Market and Legal Structure Discussion

Running head: TITLE OF PAPER 1 Title of Paper Student Name University HA 520 Dr. Macias Date TITLE OF PAPER 2 ABC Hospital is located in ABC, Indiana. It is the community’s health resource and is one of the largest employer in Cass County. ABC Hospital is also recognized as one of the top 100 rural and community hospitals in the United States (“Quality care,” n.d., p. 1). The hospital first admitted its first patient in May 1925 (History, n.d., p. 1). Since admitting the first patient, the hospital has grown significantly through the years and now offers a wide range of medical products and services. Since the hospital has grown, financial statements such as income statements, balance sheets, and statement of cash flows are critical for this health care organization to calculate the liquidity, profitability, asset efficiency, and capital structure. According to Nowicki (2015), liquidity is the ability to convert current assets into cash. Liquidity is measured by current ratio, collection period, days cash-on-hand, average payment period. Nowicki (2015), states that, “Current ratio is the basic indicator of financial liquidity, or an organization’s ability to meet its financial obligations” (p. 210). The current ratio is calculated by dividing total current assets and total current liabilities. According to ABC Hospital’s 2013 financial statements the total current assets are $32,903,177 and total current liabilities are $11,051,620, making the current ratio a 2.98 (“Combined financial,” 2013, p. 8). On average for all hospitals, the current ratio was 2.15 in 2012 (Nowicki, 2015, p. 210). A current ratio that is less than one, shows that a health care organization is not in good financial health (Folger, 2015, p. 1). The collection period is the net accounts receivable ($7,776,383) over net patient services revenue ($68,286,316) divided by 365. Market and Legal Structure Discussion

The collection period for ABC Hospital in 2013 was 41.6 days. Compared to other hospital reports from 2012, the average collection period was 50.4 (Nowicki, 2015, p. 236). Another component of liquidity is days cash on hand. Days cash on hand can be all sources or short-term sources. It is “a measure of how long and organization could meet its obligations if cash receipts were discontinued (Nowicki, TITLE OF PAPER 3 2015, p. 340). The days cash on hand, all sources at ABC is 206 days. The average days cash on hand, all sources was 93.8 days in 2012 (Nowicki, 2015, p. 211). The average days cash on hand, short-term in 2012 was 30.5 (Nowicki, 2015, p. 211). The days cash on hand, short-term at ABC in 2013 was 68. Lastly, the average payment period has a formula of current liabilities/ (total expenses – depreciation expenses) /365 which resulted in 72 for ABC (Nowicki, 2015, p. 211). The average payment period for all hospitals in 2012 was 51.8 (Nowicki, 2015, p. 211). Profitability ratios “reflect an organization’s ability to exist and grow by measuring the relationship of revenues to expenses” (Nowicki, 2015, p. 340). Profitability is measured by operating margin, total margin, and return on net assets (Nowicki, 2015). Operating margin is calculated by operating income ($5,512,539) divided by total operating revenue ($72,465,708) multiplied by 100 (Nowicki, 2015, p. 340). The operating margin for ABC was 7.6%. Calculating the total margin is the same formula as the operating margin, except the numerator is the excess of revenues over expenses (Nowicki, 2015, p. 340). $10,500,000/$72,465,708 x 100 = 1.4% (“Combined financial,” 2013, p. 11). The hospital experienced positive cash flow from operating activities in 2013 and 2012 (“Combined financial,” 2013, p. 11). Return on net assets is another way to calculate profitability; it is calculated by excess of revenues ($10,500,000) over expenses divided by net assets ($56,599,000) multiplied by 100, which resulted in 18.6% at ABC (Nowicki, 2015). Asset efficiency ratios help organizations measure the relationship between revenue and assets (Nowicki, 2015). Total asset turnover, age of plant in years, fixed asset turnover, current asset turnover, and inventory turnover are ways to calculate asset efficiency of an organization. The total asset turnover for ABC is calculated by total operating revenue ($72,465,708) plus other income ($4,179,392) divided by total assets ($89,902,521) which resulted in 85 TITLE OF PAPER 4 (“Combined financial,” 2013, p. 16). Nowicki (2015) states that, it is recommended to calculate the age of plant ratio to better understand the total asset turnover. After calculating the age of plant by dividing the accumulated depreciation with depreciation expense the result is 76. The fixed asset turnover is total operating revenue plus other income divided by net fixed assets; the fixed asset turnover for ABC is 1.3. The current asset turnover is the same formula except the denominator is the current assets; the current asset turnover for ABC is 2.3. Market and Legal Structure Discussion

