AFM291 Chapter Notes - Chapter 4: Cash Flow, Net Income, Income Statement
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30 Dec 2013
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Business is based on the model of getting cash (1) financing: obtaining cash funding, borrowing or issuing shares (2) investing: using funding to buy assets (3) operating: utilizing assets and people to earn profits. Take on different levels of risk and find different opportunities. Financial statements should capture fundamental business activities and communicate them appropriately. Balance sheet aims to capture financing and investing activities. Cash flow statements looks at the interrelationship between activities. Income statement aims to capture operating and performance related activities. Provide a basis for predicting future performance. Help assess the risk/ uncertainty of achieving future cash flows. Net income is not point of estimate. Differing views of how to measure net income. Items that cannot be measured reliably are not reported in the income statement. Income numbers are affected by the accounting methods that are used. Need to evaluation content (integrity of the information and the sustainability)
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Profit and Loss Statement 2018
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1. Question is to identify gaps in funding for my propertyrental business of10 years, using my financial statements 2.Whatarea(s) do you notice a gap in funding (a shortfall in capitalneeded to fund future operations or projects)? Really evaluate,even if itâs $1,000 or $10,000; identify it. Evaluate those gaps todetermine the cause of those gaps. Prioritize your funding needs.Priority for Funding Gap in Funding Example 1. Initial inventoryUnsure ,Have not fully identified the amount of initial inventoryneeded. Example 2 Computer system $5,000 ,Do not have funding tocover this expense. 3 Submit matrix and a 2-page explanation foryour prioritization. HOW DO I IDENTIFY FUNDING GAPS, ( A SHORTFALLIN CAPITAL TO FUND FUTURE OPERATIONS Larry I assume they aretalking about gaps in working capital whn funding business cashflows.Larry
A fire destroyed your firmâs ending balance sheet and income statement after the year-end
but before the financial statements are released. However, you have been successful in obtaining the
numbers for the beginning balance sheet and the statement of cash flows, which are provided to you and
your team members in Excel format. Fields representing the missing balance sheet and income statement
are End of year2 in the Excel sheet
| CONSOLIDATED BALANCE SHEETS (USD $) | End of year 2 | End of year 1 | |
| In Thousands, unless otherwise specified | |||
| Current assets: | |||
| Cash and cash equivalents | ã | 598 | |
| Receivables, net | ã | 230 | |
| Inventories, net | ã | 2309 | |
| Other current assets | ã | 47 | |
| Total current assets | ã | 3184 | |
| Property and equipment, net of accumulated depreciation | ã | 1292 | |
| Assets held for sale | ã | 1 | |
| Goodwill | ã | 76 | |
| Intangible assets, net | ã | 29 | |
| Other assets, net | ã | 32 | |
| Assets, Total | ã | 4614 | |
| Current liabilities: | ã | 0 | |
| Current portion of long-term debt | ã | 0 | |
| Accounts payable | ã | 2030 | |
| Accrued expenses | ã | 380 | |
| Other current liabilities | ã | 150 | |
| Total current liabilities | ã | 2560 | |
| Long-term debt | ã | 604 | |
| Other long-term liabilities | ã | 239 | |
| Commitments and Contingencies | ã | 0 | |
| Stockholders Equity Attributable to Parent [Abstract] | ã | 0 | |
| Preferred stock, nonvoting, $00001 par value | ã | 0 | |
