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

Year Ended 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

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%

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