & cash equivalent/Current Liabilities)=365/(3456/2737)=365/1.262696
Days of cash in hand=289.0639days
Average collection period=365/(Sales/Receivable)=365/(28613/821)=365/34.8514
Average collection period= 10.47304 days
Average collection period is higher than industry average
Debt Ratio=Total Debt/Total asset=7751/9869=0.785389
Debt Ratio=78.5%
Debt ratio is higher than industry average
Debt to Equity ratio=Debt/Equity=7751/2118=3.659585
Debt to Equity ratio is higher than industry average
Times interest earned Ratio=Earning before interest and taxes/Interest expenses=(1218+385)/385=4.163636
Time interest earned ratio is higher than industry average
Fixed asset turnover ratio=Total Revenue/Fixed asset=28613/5924=4.830014
Fixed asset turnover ratio is lower than the industry average
A
Net Income
$1,218
B
Total revenue
$28,613
C
Total assets
$9,869
D
Average Equity
1509
(900+2118)/2
E=A/B
Total margin
0.042568
F=B/C
Asset Turnover Ratio
2.899281
G=C/D
Equity Multiplier
6.54
H=E*F*G=A/D
Return on Equity
0.81
Return on Equity
81%
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