Lastly, the inventory revenue for ABC is 16. According to Nowicki (2015), “Inventory turnover measures the number of times an organization turns over its inventory relative to total operating revenue and other income. Low values usually indicate overstocking” (p. 342). Capital structure ratios “Reflect the organization’s long-term liquidity by measuring a variety of relationships to capital. Capital structure ratios are used by banks and bond rating agencies to determine creditworthiness” (Nowicki, 2015, p. 342). Net asset financing, long-term debt to capitalization, debt service coverage, cash flow to debt are ways to calculate capital structure. Net asset financing is calculated by dividing net assets ($56,599,000) and total assets ($89,902,521) multiplied by 100; the net asset financing for ABC in 2013 was 63% (“Combined financial,” 2013, p. 9). Long-term debt capitalization for ABC in 2013 was 28. Debt service coverage was 98. According to Nowicki (2015), “Debt service coverage measures the ability to meet long-term debt obligation. Higher values indicate an organization’s ability to meet longterm debt obligations” (Nowicki, 2015, p. 343). Lastly, the cash flow to debt in 2013 was 64%. The cash flow to debt measured the ability to pay long-term and short-term debts (Nowicki, 2015). Higher numbers show that the organization has the ability to pay short-term and long term debts (Nowicki, 2015). ABC is definitely not struggling. Since ABC is the largest hospital in the Cass county area that offers a wide range of services, it is thriving financially. TITLE OF PAPER 5 References Combined financial statements and required supplementary information. (2013). Memorial Hospital of ABC. Retrieved from https://secure.in.gov/isdh/files/2013_Memorial_Hospital_of_ABC _AFS.pdf Folger, J. (2015). What is the formula for calculating the current ratio? Investopedia. Retrieved from http://www.investopedia.com/ask/answers/070114/what-formula-calculating-currentratio.asp Nowicki, M. (2015). Introduction to the financial management of healthcare organizations (6th ed.). Chicago, IL: Health Administration Press. TITLE OF PAPER 6 Appendix A TITLE OF PAPER 7 Appendix B TITLE OF PAPER 8 Appendix C TITLE OF PAPER 9 Appendix D TITLE OF PAPER 10 Appendix E TITLE OF PAPER 11 Appendix F TITLE OF PAPER 12 Appendix G TITLE OF YOUR PAPER 1 Title of Your Paper Author’s Name HA 520 Financial Management for Health Care Professionals University MM/DD/YYYY TITLE OF YOUR PAPER 2 Title of Your Paper (Introduction) Company Background (Information on the Health Service Organization) Products – Services Provided (Information on the HSO’s products and/or services) TITLE OF YOUR PAPER 3 Market and Legal Structure (Information on the HSO’s market and legal structure) Competitive Position (Information on the HSO’s competitive position – information on their competition and their ‘ranking’; as well as, what sets this HSO apart from its competitors) Conclusion (Closing statement) TITLE OF YOUR PAPER 4 References (Source List) TITLE OF YOUR PAPER 5 Appendix A Financial Statement – 1 (Income Statement) TITLE OF YOUR PAPER 6 Appendix B Financial Statement – 2 (Balance Sheet) TITLE OF YOUR PAPER 7 Appendix C Financial Statement – 3 (Statement of Cash Flows) Running head: TITLE OF PAPER 1 Title of Paper Student Name University HA 520 Date TITLE OF PAPER 2 Financial Analysis for ABC Health Network Liquidity ratios Ratio 2015 2014 Industry average Current ratio Current assets/current 914,952/291,969 838,589/266,158 3.13:1 3.15:1 (157,884 * (158,823 * 365)/1,631,737 365)/1,564,562 35 days 37 days (176,684 + 437,378) * (171,157 + 382,837) * 365/(1,545,921 – 365/(1,472,121 – 60,880) 62,505) 141 days 2.2 liabilities Collection period (Accounts receivables * 365) / total revenue) Days cash-on-hand (cash + short term investment) * 365 / total expenses –depreciation 23 days 74 days 151 days Average payment period (current liabilities * 365) / (total expenses – (291,969 * 365) / (266,158 * 365) / (1,545,921 – 62,505) (1,472,121 – 60,880) 72 days 69 days 34 days depreciation) The calculations above show that there was a slight drop in current ratio. Market and Legal Structure Discussion

