FINANCE-Best Care HMO Statement of Operations and Change in Net Assets Year Ended

Question
Best Care 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 $26,613

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 $27,395

Net Income $1,218

Net assets, beginning of year 900

Net assets, end of year $2,118

Best Care HMO Balance Sheet June 30, 2011 ( in thousands )

Assets

Cash and cash equivalents $2,737

Net premiums receivable 825

Supplies

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 ratio 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