Healthy Body Nursing Home, Inc.

Statement of Income and Retained Earnings

Year Ended December 31, 2020

Revenue: Resident services revenue: $3,163,258

Provision for bad debts: 110,000

Net resident services revenue: 3,053,258

Other revenue: 106,146

Total revenues: $3,159,404

Expenses:

Salaries and benefits: $1,515,438

Medical supplies and drugs: 966,781

Insurance and other: 296,357

Depreciation: 85,000

Interest: 206,780

Total expenses: $3,070,356

Operating income: $ 89,048

Income tax expense: 31,167

Net income: $ 57,881

Retained earnings, beginning of year: $ 199,961

Retained earnings, end of year: $ 257,842

Healthy Body Nursing Home, Inc.

Balance Sheet

December 31, 2020

ASSETS

Current assets:

Cash: $105,737

Short-term securities: 200,000

Net 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

Consider the ABOVE financial statements for Healthy Body Nursing Home, Inc., a for-profit, long-term care facility.

1. Perform a DuPont analysis on Healthy Body Nursing Home, Inc. 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%

2. Calculate and interpret the following ratios. Industry averages have been listed next to each ratio

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: 2.6

Fixed-asset turnover ratio: 1.4

3. Provide an interpretation for each of the eight (8) ratios listed above. Specifically, what is the final answer telling you about the financial health of the business?

4. Discuss what the results of each ratio mean in relation to the industry averages. In your opinion, what can the financial manager of Healthy Body Nursing Home, Inc. do to improve the overall financial health of the business? What are some of the major limitations of ratio analysis that must be considered? Regardless of the specific line of business, should all healthcare businesses use the same set of ratios when conducting a financial statement analysis?