| Common stock, voting, $00001 par value | ã | 0 | |
| Additional paid-in capital | ã | 520 | |
| Treasury stock, at cost | ã | -27 | |
| Accumulated other comprehensive income (loss) | ã | 3 | |
| Retained earnings | ã | 715 | |
| Total stockholders equity | ã | 1210 | |
| Liabilities and Stockholders Equity, Total | ã | 4613 | |
| CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) | 12 Months Ended | ||
| In Thousands, except Per Share data, unless otherwise specified | Year 2 | ||
| Net sales | ã | ||
| Cost of sales, including purchasing and warehousing costs | ã | ||
| Gross profit | ã | ||
| Selling, general and administrative expenses | ã | ||
| Operating income | ã | ||
| Interest expense | ã | ||
| Other income, net | ã | ||
| Total other, net | ã | ||
| Income before provision for income taxes | ã | ||
| Provision for income taxes | ã | ||
| Net income | ã | ||
| CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) | 12 Months Ended | ||
| In Thousands, unless otherwise specified | Year 2 | ||
| Cash flows from operating activities: | |||
| Net income | $392 | ||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||
| Depreciation and amortization | 208 | ||
| Share-based compensation | 13 | ||
| Loss on property and equipment, net | 1 | ||
| Other | 2 | ||
| Provision for deferred income taxes | -2 | ||
| Excess tax benefit from share-based compensation | -16 | ||
| Increase Decrease in Operating Capital | |||
| Receivables, net | -32 | ||
| Inventories, net | -204 | ||
| Other assets | 11 | ||
| Accounts payable | 113 | ||
| Accrued expenses | 63 | ||
| Other liabilities | -4 | ||
| Net cash provided by operating activities | 545 | ||
| Cash flows from investing activities: | |||
| Purchases of property and equipment | -196 | ||
| Payments to Acquire Businesses, Gross | -186 | ||
| Sale of certain assets of acquired business | 19 | ||
| Proceeds from sales of property and equipment | 1 | ||
| Net cash used in investing activities | -362 | ||
| Cash flows from financing activities: | |||
| (Decrease) increase in bank overdrafts | -3 | ||
| Decrease in financed vendor accounts payable | 0 | ||
| Issuance of senior unsecured notes | 449 | ||
| Payment of debt related costs | -9 | ||
| Borrowings under credit facilities | 0 | ||
| Payments on credit facilities | 0 | ||
| Dividends paid | -18 | ||
| Proceeds from the issuance of common stock, primarily exercise of stock options | 4 | ||
| Tax withholdings related to the exercise of stock appreciation rights | -22 | ||
| Excess tax benefit from share-based compensation | 16 | ||
| Repurchase of common stock | -81 | ||
| Contingent payment accrued on acquisitions | 5 | ||
| Other | -1 | ||
| Net cash provided by (used in) financing activities | 331 | ||
| Net increase (decrease) in cash and cash equivalents | 514 | ||
| Cash and cash equivalents, beginning of period | 598 | ||
| Cash and cash equivalents, end of period | 1,112 | ||
| Supplemental cash flow information: | |||
| Interest paid | 35 | ||
| Income tax payments | 219 | ||
| Non-cash transactions: | |||
| Accrued purchases of property and equipment | 21 | ||
| Retirement of common stock | 0 | ||
| Contingent consideration accrued on acquisitions | 0 | ||
| Changes in other comprehensive income | 1 | ||
| Declared but unpaid cash dividends | $4 | ||
Financial Analysis Case Study
Complete Case 1, River Community Hospital (A):
Review Case 1, pages 3--12, You will find a case spreadsheet model via the Student Spreadsheets.
Write a case review that assesses hospital financial performance. Your review should be approximately three pages.
