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17.4 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, 2020
(in thousands)
Revenue: Healthcare premiums $ 26,682
Fees and other revenue 1,689
Interest and other income 242
Total revenues $ 28,613
Expenses: Healthcare costs $15,154
General and administrative expenses 7,893
Selling expenses 3,963
Interest expense 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
June 30, 2020
Assets:
Cash and cash equivalents $2,737
Net premiums receivable 821
Other current assets 387
Total current assets $3,945
Net property and equipment $5,924
Total assets $9,869
Liabilities and Net Assets:
Healthcare costs payable $2,145
Accrued expenses 929
Unearned premiums 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
17.4a) Perform a Du Pont analysis on BestCare. Assume that the peer group average ratios are as follows:
Total margin 3.8%
Total asset turnover 2.1
Equity multiplier 3.2
Return on equity (ROE) 25.5%
17.4.b) Calculate and interpret the following ratios for BestCare:
Peer Group 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
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