Using the financial statements for Bobcat Hospital in chapter 3, calculate the follow ratios for 2017 and indicate whether they are better or worse than the 2016 ro Indicate whether the 2017 ratios are better or worse than the benchmarks using the Optum medians for each ratio (see exhibit 3.5): Current ratio Collection period ratio Days cash on hand, all sources, ratio Days cash on hand, short-term sources, ratio Average payment period ratio Operating margin ratio Total margin ratio Return on net assets ratio Total asset turnover ratio Age of plant ratio Fixed asset turnover ratio Current asset turnover ratio Inventory ratio Net asset financing ratio Long-term debt to capitalization ratio Debt service coverage ratio Cash flow to debt ratio 52 Introduction to the Financial Management of Healthcare Organizations EXHIBIT 3.1 Bobcat Hospital Balance Sheet as of December 31, 2016 and 2017 (in thousands) ASSETS Current assets Cash Temporary investments Receivables, net 2017 2016 6,019 $ 124 $ 280 45 3.536 Inventory 175 Prepaid expenses 32 Total current assets 3.912 Noncurrent assets Land, plant, and equipment 6,980 Accumulated depreciation -1.730 Plant and equipment, net 5.250 Long-term investments 609 Other noncurrent assets 113 Total noncurrent assets 5.972 Total assets 9.884 LIABILITIES AND NET ASSETS Current liabilities Accounts payable Notes payable Accrued expenses payable Deferred revenues Estimated third-party adjustments Current portion of long-term debt Total current liabilities $ 302 $ 37 345 335 871 408 10 15 137 224 184 178 1,849 1.530 Noncurrent liabilities Long-term debt, net of current portion 3,600 3.500 Total liabilities 5.449 5.030 NET ASSETS Unrestricted net assets 3.285 3.896 Temporarily restricted net assets 750 700 Permanently restricted net assets 400 600 Total net assets 4.435 5.196 Total liabilities and net assets $9.884 $10,226 Chapter 3: Financial Analysis and Management Reporting 55 EXHIBIT 3.2 2017 2016 Bobcat Hospital REVENUES Statement of Gross patient services revenue (non-GAAP) $13,031 $12,610 Operations Provision for contractual adjustments (non-GAAP) -4,209 -4.083 (in thousands) Provision for charity care (non-GAAP) -420 -408 through December Net patient services revenue 8,402 8,119 31, 2016 and 2017 Provision for bad debt allowance -600 -4.763 Net patient services revenue less provisions for bad 7,802 7,643 debt Premium revenue 400 Other operating revenue 440 447 Total operating revenue $8,642 $ 8,090 EXPENSES Salaries, wages, and benefits 4.980 5.278 Supplies, drugs, and purchased services 3,080 2,956 Depreciation and amortization 471 443 Interest 113 Total operating expenses OPERATING INCOME 8,644 -2 109 8,786 -696 NONOPERATING INCOME Investment income $ 95 $ 85 EXCESS OF REVENUE OVER EXPENSES 93 -611 Unrestricted net assets 3,285 3,896 Temporarily restricted net assets 750 700 Permanently restricted net assets 400 600 CHANGES IN NET ASSETS Total changes in net assets 4.435 5.196 Cash flow from operating activities Change in net assets Adjustments to reconcile change in net assets to net cash provided by operating activities Extraordinary loss from extinguishment of debt 2017 EXHIBIT 3.3 Bobcat Hospital Statement of Cash $ (384) Flows, 2017 Depreciation and amortization Net realized and unrealized gains on investments Transfer to parent Provisions for bad debt (Increase) decrease in: Patient accounts receivable Trading securities Other current assets Other assets Increase (decrease) in: Accounts and notes payable Accrued expenses payable Estimated third-party settlements Other current liabilities Other liabilities 471 0 0 600 181 0 27 47 -58 463 -92 6 100 Net cash flow from operating activities 1,361 Cash flow from investing activities Purchase of investments Capital expenditures Net cash flow from investing activities Cash flow from financing activities Transfers to parent Proceeds from restricted contributions and restricted investments income Payments on long-term debt Payments on capital lease obligations -1,413 -1,413 0 95 -184 Proceeds from issuance of long-term debt Net cash flow from financing activities -89 Net increase (decrease) in cash and cash equivalents -141 Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year 310 169 Ratios Chapter 3: Financial Analysis and Management Reporting Liquidity Current ratio Collection period Days cash on hand, all sources Days cash on hand, short-term sources Average payment period Profitability Operating margin (%) Total margin (%) Return on net assets (%) Asset efficiency Total asset turnover Age of plant (years). Fixed asset turnover Current asset turnover Inventory turnover Capital structure Net asset financing (%) Long-term debt to capitalization Debt service coverage Cash flow to debt (%) EXHIBIT 3.5 Optum Median 2015 Selected Financial Ratios, Optum Medians, 2015 2.18 47-30 70.50 27.40 54-10 1.43 3.80 7.00 .99 11.48 2.54 3.72 53.10 55.20 23.70 3-37 22.40 Source: Adapted from Optum (2017). Used with permission. LIQUIDITY RATIOS Liquidity ratios are ratios that measure an organization's ability to meet short-term obli- gations. Measuring an organization's liquidity is important in evaluating an organization's financial performance. Current Ratio Total current assets Total current liabilities The current ratio is the basic indicator of financial liquidity, which is an organization's ability to meet its obligations. It is nondirectional; higher values mean better debt-paying liquidity ratios Ratios that measure an organization's ability to meet short-term obligations.