Chapter 13 -- Financial Condition Analysis
Problem 1
Southwest Physicians, a medical group practice, is just being formed. It will need $2 million of total assets to generate $3 million in revenues. Furthermore, the group expects to have a profit margin of 5 percent.
The group is considering two financing alternatives. First, it can use all-equity financing by requiring each physician to contribute his or her pro rata share. Alternatively, the practice can finance up to 50 percent of its assets with a bank loan.
Assuming that the debt alternative has no impact on the expected profit margin, what is the difference between the ROE if the group finances with 50 percent debt versus the ROE if it finances entirely with equity capital?
Problem 2
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 |
|
Problem 3
Palm Viewl Hospital has the following financial data and operational metrics:
| Palm Viewl Hospital has the following financial data and operational metrics: |
| Number of beds |
350 |
|
| Total inpatient admissions |
12,250 |
|
| Total outpatients visits |
90,754 |
|
| Total patient revenues |
$111,900,060 |
|
| Outpatient mix |
16.20% |
|
| Medicare payment percentage (revenues) |
28.00% |
|
| Average length of stay (in days) |
6.5 |
|
| Net price per discharge |
$7,653 |
|
| Cost per discharge |
$6,292 |
|
a. Calculate the hospital's profit per discharge?
b. Calculate the hospital's total outpatient revenues and the total inpatient revenues? (Hint: Use the outpatient mix metric.)
c. Verify your Part b answer for total inpatient revenues using volume and profitability metrics. (Hint: Calculate price per discharge.)
d. What are the hospital's total revenues from Medicare patients?
e. On average, what is the total number of inpatient days?
f. What is then hospital's occupancy rate?
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