| Consider the following financia statements for Green Valley Nursing Home, Inc., a for-profit, long term care facility: | | | |
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| | Green Valley Nursing Home, Inc., Statement of Income and Rretained Earnings, Year-ended December 31, 2015 | | Green Valley Nursing home, Inc., Balance sheet, December 31, 2015 |
| | |
| | | | | | | | |
| | Revenue: | | | | | | | Assets | | | | | |
| | | Net patient service revenue | | $ 3,163,258.00 | | | Current assets: | | | | |
| | | other revenue | | | $ 106,146.00 | | | | cash | | | | $ 105,737.00 |
| | | total revenues | | | $ 3,269,404.00 | | | | marketable securities | | $ 200,000.00 |
| | Expenses: | | | | | | | | net patient accounts receivable | $ 215,600.00 |
| | | salaries and benefits | | $ 1,515,438.00 | | | | supplies | | | $ 87,655.00 |
| | | medical supplies and drugs | | $ 966,781.00 | | | | total current assets | | $ 608,992.00 |
| | | insurance | | | $ 296,357.00 | | | | property and equipment | | $ 2,250,000.00 |
| | | provision for bad debts | | $ 110,000.00 | | | | less accumulated depreciation | $ 356,000.00 |
| | | depreciation | | | $ 85,000.00 | | | | net property and equipment | | $ 1,894,000.00 |
| | | interest | | | | $ 206,780.00 | | | | total assets | | | $ 2,502,992.00 |
| | | total expenses | | | $ 3,180,356.00 | | | | | | | | |
| | | operating income | | | $ 89,048.00 | | | liabilities and shareholders equity | | |
| | | provision for income taxes | | $ 31,167.00 | | | current liabilities: | | | | |
| | | net income | | | $ 57,881.00 | | | | accounts payable | | | $ 72,250.00 |
| | | | | | | | | | | accrued expenses | | | $ 192,900.00 |
| | | retained earning, beginning of year | $ 199,961.00 | | | | notes payable | | | $ 100,000.00 |
| | | retained earnings, end of year | | $ 257,842.00 | | | | current portion of long term debt | $ 80,000.00 |
| | | | | | | | | | | total current liabilities | | $ 445,150.00 |
| | | | | | | | | | | long-term debt | | | $ 1,700,000.00 |
| | | | | | | | | | shareholders' equity | | | |
| | | | | | | | | | | common stock, $10 per value | | $ 100,000.00 |
| | | | | | | | | | | retained earnings | | | $ 257,842.00 |
| | | | | | | | | | | total shareholders' equity | | $ 357,842.00 |
| | | | | | | | | | | total liabilities and shareholders' equity | $ 2,502,992.00 |
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| A | perform a Du Pont analysis on Green Valley. Assume that the industry avergae ratios are as follows: | | | |
| | | | | | | | | | | | | | | |
| | total margin | | 3.5% | | | | | | | | | | |
| | total asset turnover | | 1.5 | | | | | | | | | | |
| | equity multiplier | | 2.5 | | | | | | | | | | |
| | return on equity (ROE) | 13.1% | | | | | | | | | | |
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| B | calculate and interpret the following ratios: | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | industry average | | | | | | | | | |
| | return on assest (ROA) | | 5.2% | | | | | | | | | |
| | current ratio | | | 2 | | | | | | | | | |
| | days cash on hand | | | 22 days | | | | | | | | | |
| | average collection period | | 19 days | | | | | | | | | |
| | debt ratio | | | 71% | | | | | | | | | |
| | debt-tp-equity ratio | | 2.5 | | | | | | | | | |
| | times interest earned (TIE) ratio | 2.6 | | | | | | | | | |
| | fixed asset turnover ratio | | 1.4 | | | | | | | | | |
| | | | | | | | | | | | | | | |
| C | assume that there are 10,000 shared of Green Valley's stock outstanding and that some recents sold for $45 per share | | |
| | | what is the firm's price/earnings ratio? | | | | | | | | | |
| | | what is its market/book ratio? | | | | | | | | | |
| | (hint: these ratios are discussed in the supplement to this chapter) | | | | | | | |
