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Chapter 13 -- Financial Condition Analysis




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)




  Premiums earned








  Interest and other income




    Total revenue






  Salaries and benefits




  Medical supplies and drugs








  Provision for bad debts












    Total expenses




Net income




Net assets, beginning of year




Net assets, end of year















                 BestCare HMO



                  Balance Sheet


        Year Ended June 30, 2XXX


                  (in thousands)




  Cash and cash equivalents




  Net premiums receivable








    Total current assets




Net property and equipment




Total assets




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




a. Perform a Du Pont analysis on BestCare. Assume that the industry average ratios are as follows:


Total margin




Total asset turnover




Equity multiplier




Return on equity (ROE)



b. Calculate and interpret the following ratios for BestCare:


Industry average


Return on assets (ROA)



Current ratio




Days cash on hand


41 days


Average collection period

7 days


Debt ratio




Debt-to-equity ratio




Times interest earned (TIE) ratio



Fixed asset turnover ratio




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