ADMS 2500 Chapter Notes - Chapter 5: Accounting Equation, Income Statement, Accrual
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10 Mar 2018
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Related Questions
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. | |||||||||
