1 qn finance 0

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