Exhibits 4.27a & 2.27b show the statement of operations and balance sheet for the 310-bed Wakeland Community Hospitals for 20X0 and 20X1. Adjusted discharges doe 20X0 and 20X1 are 25,000 and 26,000, respectively.
Questions:
- Perform a horizontal analysis on both statement
- Perform a vertical analysis on both statement relative to 20X0
- Compute all selected ratios listed in Exhibit 4.16a, and compare them with the industry benchmarks.
Using these financial performance measures, evaluate the financial state of Wakeland Community. The debt principal payments each year are 5.5 millions, whereas adjusted discharges, as mentioned, are 25,000 in 20X0 and 26,000 in 20X1.
EXHIBIT 4.27a STATEMENT OF OPERATIONS FOR WAKELAND COMMUNITY HOSPITAL Wakeland Community Hospital Statement of Operations for the Years Ended December 31, 20X1 and 20xo (in thousands) 20X1 20XO $225,000 6,400 231,400 $210,000 5,700 215,700 Revenues Net patient service revenue Other operating revenue Total operating revenues Operating expenses Salaries and benefits Supplies and other expenses Depreciation Interest Total operating expenses 124,173 85,000 12,000 4,500 225,673 110,167 61,000 11,300 2.500 184,967 Income from operations 5,727 30,733 Nonoperating income Investment income/contributions 7,500 8,500 Excess of revenue over expenses 13,227 39,233 Net Income $13,227 $39,233 EXHIBIT 4.27b BALANCE SHEET FOR WAKELAND COMMUNITY HOSPITAL Wakeland Community Hospital Balance Sheet December 31, 20X1 and 20X0 (in thousands) 20X1 20XO Current assets Cash and cash equivalents Net patient accounts receivables Inventories Other current assets Total current assets $40,500 39,500 3,800 6,500 90,300 $35,500 36,400 4,000 5,200 81,100 Plant, property, and equipment Gross plant, property, and equipment (Less accumulated depreciation) Net property, plant, and equipment Funded depreciation/board-designated funds Cash and short-term investments 215,000 (65,000) 150,000 175.500 (107.000) 68,500 185,000 110,000 Total assets $425,300 $259,600 Current liabilities Accounts payable Salaries payable Notes payable Total current liabilities $14,500 4,500 4,300 23,300 $8.500 3.500 4,500 16,500 Long-term liabilities Bonds payable Total long-term liabilities 60,000 60,000 27.500 27.500 Net assets 342,000 215,600 Total liabilities and net assets $425,300 $259,600 EXHIBIT 4.16a FINANCIAL RATIOS FOR ALL U.S. HOSPITALS BY BED SIZE Optum & CMS Ratio Median Ratio 200-299 Hospital Industry 300-399 1-99 Beds Desired 100-199 Beds Beds Beds Liquidity ratios 400+ Beds Position Current ratio 2.11 2.18 Quick ratio 2.04 1.88 1.71 1.84 1.52 1.65 Above Acid test ratio 1.39 1.27 1.42 0.30 1.50 Days in accounts receivable 0.35 Above 0.18 0.20 0.20 49 0.38 47 Above Days cash on hand 45 44 48 44 86 85 Below 81 Average payment period, days 102 76 119 50 Above 45 51 56 53 52 Revenue, expense, and profitability ratios Below Operating revenue per adjusted discharge $7,448 $7,086 $6,407 $6,766 Operating expense per adjusted discharge $7,121 $7,517 $7.197 Above $6,494 Salary and benefit expense as a percentage $6,112 $6,260 $6,819 $7,399 Below 40% 40% 38% of operating expense 38% 38% 38% Below Operating margin 0.03 0.02 0.03 0.04 Nonoperating revenue 0.04 0.04 Above 0.04 0.05 0.03 0.05 0.07 Return on total assets 0.12 Varies 0.04 0.04 0.04 0.04 0.05 Return on net assets 0.05 Above 0.08 0.08 0.08 0.09 0.10 0.09 Above Activity ratios Total asset turnover ratio 1.07 1.19 1.03 0.99 1.03 1.06 Above Net fixed assets turnover ratio 2.12 2.17 2.03 2.11 2.04 2.21 Above Age of plant ratio 1031 1041 10.12 11.97 10.93 11.19 Below Capital structure ratios Long-term debt to net assets ratio 0.21 0.18 0.31 042 0.38 0.59 Below Net assets to total assets ratio 0.54 0.58 0.51 0.47 0.52 0.48 Above Times Interest earned ratio 3.78 3.47 3.43 3.64 4.43 5.13 Above Debt service coverage ratio 3.18 3.51 3.63 3.50 6.36 4.24 Above *All ratio values, except for quick, acid test and salary and benefit expense as a percentage of operating expense ratios were obtained from Optum Insight 2013 Almans of Hortal Financial and Operating indicators, 2011/2010 median value data. The quick add