322 assessment 4 finan

· Assessment #4: Case Study of Financial Analysis and Operating Ratios

Assessment #4: Case Study of Financial Analysis and Operating Ratios (15%)

In this assessment you will use the income statement and balance sheet information identified below and evaluate the firm's financial condition based on three profitability ratios: a) Total Margin, b) Return on Assets and c) Return on Equity.  You will also conduct a DUPONT ANALYSIS using the information on the financial statements.   You will be graded based on your understanding of the 3 ratios analyzed and the DUPONT ANALYSIS, the accuracy of your calculations, the validity of you conclusions and your ability to clearly communicate your analysis. To complete this assignment, follow these steps.

1. Review Chapter 17 in the Gapinski textbook and Chapter 14 in the Nowicki textbook.  

2. Examine the Statement of Operations and Balance Sheet provided as part of Problem 17.4 at the end of Chapter 17 in Gapenski textbook. ( Listed Below)

3. From this financial information calculate the three profitability ratios: a) Total Margin, b)Return on Assets and c) Return on equity and conduct a Dupont Analysis based on the financial statement information above

4. Write a SHORT paper in the following format:

             Cover page with your name, class/section and instructor’s name

1. For each ratio, in a paragraph: define the ratio, explain what it measures, show your calculation and explain what the ratio tells you about your organization’s health and any limitations of using the ratio.

2. Explain the importance of a Dupont Analysis

3. Write a conclusion about your organization’s financial condition based on your ratio analysis. Use Industry benchmarks provided in Problem 17.4 of Gapenski.

4. Describe and discuss the use of operating indicators in additional to financial ratios in measuring financial performance.

17.4

Consider the following financial statements for BestCare HMO, a not-for-profit managed care plan: Open table as spreadsheet BestCare HMO Statement of Operations and Change in Net Assets Year Ended June 30, 2007 (in thousands) Revenue:     Premiums earned $26,682   Co-insurance 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 June 30,2007 (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