17.7.a) Recent financial statements for the Heart Hospital are provided below:

The Heart Hospital

Balance Sheet

September 30, 2020

(in thousands)

Current assets:

Cash $14,202

Accounts receivable, net 5,918

Medical supplies inventory 1,211

Prepaid expenses and other current assets 1,429

Total current assets $22,760

Property, plant, and equipment, net $33,769

Other assets 901

Total assets $57,430

Current liabilities:

Accounts payable $ 1,910

Accrued compensation and benefits 2,543

Other accrued liabilities 1,843

Current portion of long-term debt 2,064

Total current liabilities $ 8,360

Long-term debt 21,640

Total liabilities $30,000

Owners equity $27,430

Total liabilities and owners equity $57,430

The Heart Hospital

Statement of Operations

Year Ended September 30, 2020

(in thousands)

Net patient service revenue $64,505

Operating expenses:

Personnel expense $21,707

Medical supplies expense 15,047

Other operating expenses 9,721

Depreciation expense 2,625

Total operating expenses $49,100

Income from operations $15,405

Other income (expenses):

Interest expense ($ 1,322)

Interest and other income, net 159

Total other income (expenses), net ($ 1,163)

Net income $14,242

a. Perform a Du Pont analysis on the Heart Hospital. Assume that the peer group average ratios are as follows:

Total margin 15.0%

Total asset turnover 1.5

Equity multiplier 1.67

Return on equity (ROE) 37.6%

17.4b) Calculate and interpret the following ratios for the Heart Hospital:

Peer Group Average

Return on assets (ROA) 22.5%

Current ratio 2.0

Days cash on hand 85 days

Average collection period 20 days

Debt ratio 40%

Debt-to-equity ratio 0.67

Times interest earned (TIE) ratio 5.0

Fixed asset turnover ratio 1.4