Statements of Operations (Millions of Dollars):
Revenues		2011	2012	2013
Net patient service revenue		$ 28.796	$ 30.576	$ 34.582
Other revenue		1.237	1.853	1.834
Total revenues		$ 30.033	$ 32.429	$ 36.416
Expenses
Salaries and wages		$ 12.245	$ 12.468	$ 13.994
Fringe benefits		1.830	2.408	2.568
Interest expense		1.181	1.598	1.776
Depreciation		2.350	2.658	2.778
Medical supplies and drugs		0.622	0.655	0.776
Professional liability		0.140	0.201	0.218
Other		9.036	10.339	11.848
Total expenses		$ 27.404	$ 30.327	$ 33.958
Net income		$ 2.629	$ 2.102	$ 2.458
Balance Sheets (Millions of Dollars):
Assets		2011	2012	2013
Cash and investments		$ 4.673	$ 5.069	$ 2.795
Accounts receivable (net)		4.359	5.674	7.413
Inventories		0.432	0.523	0.601
Other current assets		0.308	0.703	0.923
Total current assets		$ 9.772	$ 11.969	$ 11.732
Gross plant and equipment		$ 47.786	$ 55.333	$ 59.552
Accumulated depreciation		11.820	14.338	17.009
Net plant and equipment		$ 35.966	$ 40.995	$ 42.543
Total assets		$ 45.738	$ 52.964	$ 54.275
Liabilities and Net Assets
Accounts payable		$ 0.928	$ 1.253	$ 1.760
Accruals		1.460	1.503	1.176
Current portion of long-term debt		0.110	1.341	1.465
Total current liabilities		$ 2.498	$ 4.097	$ 4.401
Long-term debt		$ 15.673	$ 19.222	$ 17.795
Net assets		$ 27.567	$ 29.645	$ 32.079
Total liabilities and net assets		$ 45.738	$ 52.964	$ 54.275
Statements of Cash Flows (Millions of Dollars):
Cash Flows from Operating Activities			2012	2013
Net income			$ 2.102	$ 2.458
Depreciation			2.633	2.756
Change in accounts receivable			(1.315)	(1.739)
Change in inventories			(0.091)	(0.078)
Change in other current assets			(0.395)	(0.220)
Change in accounts payable			0.325	0.507
Change in accruals			0.043	(0.327)
Net cash flow from operations			$ 3.302	$ 3.357
Cash Flows from Investing Activities
Investment in plant and equipment			$ (7.686)	$ (4.328)
Cash Flows from Financing Activities
Change in long-term debt			$ 3.549	$ (1.427)
Change in current portion of long-term debt			1.231	0.124
Net cash flow from financing			$ 4.780	$ (1.303)
Net increase (decrease) in cash and investments			$ 0.396	$ (2.274)
Beginning cash and investments			4.673	5.069
Ending cash and investments			$ 5.069	$ 2.795
Note: The depreciation and fixed asset acquisitions data in the statements of
cash flows are somewhat different than they would be if calculated
directly from the other financial statements because of asset revaluations.
Operating Revenue and Expense Allocation (Millions of Dollars):
		2011	2012	2013
Operating revenue
Gross inpatient service		$ 26.117	$ 29.148	$ 33.216
Gross outpatient service		6.535	9.130	11.912
Gross patient service revenue		$ 32.652	$ 38.278	$ 45.128
Contractual allowances		$ 1.729	$ 5.196	$ 7.516
Bad debt and charity care		2.127	2.506	3.030
Total revenue deductions		$ 3.856	$ 7.702	$ 10.546
Net patient service revenue		$ 28.796	$ 30.576	$ 34.582
Operating expenses
Inpatient service		$ 20.573	$ 22.229	$ 24.771
Outpatient service		6.831	8.098	9.187
Total operating expenses		$ 27.404	$ 30.327	$ 33.958
Selected Operating Data:
		2011	2012	2013
Medicare discharges		2,721	2,860	2,741
Total discharges		8,784	8,318	8,576
Outpatient visits		32,285	32,878	36,796
Licensed beds		210	210	210
Staffed beds		193	197	178
Patient days		44,085	42,434	40,062
All-payer Case Mix Index		1.2869	1.2993	1.3161
Full-time equivalents		610.8	625.8	619.3
Selected Financial Ratios:
						2013 Industry Data (200-299 Beds)
		2011	2012	2013		+Quartile	Median	-Quartile
Profitability Ratios
Total margin		8.75%	6.48%	6.75%		5.58%	3.48%	0.53%
Return on assets		5.75%	3.97%	4.53%		5.80%	3.10%	0.40%
Return on equity		9.54%	7.09%	7.66%		15.66%	6.01%	0.62%
Deductible ratio		0.12	0.20	0.23		0.34	0.26	0.18
Liquidity Ratios
Current ratio		3.91	2.92	2.67		2.53	1.99	1.48
Days cash on hand		68.08	66.87	32.72		32.35	15.89	6.24
Debt Management Ratios
Debt ratio		39.73%	44.03%	40.90%		62.90%	48.40%	35.20%