| CASE 1 | Student Version | Copyright 2014 Health Administration Press | |||||||
| 11/28/2015 | |||||||||
| RIVER COMMUNITY HOSPITAL (A) | |||||||||
| Assessing Hospital Performance | |||||||||
| Case 1 presents the opportunity to conduct an extensive financial statement and operating | |||||||||
| indicator analysis on a 210-bed not-for-profit hospital. The case includes statement of cash | |||||||||
| flows analyses, Du Pont analyses, ratio analyses, and economic value added analyses. | |||||||||
| The instructor version of the model is the same as this model. The key to student success in | |||||||||
| this case lies in interpretation of the data presented rather than number crunching. | |||||||||
| However, there is ample opportunity for students to extend the model to include percentage | |||||||||
| change analysis and common size analysis, as well as to create graphs (charts) as needed | |||||||||
| to present their findings. | |||||||||
| Note that the industry data used in this case are for instructional use only, and do | |||||||||
| not represent actual industry data for the time period of the case. | |||||||||
| Statements of Operations (Millions of Dollars): | |||||||||
| Revenues | 2011 | 2012 | 2013 | ||||||
| Net patient service revenue | $ 28.796 | $ 30.576 | $ 34.582 | ||||||
| Other revenue | 1.237 | 1.853 | 1.834 | ||||||
| Total revenues | $ 30.033 | $ 32.429 | $ 36.416 | ||||||
| Expenses | |||||||||
| Salaries and wages | $ 12.245 | $ 12.468 | $ 13.994 | ||||||
| Fringe benefits | 1.830 | 2.408 | 2.568 | ||||||
| Interest expense | 1.181 | 1.598 | 1.776 | ||||||
| Depreciation | 2.350 | 2.658 | 2.778 | ||||||
| Medical supplies and drugs | 0.622 | 0.655 | 0.776 | ||||||
| Professional liability | 0.140 | 0.201 | 0.218 | ||||||
| Other | 9.036 | 10.339 | 11.848 | ||||||
| Total expenses | $ 27.404 | $ 30.327 | $ 33.958 | ||||||
| Net income | $ 2.629 | $ 2.102 | $ 2.458 | ||||||
| Balance Sheets (Millions of Dollars): | |||||||||
| Assets | 2011 | 2012 | 2013 | ||||||
| Cash and investments | $ 4.673 | $ 5.069 | $ 2.795 | ||||||
| Accounts receivable (net) | 4.359 | 5.674 | 7.413 | ||||||
| Inventories | 0.432 | 0.523 | 0.601 | ||||||
| Other current assets | 0.308 | 0.703 | 0.923 | ||||||
| Total current assets | $ 9.772 | $ 11.969 | $ 11.732 | ||||||
| Gross plant and equipment | $ 47.786 | $ 55.333 | $ 59.552 | ||||||
| Accumulated depreciation | 11.820 | 14.338 | 17.009 | ||||||
| Net plant and equipment | $ 35.966 | $ 40.995 | $ 42.543 | ||||||
| Total assets | $ 45.738 | $ 52.964 | $ 54.275 | ||||||
| Liabilities and Net Assets | |||||||||
| Accounts payable | $ 0.928 | $ 1.253 | $ 1.760 | ||||||
| Accruals | 1.460 | 1.503 | 1.176 | ||||||
| Current portion of long-term debt | 0.110 | 1.341 | 1.465 | ||||||
| Total current liabilities | $ 2.498 | $ 4.097 | $ 4.401 | ||||||
| Long-term debt | $ 15.673 | $ 19.222 | $ 17.795 | ||||||
| Net assets | $ 27.567 | $ 29.645 | $ 32.079 | ||||||
| Total liabilities and net assets | $ 45.738 | $ 52.964 | $ 54.275 | ||||||
| Statements of Cash Flows (Millions of Dollars): | |||||||||
| Cash Flows from Operating Activities | 2012 | 2013 | |||||||
| Net income | $ 2.102 | $ 2.458 | |||||||
