Consider the following balance sheet:
BestCare HMO
Balance Sheet
June 30, 2011
(in thousands)
Assets
Current Assets:
Cash $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 payableâmedical
Services $2,145
Accrued expenses 929
Notes payable 382
Total current liabilities $3,456
Long-term debt $4,295
Total liabilities $7,751
Net assetsâunrestricted
(equity) $2,118
Total liabilities and net
Assets $9,869
Consider the following financial statements for Green Valley Nursing Home, Inc. a for profit long-term care facility:
Green Valley Nursing Home Inc.
Balance Sheet
December 31, 2011
Assets
Current assets:
Cash $105,737
Marketable securities 200,000
Net patient accounts receivables 215,600
Supplies 87,655
Total current assets $608,992
Property and equipment $2,250,000
Less accumulated depreciation 356,000
Net property and equipment $1,894,000
Total assets $2,502,992
Liabilities and Shareholder?s Equity
Current liabilities:
Accounts payable $72,250
Accrued expenses 192,900
Notes payable 100,000
Current portion of long-term debt 80,000
Total current liabilities $445,150
Long term debt $1,700,000
Shareholders? Equity:
Common stock, $10 par value $100,000
Retained earnings 257,842
Total shareholder?s equity $357,842
Total liabilities and shareholders? equity $2,502,992
A. WHAT IS THE PRIMARY DIFFERENCE BETWEEN THESE 2 STATEMENTS
c. What was Green Valley's total debt ratio?************************************* Current liabilities LT liabilities Total liabilities (debt) Total assets Total debt ratio
Consider the following balance sheet:
BestCare HMO
Balance Sheet
June 30, 2011
(in thousands)
Assets
Current Assets:
Cash $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 payableâmedical
Services $2,145
Accrued expenses 929
Notes payable 382
Total current liabilities $3,456
Long-term debt $4,295
Total liabilities $7,751
Net assetsâunrestricted
(equity) $2,118
Total liabilities and net
Assets $9,869
Consider the following financial statements for Green Valley Nursing Home, Inc. a for profit long-term care facility:
Green Valley Nursing Home Inc.
Balance Sheet
December 31, 2011
Assets
Current assets:
Cash $105,737
Marketable securities 200,000
Net patient accounts receivables 215,600
Supplies 87,655
Total current assets $608,992
Property and equipment $2,250,000
Less accumulated depreciation 356,000
Net property and equipment $1,894,000
Total assets $2,502,992
Liabilities and Shareholder?s Equity
Current liabilities:
Accounts payable $72,250
Accrued expenses 192,900
Notes payable 100,000
Current portion of long-term debt 80,000
Total current liabilities $445,150
Long term debt $1,700,000
Shareholders? Equity:
Common stock, $10 par value $100,000
Retained earnings 257,842
Total shareholder?s equity $357,842
Total liabilities and shareholders? equity $2,502,992
A. WHAT IS THE PRIMARY DIFFERENCE BETWEEN THESE 2 STATEMENTS
| c. What was Green Valley's total debt ratio?************************************* | |
| Current liabilities | |
| LT liabilities | |
| Total liabilities (debt) | |
| Total assets | |
| Total debt ratio |
Related questions
Consider the following financial statements for Vitalogy HMO, afor-profit managed care plan based in Seattle, WA:
Vitalogy HMO
Income Statement
Year Ended June 30, 2XXX
(in thousands)
2014 | 2015 | |||
Revenue: | ||||
Premiums earned | $ 26,682 | $ 30,500 | ||
Coinsurance | $ 1,689 | $ 2,430 | ||
Interest and other income | $ 242 | $ 200 | ||
Total revenue | $ 28,613 | $ 33,130 | ||
Expenses: | ||||
Salaries and benefits | $ 15,458 | $ 18,543 | ||
Medical supplies and drugs | $ 7,507 | $ 8,200 | ||
Insurance | $ 3,963 | $ 4,250 | ||
Provision for bad debts | $ 19 | $ 54 | ||
Depreciation | $ 367 | $ 485 | ||
Interest | $ 385 | $ 452 | ||
Total expenses | $ 27,699 | $ 31,984 | ||
Operating Income | $ 914 | $ 1,146 | ||
Income Taxes | $ 366 | $ 458 | ||
Net income | $ 548 | $ 688 | ||
Vitalogy HMO
Balance Sheet
Year Ended June 30, 2###
(in thousands)
2014 | 2015 | |||
Assets | ||||
Cash and cash equivalents | $ 737 | $ 853 | ||
Net premiums receivable | $ 821 | $ 200 | ||
Supplies | $ 387 | $ 1,008 | ||
Total current assets | $ 1,945 | $ 2,061 | ||
Net property and equipment | $ 5,924 | $ 8,765 | ||
Total assets | $ 7,869 | $ 10,826 | ||
Liabilities and Net Assets | ||||
Accounts payable - medical services | $ 2,145 | $ 2,245 | ||
Accrued expenses | $ 929 | $ 1,005 | ||
Total current liabilities | $ 3,074 | $ 3,250 | ||
Long-term debt | $ 1,295 | $ 1,095 | ||
Total liabilities | $ 4,369 | $ 4,345 | ||
Shareholder's Equity | $ 3,500 | $ 6,481 | ||
Total liabilities and net assets | $ 4,369 | $ 10,826 | ||
Questions
During fiscal year 2015 Vitology made a significant investmentin Plants and Equipment. As can be seen from the Balance Sheet theNet property and equipment went up by $2841.
A) How did they finance this investment? Discuss your answer inthe context of the balance sheet.
B) Assess the impact of this decision versus an alternativefinancing decision using three profitability (total margin, ROE,ROA) and two liquidity ratios (Current Ratio and Days Cash on Hand):
C) How would these ratios change if they used an alternativefinancing strategy than the one you answered in a? (4 points)
(Hint: if you answered debt in a, discuss the implications ofusing equity instead. Or, if you answered equity in a, discuss theimplications of using debt equity instead.)
No calculations necessary just say how the ratios would change:increase, decrease, or no change. The interpretation theimplications of the change on liquidity and profitability.
D) Recommend a debt-equity financing mix and discuss the prosand cons of your recommendation.
