1. Consider the following financial statements for Green Valley Nursing Home, Inc., a for-profit, long-term care facility:
Green Valley Nursing Home, Inc., Statement of Income and Retained Earning, Year Ended December 31, 2015
Revenue:
Net patient service revenue $3,163,258
Other revenue 106,146
Total revenues $3,269,404
Expenses:
Salaries and benefits $1,515,438
Medical supplies and drugs 966,781
Insurance 296,357
Provision for bad debts 110,000
Depreciation 85,000
Interest 206,780
Total expenses $3,180,356
Operating Income $ 89,048
Provision for income taxes 31,167
Net income $ 57,881
Retained earnings, beginning of year $ 199,961
Retained earnings, end of year $ 257, 842
Green Valley Nursing Home, Inc., Balance Sheet December 31, 2015
a. Perform a Du Pont analysis on Green Valley. Assume that the industry average ratios are as follows:
- Total margin 3.5%
- Total asset turnover 1.5
- Equity multiplier 2.5
- Return on equity (ROE) 13.1%
b. Calculate and interpret the following ratios:
____________________________________________Industry Average .
Return on assets (ROA) 5.2%
Current ratio 2.0
Days cash on hand 22 days
Average collection period 19 days
Debt ratio 71%
Debt-to-equity ratio 2.5
Times interest earned (TIE) ratio 2.6
Fixed asset turnover ratio 1.4
c. Assume that there are 10,000 shares of Green Valley's stock outstanding and that some recently sold for $45 per share.
- What is the firm's price/earnings ratio?
- What is its market/book ratio?
Price per share
P/E ratio = Earnings per share
Industry average =
Price per share
M/B ratio = Book value per share
Industry average =