| Depreciation | 2.633 | 2.756 | |||||||
| Change in accounts receivable | (1.315) | (1.739) | |||||||
| Change in inventories | (0.091) | (0.078) | |||||||
| Change in other current assets | (0.395) | (0.220) | |||||||
| Change in accounts payable | 0.325 | 0.507 | |||||||
| Change in accruals | 0.043 | (0.327) | |||||||
| Net cash flow from operations | $ 3.302 | $ 3.357 | |||||||
| Cash Flows from Investing Activities | |||||||||
| Investment in plant and equipment | $ (7.686) | $ (4.328) | |||||||
| Cash Flows from Financing Activities | |||||||||
| Change in long-term debt | $ 3.549 | $ (1.427) | |||||||
| Change in current portion of long-term debt | 1.231 | 0.124 | |||||||
| Net cash flow from financing | $ 4.780 | $ (1.303) | |||||||
| Net increase (decrease) in cash and investments | $ 0.396 | $ (2.274) | |||||||
| Beginning cash and investments | 4.673 | 5.069 | |||||||
| Ending cash and investments | $ 5.069 | $ 2.795 | |||||||
| Note: The depreciation and fixed asset acquisitions data in the statements of | |||||||||
| cash flows are somewhat different than they would be if calculated | |||||||||
| directly from the other financial statements because of asset revaluations. | |||||||||
| Operating Revenue and Expense Allocation (Millions of Dollars): | |||||||||
| 2011 | 2012 | 2013 | |||||||
| Operating revenue | |||||||||
| Gross inpatient service | $ 26.117 | $ 29.148 | $ 33.216 | ||||||
| Gross outpatient service | 6.535 | 9.130 | 11.912 | ||||||
| Gross patient service revenue | $ 32.652 | $ 38.278 | $ 45.128 | ||||||
| Contractual allowances | $ 1.729 | $ 5.196 | $ 7.516 | ||||||
| Bad debt and charity care | 2.127 | 2.506 | 3.030 | ||||||
| Total revenue deductions | $ 3.856 | $ 7.702 | $ 10.546 | ||||||
| Net patient service revenue | $ 28.796 | $ 30.576 | $ 34.582 | ||||||
| Operating expenses | |||||||||
| Inpatient service | $ 20.573 | $ 22.229 | $ 24.771 | ||||||
| Outpatient service | 6.831 | 8.098 | 9.187 | ||||||
| Total operating expenses | $ 27.404 | $ 30.327 | $ 33.958 | ||||||
| Selected Operating Data: | |||||||||
| 2011 | 2012 | 2013 | |||||||
| Medicare discharges | 2,721 | 2,860 | 2,741 | ||||||
| Total discharges | 8,784 | 8,318 | 8,576 | ||||||
| Outpatient visits | 32,285 | 32,878 | 36,796 | ||||||
| Licensed beds | 210 | 210 | 210 | ||||||
| Staffed beds | 193 | 197 | 178 | ||||||
| Patient days | 44,085 | 42,434 | 40,062 | ||||||
| All-payer Case Mix Index | 1.2869 | 1.2993 | 1.3161 | ||||||
| Full-time equivalents | 610.8 | 625.8 | 619.3 | ||||||
| Selected Financial Ratios: | |||||||||
| 2013 Industry Data (200-299 Beds) | |||||||||
| 2011 | 2012 | 2013 | +Quartile | Median | -Quartile | ||||
| Profitability Ratios | |||||||||
| Total margin | 8.75% | 6.48% | 6.75% | 5.58% | 3.48% | 0.53% | |||
| Return on assets | 5.75% | 3.97% | 4.53% | 5.80% | 3.10% | 0.40% | |||
| Return on equity | 9.54% | 7.09% | 7.66% | 15.66% | 6.01% | 0.62% | |||
| Deductible ratio | 0.12 | 0.20 | 0.23 | 0.34 | 0.26 | 0.18 | |||
| Liquidity Ratios | |||||||||
| Current ratio | 3.91 | 2.92 | 2.67 | 2.53 | 1.99 | 1.48 | |||
| Days cash on hand | 68.08 | 66.87 | 32.72 | 32.35 | 15.89 | 6.24 | |||
| Debt Management Ratios | |||||||||
