Consider the following financial statements for BestCare HMO, a non-for-profit m
ID: 2766407 • Letter: C
Question
Consider the following financial statements for BestCare HMO, a non-for-profit managed care plan: (show your work)
BestCare HMO
Statement of Operations and Change in Net Assets
Year Ended June 30, 2011
(in thousands)
Revenue:
Premiums earned $26,682
Co-insurance $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
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 Du Pont analysis on BestCare. Assume that the industry average ratios are as follows:
Total margin3.8%
Total asset turn over2.1
Equity multiplier3.2
Return on equity (ROE)25.5%
b.Calculate and interpret the following ratios for BestCare:
Return on assets (ROA)8.0%
Current Ratio1.3
Days cash on hand41 days
Average collection period7 days
Debt ratio69%
Debt-to-equity ratio2.2
Times interest earned (TIE) ratio2.8
Fixed asset turnover ratio5.2
Explanation / Answer
Gross profit =28613 - (15154+7507) =5952
TIE = 5952 / 385 = 15.46
a) Best Care Industry total Margin 1218 / 28613 = 4.25% 3.80% Total assets turnover 28613/9869 = 2.90 times 2.10% Equity multiplier 28613 / 2118 = 13.51 3.20 Return on equity (ROE) 1218 / 2118 = 57.5 25.5% b) Return on assets 1218 / 9869 = 12.34% 8.0% Current Ratio 3945 / 3456 = 1.14 1.3 Days cash on hand 2737 / 28613 = 35 days 41 days Average collection period 821 / 28613 = 11 days 7 days Debt ratio 4295/ 9869 = 44% 69% Debt-to-equity ratio 4295/2118 = 2.03 2.20 Times interest earned (TIE) ratioGross profit =28613 - (15154+7507) =5952
TIE = 5952 / 385 = 15.46
2.80 Fixed asset turnover ratio 28613 / 5924 = 4.83 times 5.20Related Questions
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