BestCare HMO

Statement of Operations and Change in Net Assets

        Year Ended June 30, 2011

                  (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

  Provision for bad debts

$19

  Depreciation

$367

  Interest

$385

    Total expenses

$27,395

Net income

$1,218

Net assets, beginning of year

$900

Net assets, end of year

$2,118

                 BestCare HMO

                  Balance Sheet

        Year Ended June 30, 2011

                  (in thousands)

Assets

  Cash and cash equivalents

$2,737

  Net premiums receivable

$821

  Supplies

$387

Total current assets

$3,945

Net property and equipment

$5,924

Total assets

$9,869

Liabilities and Net Assets

  Accounts payable – medical services

$2,145

  Accrued expenses

$929

  Notes payable

$141

  Current portion of long-term debt

$241

    Total current liabilities

$3,456

Long-term debt

$4,295

    Total liabilities

$7,751

Net assets (equity)

$2,118

Total liabilities and net assets

$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

1.3

Days cash on hand

41 days

Average collection period

7 days

Debt ratio

69%

Debt-to-equity ratio

2.2

Times interest earned (TIE) ratio

2.8

Fixed asset turnover ratio

5.2