| Debt ratio | 39.73% | 44.03% | 40.90% | 62.90% | 48.40% | 35.20% | |||
| Debt to equity | 56.85% | 64.84% | 55.47% | 127.00% | 64.70% | 26.90% | |||
| Times interest earned | 3.23 | 2.32 | 2.38 | 4.29 | 2.23 | 1.14 | |||
| Cash flow coverage | 5.22 | 3.98 | 3.95 | 5.32 | 3.22 | 1.76 | |||
| Asset Management Ratios | |||||||||
| Fixed asset turnover | 0.84 | 0.79 | 0.86 | 2.20 | 1.76 | 1.49 | |||
| Total asset turnover | 0.66 | 0.61 | 0.67 | 1.04 | 0.89 | 0.75 | |||
| Current asset turnover | 3.07 | 2.71 | 3.10 | 3.94 | 3.38 | 2.88 | |||
| Days in patient accounts receivable | 55.25 | 67.73 | 78.24 | 87.53 | 75.67 | 63.33 | |||
| Average payment period (days) | 36.39 | 54.05 | 51.52 | 71.24 | 56.52 | 45.84 | |||
| Other Ratios | |||||||||
| Average age of plant (years) | 5.03 | 5.39 | 6.12 | 8.86 | 7.39 | 6.14 | |||
| Selected Operating Indicators: | |||||||||
| 2013 Industry Data (200-299 Beds) | |||||||||
| 2011 | 2012 | 2013 | +Quartile | Median | -Quartile | ||||
| Profit Indicators | |||||||||
| Profit per inpatient discharge | $280.03 | $126.72 | $79.61 | $89.04 | ($21.30) | ($120.08) | |||
| Profit per outpatient visit | ($33.07) | ($24.49) | ($1.60) | $6.22 | $0.66 | ($7.01) | |||
| Net Revenue Indicators | |||||||||
| Net revenue per discharge | $2,622 | $2,799 | $2,968 | $4,091 | $3,411 | $2,815 | |||
| Net revenue per visit | $179 | $222 | $248 | $201 | $139 | $98 | |||
| Medicare revenue percentage | 30.98% | 34.38% | 31.96% | 43.47% | 36.60% | 31.25% | |||
| Bad debt / charity care percentage | 6.51% | 6.55% | 6.71% | 7.89% | 4.76% | 2.97% | |||
| Contractual allowance percentage | 5.30% | 13.57% | 16.65% | 25.27% | 20.02% | 12.12% | |||
| Outpatient revenue percentage | 20.01% | 23.85% | 26.40% | 25.26% | 21.03% | 17.44% | |||
| Volume Indicators | |||||||||
| Occupancy rate | 62.58% | 59.01% | 61.66% | 67.12% | 58.10% | 47.84% | |||
| Average daily census | 120.78 | 116.26 | 109.76 | 173.23 | 144.73 | 114.39 | |||
| Length of Stay Indicators | |||||||||
| Average length of stay (days) | 5.02 | 5.10 | 4.67 | 6.80 | 6.07 | 5.41 | |||
| Adjusted length of stay | 3.90 | 3.93 | 3.55 | 6.48 | 5.36 | 4.52 | |||
| Expense Indicators | |||||||||
| Expense per discharge | $2,342 | $2,672 | $2,888 | $3,937 | $3,392 | $2,972 | |||
| Expense per adjusted discharge | $1,820 | $2,057 | $2,195 | $3,417 | $2,924 | $2,572 | |||
| Expense per visit | $212 | $246 | $250 | $202.23 | $141.97 | $111.53 | |||
| All-payer Case Mix Index | 1.2869 | 1.2993 | 1.3161 | 1.2795 | 1.1756 | 1.0259 | |||
| Efficiency Indicators | |||||||||
| FTEs per occupied bed | 4.04 | 4.10 | 4.15 | 4.59 | 4.15 | 3.77 | |||
| Labor hours/visit | 7.88 | 9.44 | 9.24 | 8.66 | 5.84 | 4.68 | |||
| Unit Cost Indicators | |||||||||
| Salary per FTE | $20,047 | $19,923 | $22,596 | $24,447 | $22,517 | $20,347 | |||
| Fringe benefits percentage | 14.94% | 19.31% | 18.35% | 19.58% | 17.04% | 15.18% | |||
| Liability expense per discharge | $15.94 | $24.16 | $25.42 | $80.94 | $42.05 | $18.31 | |||
| Note: | |||||||||
| The quartile values are based on the upper and lower numerical values regardless of whether that value is | |||||||||
| good or bad. The interpretation is left to the analyst. | |||||||||
