Practice Exercise 12-III : Profitability Ratios Refer to Doctors Smith and Brown's financial statements appearing in the preceding exercises. (West side clinic)

1. Set up a worksheet for the profitability ratios.

2. Compute these ratios for Doctors Smith and Brown. All the necessary information is present on the doctors statements. (Hint: Operating Income (loss) is also known as Income from Operations)

122 CHAPTER 11 Reporting as a Tool Exhibit 11-2 Westside Clinic Statement of Revenue and Expenses For the Year Ending Revenue December 31, 20X4 December 31, 20X3 $2,000,000 $1,850,000 Net Patient Service Revenue $2,000,000 $1,850,000 lotal operating Revenue Operating Expenses Medical Surgical services $600,000 $575,000 806,000 Therapy services 860,000 75,000 Other professional services 80,000 Support services 220,000 220,000 60,000 General services 65,000 Depreciation 40,000 40,000 Interest 20,000 24,000 1,885,000 Total Operating Expenses 1,800,000 $115,000 $50,000 Income from Operations Nonoperating Gains (Losses) $5,000 $2,000 Interest Income Net Non operating Gains 5,000 2,000 Revenue and Gains in Excess of $120,000 $52,000 Expenses and Losses $120,000 $52,000 Increase in Unrestricted Fund Balance revenues and operating expenses are set out first, with the result being income from opera tions of $115,000 ($2,000,000 less $1,885,000). Then other transactions are reported; in this case, interest income of $5,000 under the heading "Nonoperating Gains (Losses)." The total of $120,000 ($115,000 plus $5,000) is reported as an increase in fund balance. This figure carries forward to the next major report, known as the statement of changes in fund balance STATEMENT OF CHANGES IN FUND BALANCE NET WORTH Remember that our formula for a basic statement of revenue and expense looked like this Operating Revenue Operating Expenses Operating Income The excess of revenue over expenses flows back into equity or fund balance through the 122 610