Perform a Du Pont analysis on BestCare.

Calculate and interpret the following ratios for BestCare.

UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT Chapter 13 - Financial Condition Analysis PROBLEM 4 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, 2XXX (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 Rent $19 Depreciation $367 3 Interest $385 Total expenses $27,395 5 Net income $1,218 Net assets, beginning of year $900 7 Net assets, end of year $2.118 BestCare HMO Balance Sheet Year Ended June 30, 2XXX (in thousands) Assets Cash and cash equivalents Net premiums receivable Supplies Total current assets Net property and equipment Total assets $2,737 $821 $387 $3,945 $5,924 $9,869 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 $7751 $2,118 $9,869 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 3.2 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 Days cash on hand 41 days Average collection period 7 days Debt ratio 69% Debt-to-equity ratio 2.2 Times interest earned (TIE) r 2.8 Fixed asset turnover ratio 5.2 1.3