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, 2012 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

Provision for bad debts 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 December 31, 2012

Assets Current Assets:

Cash $105,737

Short-term 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 13.1%

b. Calculate and interpret the following ratios: Industry Average

Return on assets 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 ratio 0.6

Fixed asset turnover ratio 1.4