Approaching Financial statement analysis
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You have just been selected as the new Chief Executive Officer of OHC Medical Center, a 600-bed hospital in the suburbs of a city with a population of over 1.5 million. The former CEO, Ms. Andrews, was terminated because of her inability to engage in key managerial functions. Ms. Andrews was unable to effectively use financial information to assess the financial health of OHC and make decisions regarding current and future operations of OHC.
At the request of the Board of Trustees, you have been scheduled to meet the organization's Chief Financial Officer and Accountant. They have provided the following financial information. Using the figures evaluate the financial health of OHC accurately.
Provide the Board of Trustees with your conclusions about the financial health of the organization. Your discussion should include the state of the organization at the end of 2007 as well as a comparison of the years 2007 and 2008. Be sure to show all formulas and calculations
Relevant ratios should be applied and conclusions drawn.
INCOME STATEMENT
2007
2008
Patient Revenues
$62,005,000
$51,923,000
Deductions from Revenue
$5,678,000
$6,703,000
Net Patient Revenue
$56,327, 000
$45,220,000
Other operating Revenues
$1,689,000
$4,350,000
Total revenues
$58,016,000
$49,570,000
Salaries
$13,620,000
$10,670,000
Other Expenses
$7,026,000
$4,723,000
Total Expenses
$20,646,000
$15,393,000
BALANCE SHEET
2007
2008
Assets
-
-
Cash and Cash Equivalent
$3,599,000
$1,605,000
Accounts Receivables
$5,304,000
$7,603,000
Total Current Assets
$8,903,000
$9,208,000
Other Assets
$9,968,000
$12,654,000
Property, Plant and Equipment
$25,579,000
$27,508,000
TOTAL ASSETS
$44,450,000
$49,370,000
-
-
-
Liabilities
-
-
Accounts Payable
$1,889,000
$1,234,000
Other Current Liabilities
$4,010,000
$3,126,000
Total Current Liabilities
$5,899,000
$4,360,000
Long-Term Debt
$35,324,000
$28,292,000
TOTAL LIABILITIES AND DEBT
$41,223,000
$32,652,000
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Solution Summary
A discussion and illustration of how to assess and analyze financial statemetns through the use of ratios and disclosed information. A consideration of debt related to leverage opportunities.
Solution Preview
The first thing you need to do with this problem is to format it in a usable manner - side-by-side, in financial statement format. (See attached spreadsheet.) You will note that the hospital was profitable both years. In 2007, the hospital had net income (presuming all facts were provided) equal to approximately 60% of revenue. In 2008, while overall revenue has fallen, profitability is up, with a net income of 66%.
Ratios: 2007 2008
Current Ratio 1.51 2.11 (Current Assets/Current Liabilities)
Acid-Test Ratio n/a n/a (Current assets-inventory)/Current liabilities
Cash Ratio 0.61 0.37 (Cash/Current liabilities)
Debt Ratio 0.93 0.66 (total debt / ...
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