However, the values are high and greater than industry average. This shows that the company has a strong liquidity position. It can also imply that the company is holding a lot of cash in the form of current assets TITLE OF PAPER 3 (Author & Author, 2013). The collection period dropped. This shows an improved efficiency in collection of accounts payable. The day’s cash-on hand and average payment period increased. Profitability Ratio 2015 2014 Industry average Operating margin 85,816 /1,387,045 92,441/1,304,710 6.19% 7.09% 85,816 /1,631,737 92,441/1,564,562 5.26% 5.91% 85,816 /1,855,940 92,441/1,670,612 4.62% 5.53% (net operating income /operating 3.2% revenue) Total margin (net profit/revenue) Return on net assets (net profit/total assets) 2.9% 3.9% The three ratios show that the profitability of the company dropped in 2015. This can be attributed to a decline in net profit for the year (ABC Health Network, 2015). Asset efficiency Ratio 2015 2014 Industry average Total asset efficiency 1,631,737/1,855,940 1,564,562/1,670,612 0.88 0.94 Total revenue/Total assets Age of plant (years) Accumulated depreciation / 676,404/58,736 11.5 years 653,932/54,086 12 years 1.9 21 years TITLE OF PAPER 4 depreciation expense Fixed asset turnover Total revenue/net fixed assets Current asset turnover Total revenue/current assets Inventory turnover Total revenue /inventory 1,631,737/660,625 1,564,562/547,349 2.47 2.86 1,631,737/914,952 1,564,562/838,589 1.78 1.87 1,631,737/37,971 1,564,562/30,721 42.97 50.91 3.1 2.9 39 There was a drop in asset efficiency ratios. The efficiency in the use of total assets, fixed assets, and current assets deteriorated. Besides, the ratio shows that the average age of the fixed assets dropped. This can be an indication that the assets are wearing out and there is need to continuously replace them. Finally, inventory turnover dropped and it shows that rate of stock movement declined (Author & Author, 2013). Thus, overall efficiency deteriorated. Capital structure Ratio 2015 2014 Industry average Net asset financing ratio Long term debt / net assets Long-term debt to capitalization Long term debt / (long term debt + total equity) Debt service coverage 624,670/674,792 554,353/597,156 0.9257 0.9283 624,670/624,670 + 554,353/(554,353 674,792 + 597,156) 0.48 0.48 (85,816 + 26,670 + (92,441 + 27,351+ 0.45 0.32 5.5 TITLE OF PAPER (Net income + interest + depreciation + amortization)/(debt principal payments + interest expense) Cash flow to debt (%) (net income + depreciation + amortization) / current liabilities + long term debt 5 62,505) / (26,670 + 60,880) / (27,351 + 48,035) 47,599) 2.34 2.41 (85,816 + 62,505) / (92,441 + 60,880) / (291,969 + (266,158 + 624,670) 554,353) 16% 19% 25% Long term to capitalization ratio remained constant in 2014 and 2015. However, there was a slight decline in debt service coverage. This can be attributed to a decline in net income. Finally, cash flow to debt ratio also deteriorated. Thus, the capital structure ratios dropped. TITLE OF PAPER 6 References Author, I., & Author, I. (2013). Accounting and finance for health care specialists (8th ed.). Market and Legal Structure Discussion

Harlow, UK: Pearson Publishing. ABC Health Network. (2015). Consolidated financial statements December 31, 2015 and 2014. Retrieved from http://www.abc.org/assets/1/7/2015_ABC_FS_FINAL.pdf TITLE OF PAPER 7 Appendix A Consolidated Balance Sheets TITLE OF PAPER 8 Appendix B Statement of Operations TITLE OF PAPER 9 Appendix C Income statement Running head: TITLE OF PAPER 1 Title of Paper Student Name University HA 520 Dr. Macias Date TITLE OF PAPER 2 ABC Hospital is located in ABC, Indiana. It is the community’s health resource and is one of the largest employer in Cass County. ABC Hospital is also recognized as one of the top 100 rural and community hospitals in the United States (“Quality care,” n.d., p. 1). The hospital first admitted its first patient in May 1925 (History, n.d., p. 1). Since admitting the first patient, the hospital has grown significantly through the years and now offers a wide range of medical products and services. Since the hospital has grown, financial statements such as income statements, balance sheets, and statement of cash flows are critical for this health care organization to calculate the liquidity, profitability, asset efficiency, and capital structure. According to Nowicki (2015), liquidity is the ability to convert current assets into cash. Liquidity is measured by current ratio, collection period, days cash-on-hand, average payment period. Nowicki (2015), states that, “Current ratio is the basic indicator of financial liquidity, or an organization’s ability to meet its financial obligations” (p. 210). The current ratio is calculated by dividing total current assets and total current liabilities. According to ABC Hospital’s 2013 financial statements the total current assets are $32,903,177 and total current liabilities are $11,051,620, making the current ratio a 2.98 (“Combined financial,” 2013, p. 8). On average for all hospitals, the current ratio was 2.15 in 2012 (Nowicki, 2015, p. 210). A current ratio that is less than one, shows that a health care organization is not in good financial health (Folger, 2015, p. 1). The collection period is the net accounts receivable ($7,776,383) over