Debt to equity		56.85%	64.84%	55.47%		127.00%	64.70%	26.90%
Times interest earned		3.23	2.32	2.38		4.29	2.23	1.14
Cash flow coverage		5.22	3.98	3.95		5.32	3.22	1.76
Asset Management Ratios
Fixed asset turnover		0.84	0.79	0.86		2.20	1.76	1.49
Total asset turnover		0.66	0.61	0.67		1.04	0.89	0.75
Current asset turnover		3.07	2.71	3.10		3.94	3.38	2.88
Days in patient accounts receivable		55.25	67.73	78.24		87.53	75.67	63.33
Average payment period (days)		36.39	54.05	51.52		71.24	56.52	45.84
Other Ratios
Average age of plant (years)		5.03	5.39	6.12		8.86	7.39	6.14
Selected Operating Indicators:
						2013 Industry Data (200-299 Beds)
		2011	2012	2013		+Quartile	Median	-Quartile
Profit Indicators
Profit per inpatient discharge		$280.03	$126.72	$79.61		$89.04	($21.30)	($120.08)
Profit per outpatient visit		($33.07)	($24.49)	($1.60)		$6.22	$0.66	($7.01)
Net Revenue Indicators
Net revenue per discharge		$2,622	$2,799	$2,968		$4,091	$3,411	$2,815
Net revenue per visit		$179	$222	$248		$201	$139	$98
Medicare revenue percentage		30.98%	34.38%	31.96%		43.47%	36.60%	31.25%
Bad debt / charity care percentage		6.51%	6.55%	6.71%		7.89%	4.76%	2.97%
Contractual allowance percentage		5.30%	13.57%	16.65%		25.27%	20.02%	12.12%
Outpatient revenue percentage		20.01%	23.85%	26.40%		25.26%	21.03%	17.44%
Volume Indicators
Occupancy rate		62.58%	59.01%	61.66%		67.12%	58.10%	47.84%
Average daily census		120.78	116.26	109.76		173.23	144.73	114.39
Length of Stay Indicators
Average length of stay (days)		5.02	5.10	4.67		6.80	6.07	5.41
Adjusted length of stay		3.90	3.93	3.55		6.48	5.36	4.52
Expense Indicators
Expense per discharge		$2,342	$2,672	$2,888		$3,937	$3,392	$2,972
Expense per adjusted discharge		$1,820	$2,057	$2,195		$3,417	$2,924	$2,572
Expense per visit		$212	$246	$250		$202.23	$141.97	$111.53
All-payer Case Mix Index		1.2869	1.2993	1.3161		1.2795	1.1756	1.0259
Efficiency Indicators
FTEs per occupied bed		4.04	4.10	4.15		4.59	4.15	3.77
Labor hours/visit		7.88	9.44	9.24		8.66	5.84	4.68
Unit Cost Indicators
Salary per FTE		$20,047	$19,923	$22,596		$24,447	$22,517	$20,347
Fringe benefits percentage		14.94%	19.31%	18.35%		19.58%	17.04%	15.18%
Liability expense per discharge		$15.94	$24.16	$25.42		$80.94	$42.05	$18.31
Note:
The quartile values are based on the upper and lower numerical values regardless of whether that value is
good or bad. The interpretation is left to the analyst.

1. Examine the hospitals statement of cash flows. What information do they provide regarding the hospitals sources and uses of cash over the past two years?

2. List five or more financial strengths of the hospital? (Hint: Do not provide a list of ratios. Make a statement and then justify it with information from the financial statements and ratios.)

3. List five or more financial weaknesses of the hospital? (Hint: Do not provide a list of ratios. Make a statement and then justify it with information from the financial statements and ratios.)

4. The Board chair has asked management to develop some strategies to improve profitability and estimate the impact of the strategies on the hospitals ROE. By how much would the 2013 ROE changefrom each of these strategies?

a. Vacant land is sold and total assets decreases by $2.0 million. Net income would not be affected and the Board wants to maintain the 2013 debt ratio.

b. Debt is substituted for equity and the debt ratio increases to 48 percent. Total assets would not be affected. Interest expense would increase but better cost controls would offset the higher interest expense and thus net income would not change.

c. LEAN management is implemented and total expenses decrease by $0.5 million. Total revenue,total assets, and total liabilities & net assets would not change.

d. Whatever strategy Melissa chooses, she is under pressure from the Board to increase return on equity to at least 10 percent. What total margin would be needed to achieve the 10% ROE, holding everything else constant?