13.4 Consider the following financial statements for BestCare HMO, a not-for-profit health insurer:

BestCare HMO Statement of Operations, Year Ended June 30, 2016 (in thousands)

Revenue:

Healthcare Premiums $26,682

Fees and Other Revenue $1,689

Net investment income $242

Total revenue $28,613

Benefits and Expenses:

Healthcare cost $15,154

Operating Expenses

Selling Expenses $3,963

General and administrative Expenses $7893

Interest Expense $385

Total expenses $27,395

Net income $1,218

BestCare HMO Balance Sheet Year Ended June 30, 2016 (in thousands)

Assets

Cash and cash equivalents $2,737

Net premiums receivable $821

Other current assets $387

Total current assets $3,945

Long term investments $4,424

Net property and equipment $1,500

Total assets $9,869

LIABILITIES AND EQUITY

Healthcare cost payable $2,145

Accrued expenses $929

Unearned Premiums $382

Total current liabilities $3,456

Long-term debt $4,295

Total liabilities $7,751

Equity $2,118

Total liabilities and equity $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:

Industry Average Return on assets 8.0%

Current Ratio 1.3

Days cash on hand (assume depreciation expense is $367) 41 days

Average collection period 7 days

Debt ratio 69%

Debt-to-equity ratio 2.2

Times interest earned ratio 2.8

Fixed asset turnover ratio 18.5