HCA 312 – WEEK 4 ASSIGNMENT Financial and Operating Ratios Assignment

HCA 312 – WEEK 4 ASSIGNMENT Financial and Operating Ratios Assignment

download the Financial and Operating Ratios Assignment template Download Financial and Operating Ratios Assignment template. You will be responsible for entering your responses directly into the template provided. You will need to ensure that your responses are thorough, examples are given where indicated, and references are listed in APA format in the space provided within the template. In the assignment template provided, complete Parts 1 through 5. HCA 312 – WEEK 4 ASSIGNMENT Financial and Operating Ratios Assignment

 

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Part 1: Calculations of Financial Ratios

  • Calculate the financial ratios for Dr. Smith and Brown’s physician practice to analyze the financial viability of the organization.
  • Identify the type of ratio for each of the following:
    • Current ratio
    • Quick ratio
    • Debt Service Coverage ratio (DSCR)
    • Operating Margin
    • Return on Total Assets (ROTA)

Part 2: Type of Ratios

  • Define the type of ratios used in determining the financial viability of an organization.
    • Liquidity
    • Solvency
    • Profitability

Part 3: Operating Ratios

  • Define the financial ratios utilized to determine the financial status of Dr. Smith and Brown’s physician practice.
  • Compare the results in Part 1 with the median to determine the value associated with the financial ratio.
  • Analyze the results calculated in Part 1 and explain what the calculated result tells you about the financial health of Dr. Smith and Dr. Brown’s physician practice

Part 4Capital Budgeting Expenditures – Time Value of Money Calculations

  • Calculate each of the operational ratios for Dr. Smith and Dr. Brown’s physician practice.
    • Present Value
    • Internal Rate of Return

Part 5: Evaluation of Capital Expenditures

  • Define the time value of money.
  • Provide a real-world example for the time value of money.
  • Explain why time is an important factor when considering a capital expenditure.
  • After review of the  Smith and Dr. Brown’s financial statementsDownload Dr. Smith and Dr. Brown’s financial statementsand ratios, analyze the feasibility that the Capital Expenditure listed above would benefit Dr. Smith and Dr. Brown’s practice. Explain your rationale on whether you would recommend the purchase of the capital expenditures identified. Include any positive or negative aspects of regulatory or government mandates that were considered in making the decision to purchase the capital expenditures.

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HCA 312 – WEEK 4 ASSIGNMENT

 

ENTER YOUR NAME IN THE BOX ABOVE

FINANCIAL AND OPERATING RATIOS

INSTRUCTIONS:  Review Chapters 11, 12 from earlier weeks in class. Read this week’s assigned chapters, 13, 14 & 15, before completing the template. In addition, you will utilize the Ratio Benchmark & Median Table below as well as the textbook appendices 13A, and 13C to complete the operating ratio calculations. As the Practice Manager, you will be utilizing Dr. Smith and Dr. Brown’s Physician Practice financial statements for completing the financial ratio calculations below to determine the feasibility of a capital expenditure. Refer to the Week 4 Assignment directions within the course to understand what is expected in each part of the table below. Thorough explanations and definitions for each section are required. If you include enough detail for each section, the template document will be at least seven pages in length. Include APA citations within the Response Column where appropriate. List your references in APA format on the last row of this template. All citations and references must be in APA style according to the Writing Center guidelines. Once you complete the template, upload the document to the Week 4 Assignment section of the course. HCA 312 – WEEK 4 ASSIGNMENT Financial and Operating Ratios Assignment

Use the Ratio Benchmark and Median Table below in Part 3 for your analysis on Dr. Smith and Dr. Brown’s financial health status.

RATIO BENCHMARK AND MEDIAN TABLE
Ratio Benchmark – 50th Percentile) for Comparable Physician Group Practices Median for Comparable Physician Group Practices
Current Ratio *2.2 2
Quick Ratio *1.74 1
Debt Service Coverage Ratio *1.49 1.1
Operating Margin *4.45 2.6
Return on Total Assets *4.04% 4.05%

*Benchmark Data: 50th Percentile Information extrapolated from Appendix 33B Case Study.

 

PART 1: 

CALCULATION of FINANCIAL RATIOS: 

Below are five financial ratios. In each of the columns, you will be responsible for showing the calculation for each based off Dr. Smith and Brown’s financial statements (located with the textbook). You will need to identify the type of ratio as well. Choices for the type of ratio are:

LIQUIDITY, SOLVENCY, PROFITABILITY or N/A.

EXAMPLE for the INVENTORY TURNOVER RATIO:

Show Calculation: 180,000/5000 = 36

Identify the type of ratio:  n/a

CURRENT RATIO QUICK RATIO DEBT SERVICE COVERAGE RATIO OPERATING MARGIN RETURN ON TOTAL ASSETS
Show calculation in the box provided:

 

 

 

 

 

 

 

 

 

 

Identify the type of ratio:

 
Show calculation in the box provided:

 

 

 

 

 

 

 

 

 

Identify the type of ratio:

Show calculation: (For this ratio, the denominator you will use is 22,200)

 

 

                                                                                        

 

 

 

 

 

Identify the type of ratio:

Show calculation in the box provided:

 

 

 

 

 

 

 

 

 

Identify the type of ratio:

Show calculation in the box provided:

 

 

 

 

 

 

 

 

Identify the type of ratio:

 

 

 

 

 

