Question
Chapter 13 -- Financial Condition Analysis PROBLEM 5 Consider the following financial statements for Green Valley Nursing Home, Inc., a for-profit, long-term care facility: Green
Chapter
13
--
Financial
Condition
Analysis
PROBLEM
5
Consider
the
following
financial
statements
for
Green
Valley
Nursing
Home,
Inc.,
a
for-profit,
long-term
care
facility:
Green
Valley
Nursing
Home,
Inc.
Statement
of
Income
and
Retained
Earnings
Year
Ended
December
31,
2XXX
Revenue:
Net
patient
service
revenue
$3,163,258
Other
revenue
$106,146
Total
revenues
$3,269,404
Expenses:
Salaries
and
benefits
$1,515,438
Medical
supplies
and
drugs
$966,781
Insurance
and
other
$296,357
Rent
$110,000
Depreciation
$85,000
Interest
$206,780
Total
expenses
$3,180,356
Operating
income
$89,048
Provision
for
income
taxes
$31,167
Net
income
$57,881
Retained
earnings,
beginning
of
year
$199,961
Retained
earnings,
end
of
year
$257,842
Green
Valley
Nursing
Home,
Inc.
Balance
Sheet
Year
Ended
December
31,
2XXX
Assets
Current
assets:
Cash
$105,737
Marketable
securities
$200,000
Net
patient
accounts
receivable
$215,600
Supplies
$87,655
Total
current
assets
$608,992
Property
and
equipment
$2,250,000
Less
accumulated
depreciation
$356,000
Net
property
and
equipment
$1,894,000
Total
assets
$2,502,992
Liabilities
and
Shareholders'
Equity
Current
liabilities:
Accounts
payable
$72,250
Accrued
expenses
$192,900
Notes
payable
$100,000
Current
portion
of
long-term
debt
$80,000
Total
current
liabilities
$445,150
Long-term
debt
$1,700,000
Shareholders'
equity:
Common
stock,
$10
par
value
$100,000
Retained
earnings
$257,842
Total
shareholders'
equity
$357,842
Total
liabilities
and
shareholders'
equity
$2,502,992
a.
Perform
a
Du
Pont
analysis
on
Green
Valley.
Assume
that
the
industry
average
ratios
are
as
follows:
Total
margin
3.5%
Total
asset
turnover
1.5
Equity
multiplier
2.5
Return
on
equity
(ROE)
13.1%
b.
Calculate
and
interpret
the
following
ratios:
Industry
average
Return
on
assets
(ROA)
5.2%
Current
ratio
2.0
Days
cash
on
hand
22
days
Average
collection
period
19
days
Debt
ratio
71%
Debt-to-equity
ratio
2.5
Times
interest
earned
(TIE)
ratio
2.6
Fixed
asset
turnover
ratio
1.4
c.
Assume
that
there
are
10,000
shares
of
Green
Valley's
stock
outstanding
and
that
some
recently
sold
for
$45
per
share.
-
What
is
the
firm's
price/earnings
ratio?
-
What
is
its
market/book
ratio?
ANSWER with analyzing details
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