Final Assignment - Financial Analysis of Riverview Community Hospital
At our last class we examined the hospital's statements of cash flows over a four year period and identified the following trends as a first step in understanding the financial condition of Riverview Hospital:
1. From 2006 to 2009, the hospital's net cash flow from operations decreased by over 50 percent. This is by far the most significant element of information in these statements.
2. Also, over this period the hospital spent an average of almost $6 million dollars per year on fixed asset additions. Because the hospital had about $40 million in book value fixed assets at the beginning of this period, this investment represents a significant increase (almost 50 percent). However, the hospital remained at 210 licensed beds throughout this period, so the fixed asset additions were probably used to upgrade existing inpatient facilities and/or to upgrade or expand outpatient facilities. (The number of staffed beds actually declined from 192 to 178.)
3. Regarding financing activities, the hospital increased its use of long-term debt on net by $1,836,000 over the period, which is modest considering its substantial investment in fixed assets.
4. The end result of these activities was a decrease in the cash balance over the three years of about $3 million, which accounts for some of the funding of new fixed assets. (The remainder came from operating cash flows.)
Please complete the questions below. Your work must be typed in Word or Excel and handed in at the last class on December 15. Please be prepared to talk about the results of your financial results, your assessment of the hospital's strengths and weaknesses and your recommendation to the board.
A. Financial Ratios
Operating Margin
Days in patient accounts receivable
Answer the questions below for each of the financial ratios. Refer to the case study, the excel spreadsheet and your text book for assistance.
1. How is the ratio calculated? Please write the formula for each ratio listed above.
2. What does each ratio tell the reader about the financial condition of the company?
3. How does the 2009 result of each ratio compare to the Median Industry Benchmark?
4. What does the trend of each ratio indicate?
Please note, if the formula is not in the book, you can see how the formula is calculated by referring to the excel spreadsheet.
B. Operating Ratios
FTEs per occupied bed
Outpatient labor hours per visit
1. How is the ratio calculated? Please write the formula for each ratio listed above.
2. What does each ratio tell the reader about the financial condition of the company?
3. How does the 2009 result of each ratio compare to the Median Industry Benchmark?
4. What does the trend of each ratio indicate?
Please note, if the formula is not in the book, you can see what financial statement line items are used in the calculation by referring to the excel spreadsheet.
C. Referring to the Case Study, list two (2) strengths of the hospital and two (2) weaknesses of the hospital. Explain your answer.
D. If you were the CFO of the hospital, what recommendations would you make to the Board of Trustees to address the identified weaknesses or capitalize on the identified strengths?