 
PART 2:

TYPE OF RATIOS

In your own words, define the meaning of each ratio: liquidity, solvency, and profitability.
Liquidity  
Solvency  
Profitability  
PART 3: 

OPERATING RATIOS 

Define the financial ratios listed below. Next, analyze the result for each ratio calculated above and explain what the calculated result tells you about the financial health of Dr. Smith and Dr. Brown’s physician practice
 

EXAMPLE:

 

INVENTORY TURNOVER RATIO

DEFINE: Inventory turnover is calculated to determine how quickly the inventory is used based on the services rendered. If the inventory turnover is high, this means the hospital does not have enough inventories on hand to accommodate the patient load. ANALYSIS: For this example, the hospital is turning over their inventory 36 times per year, which is about 3 times a month. The opposite is true if the inventory turnover calculation is lower than the median. FINANCIAL HEALTH: This could mean that there is a build-up of inventory due to lower than expected patient revenues. HCA 312 – WEEK 4 ASSIGNMENT Financial and Operating Ratios Assignment
1)    CURRENT RATIO

 

 
2)    QUICK RATIO  
3)    DEBT SERVICE COVERAGE RATIO

 

 
4)    OPERATING MARGIN  
5)    RETURN ON TOTAL ASSETS  
PART 4:

CAPITAL BUDGET EXPENDITURES – TIME VALUE OF MONEY CALCULATIONS

Complete the tables below by computing the following time value of money calculations:  Present Value, Internal Rate of Return, and Pay Back Period for the capital expenditures for Dr. Smith and Brown’s physician practice. Enter the result of the calculation into the blank cells.
 

PRESENT VALUE

CE/Amount Compounding Period Rate of Interest Present Value
Laboratory:          $70,000 Annual 4% for 15 years  
EMR Software:    $125,000 Annual 6% for 10 years  
INTERNAL RATE OF RETURN
Initial cost of Investment Periods of Useful life Estimated annual net cash inflow generated Look-up table value Rate of Interest
e-prescribing software:

$ 75,000

10 $10,190    
Lab equipment: $ 58,000 6 $14,108    
PART 5:

EVALUATION OF CAPITAL BUDGET EXPENDITURES

As a Health Care Manager, you will be responsible for operational decisions by applying financial management principals. For Part 5, you will apply the concepts of the Time Value of Money to define, analyze, and rationalize your findings from the Financial and Operation ratio results to make informed decisions regarding capital expenditures for Dr. Smith and Brown’s physician practice. Include any government or regulatory mandate information that you considered when making your decision. Complete each of the cells below.
Define the time value of money.  
Provide a real-world example for the time value of money.  
Why is time such an important factor when considering a capital expenditure?  
After review of the financial statements and ratios, analyze the feasibility that the EMR Capital Expenditure listed above would benefit Dr. Smith and Dr. Brown’s practice. Explain your rationale on whether you would recommend the purchase of the capital expenditures identified. Include any positive or negative aspects of regulatory or government mandates that were considered in making the decision to purchase the capital expenditures.  HCA 312 – WEEK 4 ASSIGNMENT Financial and Operating Ratios Assignment  
REFERENCES
List the references you used to complete this assignment.

You must format the references in APA format as outlined in 7th edition guidelines found at the Writing Center.

 

 

Drs. Smith and Brown

Statement of Net Income for the Three Months

Ended March 31, 20__

 

Revenue

Net patient revenue                                    180,000

Other revenue                                                          0

Total Operating Revenue                                          180,000

 

Expenses

Nursing/PA salaries                                       16,650

Clerical salaries                                              10,150

Payroll taxes/employee benefits                                4,800

Medical supplies and drugs                         15,000

Professional fees                                             3,000

Dues and publications                                    2,400

Janitorial service                                              1,200

Office supplies                                                 1,500

Repairs and maintenance                              1,200

Utilities and telephone                                   6,000

Depreciation                                                   30,000

Interest                                                              3,100

Other                                                                 5,000

Total Expense                                                            100,000

Income from Operations                                            80,000

Nonoperating Gains (Losses)                                               0

Nonoperating Gains (Net)                                                    0

Net Income                                                                   80,000

Drs. Smith and Brown

Balance Sheet

March 31, 20__

Assets

Current Assets

Cash and Cash Equivalents                             25,000

Patient accounts receivable                            40,000

Inventories—supplies and drugs                     5,000

Total Current Assets                                                                                      70,000

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Property, Plant, and Equipment

Buildings and Improvements                       500,000

Equipment                                                       800,000

Total                                                                             1,300,000

Less Accumulated Depreciation                              (480,000)

Net Depreciable Assets                                               820,000

Land                                                                                100,000

Property, Plant, and Equipment, Net                                                      920,000

Other Assets                                                                                                  10,000

Total Assets                                                                                              1,000,000

 

Liabilities and Capital

Current Liabilities

Current maturities of long-term debt          10,000

Accounts payable and accrued expenses                  20,000

Total Current Liabilities                                                                               30,000

 

 

Long-term Debt                                                            180,000

Less Current Portion of Long-Term Debt                 (10,000)

Net Long-Term Debt                                                                                  170,000

Total Liabilities                                                                                           200,000

Capital                                                                                                          300,000

Total Liabilities and Capital                                                                   1,000,000. HCA 312 – WEEK 4 ASSIGNMENT Financial and Operating Ratios Assignment