Case Study 1: Financial Statements

Income Statement - End of Year

Operating Revenue

Net Patient Service Revenue $ 1,650,000

Other Revenue 70,000

Total Operating Revenue 1,720,000

Operating Expenses

Salary, Wages, & Fringe Benefits 1,292,000

Provision for Bad Debts 50,000

Depreciation 12,000

Other Expenses 80,000

Total Operating Expenses 1,434,000

Income (loss) from operation $ 286,000

Non-Operating Gains (losses)

Total Non-operating Gains (losses) 44,000

Net Income / (Loss) $ 330,000

Balance Sheet - End of Year

Assets:

Cash and cash equivalents $ 10,000

Patient Accounts Receivable 800,000

Prepaid Expenses 5,000

Total Current Assets 815,000

Property, Plant & Equipment 96,000

Total Non- Current Assets 96,000

Total Assets $ 911,000

Liabilities and Equity: Accounts Payable and accrued expenses 145,000

Total Current Liabilities 145,000

Long-term Debt 320,000

Total Non-Current Liabilities 320,000

Unrestricted net assets 446,000

Total Equity 446,000

Total Liabilities and Equity $ 911,000

Financial Indicators:

Working Capital $ 670,000

Current Ratio 5.6

Days in Patient A/R 177.0

Days Cash on Hand 2.6

Other Metrics:

Unbilled A/R $ 566,250

% in A/R more than 90 days 21%

This medical practice has five physician partners and a good income statement (it is profitable). The practice's policy is to pay bonuses to the partners if there is a cash surplus at the end of the year. It pays up to a total of $300,000 in shared bonuses annually (each doctor would earn up to $60,000). However, at the end of the year, despite higher revenue than expenses, there is little cash surplus. The Practice plans to collect $7,000 per day. If you were the managing partner, what would be the plan?

Summarize the information shown on the financial statement for CS #1. How much of the bonus can the practice pay right now? How long will the MDs have to wait to receive their bonus in full? What could be done to shorten the time period? What metrics are impeding cash flow? How did you arrive at the conclusion from review of the financial statement?