17.4 Consider the following financial statements for BestCare HMO, a not-for-profit managed care plan:
Statement of Operations and Change in Net Assets
Year Ended June 30, 2011
Premiums earned $26,682
Interest and other income $242
Total revenue $28,613
Salaries and benefits $15,154
Medical supplies and drugs $7,507
Provision for bad debts $19
Total expenses $27,395
Net income $1,218
Net assets, beginning of year $900
Net assets, end of year $2,118
Year Ended June 30, 2011
Cash and cash equivalents $2,737
Net premiums receivable $821
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 – unrestricted (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:
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
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