test and salary and benefit expense as a percentage of operating expense ratlos were obtained from 2010 CMS cost report data. These are true up to a certain point. For example, in general the higher the better for the current ratio, but after a certain point, the organization might be better off investing some of the excess cash Focus EXHIBIT 4.27a STATEMENT OF OPERATIONS FOR WAKELAND COMMUNITY HOSPITAL Wakeland Community Hospital Statement of Operations for the Years Ended December 31, 20X1 and 20xo (in thousands) 20X1 20XO $225,000 6,400 231,400 $210,000 5,700 215,700 Revenues Net patient service revenue Other operating revenue Total operating revenues Operating expenses Salaries and benefits Supplies and other expenses Depreciation Interest Total operating expenses 124,173 85,000 12,000 4,500 225,673 110,167 61,000 11,300 2.500 184,967 Income from operations 5,727 30,733 Nonoperating income Investment income/contributions 7,500 8,500 Excess of revenue over expenses 13,227 39,233 Net Income $13,227 $39,233 EXHIBIT 4.27b BALANCE SHEET FOR WAKELAND COMMUNITY HOSPITAL Wakeland Community Hospital Balance Sheet December 31, 20X1 and 20X0 (in thousands) 20X1 20XO Current assets Cash and cash equivalents Net patient accounts receivables Inventories Other current assets Total current assets $40,500 39,500 3,800 6,500 90,300 $35,500 36,400 4,000 5,200 81,100 Plant, property, and equipment Gross plant, property, and equipment (Less accumulated depreciation) Net property, plant, and equipment Funded depreciation/board-designated funds Cash and short-term investments 215,000 (65,000) 150,000 175.500 (107.000) 68,500 185,000 110,000 Total assets $425,300 $259,600 Current liabilities Accounts payable Salaries payable Notes payable Total current liabilities $14,500 4,500 4,300 23,300 $8.500 3.500 4,500 16,500 Long-term liabilities Bonds payable Total long-term liabilities 60,000 60,000 27.500 27.500 Net assets 342,000 215,600 Total liabilities and net assets $425,300 $259,600 EXHIBIT 4.16a FINANCIAL RATIOS FOR ALL U.S. HOSPITALS BY BED SIZE Optum & CMS Ratio Median Ratio 200-299 Hospital Industry 300-399 1-99 Beds Desired 100-199 Beds Beds Beds Liquidity ratios 400+ Beds Position Current ratio 2.11 2.18 Quick ratio 2.04 1.88 1.71 1.84 1.52 1.65 Above Acid test ratio 1.39 1.27 1.42 0.30 1.50 Days in accounts receivable 0.35 Above 0.18 0.20 0.20 49 0.38 47 Above Days cash on hand 45 44 48 44 86 85 Below 81 Average payment period, days 102 76 119 50 Above 45 51 56 53 52 Revenue, expense, and profitability ratios Below Operating revenue per adjusted discharge $7,448 $7,086 $6,407 $6,766 Operating expense per adjusted discharge $7,121 $7,517 $7.197 Above $6,494 Salary and benefit expense as a percentage $6,112 $6,260 $6,819 $7,399 Below 40% 40% 38% of operating expense 38% 38% 38% Below Operating margin 0.03 0.02 0.03 0.04 Nonoperating revenue 0.04 0.04 Above 0.04 0.05 0.03 0.05 0.07 Return on total assets 0.12 Varies 0.04 0.04 0.04 0.04 0.05 Return on net assets 0.05 Above 0.08 0.08 0.08 0.09 0.10 0.09 Above Activity ratios Total asset turnover ratio 1.07 1.19 1.03 0.99 1.03 1.06 Above Net fixed assets turnover ratio 2.12 2.17 2.03 2.11 2.04 2.21 Above Age of plant ratio 1031 1041 10.12 11.97 10.93 11.19 Below Capital structure ratios Long-term debt to net assets ratio 0.21 0.18 0.31 042 0.38 0.59 Below Net assets to total assets ratio 0.54 0.58 0.51 0.47 0.52 0.48 Above Times Interest earned ratio 3.78 3.47 3.43 3.64 4.43 5.13 Above Debt service coverage ratio 3.18 3.51 3.63 3.50 6.36 4.24 Above *All ratio values, except for quick, acid test and salary and benefit expense as a percentage of operating expense ratios were obtained from Optum Insight 2013 Almans of Hortal Financial and Operating indicators, 2011/2010 median value data. The quick add test and salary and benefit expense as a percentage of operating expense ratlos were obtained from 2010 CMS cost report data. These are true up to a certain point. For example, in general the higher the better for the current ratio, but after a certain point, the organization might be better off investing some of the excess cash Focus
