Consider the following financial statements for BestCare HMO, a not-for-profit managed care plan: BestCare HMO Statement of Operations and Change in Net Assets Year Ended June 30, 2016 (in thousands) Revenue: Premiums earned $26,682 Coinsurance $1,689 Interest and other income $242 Total revenue $28,613 Expenses: Salaries and benefits $15,154 Medical supplies and drugs $7,507 Insurance $3,963 $19 Depreciation $367 Interest $385 Total expenses $27,395 Net income $1,218 Net assets, beginning of year $900 Net assets, end of year $2,118 Rent BestCare HMO Balance Sheet Year Ended June 30, 2016 (in thousands) Assets Cash and cash equivalents Net premiums receivable Supplies Total current assets Net property and equipment Total assets $2,737 S821 5387 $3,945 $5,924 59.869 Liabilities and Net Assets Accounts payable - medical services Accrued expenses Notes payable Current portion of long-term debt Total current liabilities Long-term debt Total liabilities Net assets (equity) Total liabilities and net assets $2,145 $929 $141 $241 $3,456 $4,295 57.751 $2,118 59.869 3.2 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 Return on equity (ROE) 25,5% b. Calculate and interpret the following ratios for BestCare: Industry average 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 Times interest earned (TIE) ratio 2.8 Fixed asset turnover ratio 5.2 2.2 ANSWER ROE Net Income Total equity X Total margin Net Income Total revenue X X Total asset turnover Total revenue Total assets Equity multiplier Total assets Total equity BestCare Industry 25.5% BestCare Industry 8.0% 12.3% Return on assets Current ratio Days cash on hand- 1218/9869 = 12.3% 3947/3456 = 1.14 2737/(27395/365) = 36.46 1.3 41 days Average collection period 7 days 69% 2.2 Debt ratio Debt to equity ratio TIE ratio Fixed asset turnover 4295/ 2118 = 2.03 2118/385 = 5.5 28613/5924 = 4.83