net patient services revenue ($68,286,316) divided by 365. The collection period for ABC Hospital in 2013 was 41.6 days. Compared to other hospital reports from 2012, the average collection period was 50.4 (Nowicki, 2015, p. 236). Another component of liquidity is days cash on hand. Days cash on hand can be all sources or short-term sources. It is “a measure of how long and organization could meet its obligations if cash receipts were discontinued (Nowicki, TITLE OF PAPER 3 2015, p. 340). The days cash on hand, all sources at ABC is 206 days. The average days cash on hand, all sources was 93.8 days in 2012 (Nowicki, 2015, p. 211). The average days cash on hand, short-term in 2012 was 30.5 (Nowicki, 2015, p. 211). The days cash on hand, short-term at ABC in 2013 was 68. Lastly, the average payment period has a formula of current liabilities/ (total expenses – depreciation expenses) /365 which resulted in 72 for ABC (Nowicki, 2015, p. 211). The average payment period for all hospitals in 2012 was 51.8 (Nowicki, 2015, p. 211). Profitability ratios “reflect an organization’s ability to exist and grow by measuring the relationship of revenues to expenses” (Nowicki, 2015, p. 340). Profitability is measured by operating margin, total margin, and return on net assets (Nowicki, 2015). Operating margin is calculated by operating income ($5,512,539) divided by total operating revenue ($72,465,708) multiplied by 100 (Nowicki, 2015, p. 340). The operating margin for ABC was 7.6%. Calculating the total margin is the same formula as the operating margin, except the numerator is the excess of revenues over expenses (Nowicki, 2015, p. 340). $10,500,000/$72,465,708 x 100 = 1.4% (“Combined financial,” 2013, p. 11). The hospital experienced positive cash flow from operating activities in 2013 and 2012 (“Combined financial,” 2013, p. 11). Market and Legal Structure Discussion

Return on net assets is another way to calculate profitability; it is calculated by excess of revenues ($10,500,000) over expenses divided by net assets ($56,599,000) multiplied by 100, which resulted in 18.6% at ABC (Nowicki, 2015). Asset efficiency ratios help organizations measure the relationship between revenue and assets (Nowicki, 2015). Total asset turnover, age of plant in years, fixed asset turnover, current asset turnover, and inventory turnover are ways to calculate asset efficiency of an organization. The total asset turnover for ABC is calculated by total operating revenue ($72,465,708) plus other income ($4,179,392) divided by total assets ($89,902,521) which resulted in 85 TITLE OF PAPER 4 (“Combined financial,” 2013, p. 16). Nowicki (2015) states that, it is recommended to calculate the age of plant ratio to better understand the total asset turnover. After calculating the age of plant by dividing the accumulated depreciation with depreciation expense the result is 76. The fixed asset turnover is total operating revenue plus other income divided by net fixed assets; the fixed asset turnover for ABC is 1.3. The current asset turnover is the same formula except the denominator is the current assets; the current asset turnover for ABC is 2.3. Lastly, the inventory revenue for ABC is 16. According to Nowicki (2015), “Inventory turnover measures the number of times an organization turns over its inventory relative to total operating revenue and other income. Low values usually indicate overstocking” (p. 342). Capital structure ratios “Reflect the organization’s long-term liquidity by measuring a variety of relationships to capital. Capital structure ratios are used by banks and bond rating agencies to determine creditworthiness” (Nowicki, 2015, p. 342). Net asset financing, long-term debt to capitalization, debt service coverage, cash flow to debt are ways to calculate capital structure. Net asset financing is calculated by dividing net assets ($56,599,000) and total assets ($89,902,521) multiplied by 100; the net asset financing for ABC in 2013 was 63% (“Combined financial,” 2013, p. 9). Long-term debt capitalization for ABC in 2013 was 28. Debt service coverage was 98. According to Nowicki (2015), “Debt service coverage measures the ability to meet long-term debt obligation. Higher values indicate an organization’s ability to meet longterm debt obligations” (Nowicki, 2015, p. 343). Lastly, the cash flow to debt in 2013 was 64%. The cash flow to debt measured the ability to pay long-term and short-term debts (Nowicki, 2015). Higher numbers show that the organization has the ability to pay short-term and long term debts (Nowicki, 2015). ABC is definitely not struggling. Since ABC is the largest hospital in the Cass county area that offers a wide range of services, it is thriving financially. TITLE OF PAPER 5 References Combined financial statements and required supplementary information. (2013). Memorial Hospital of ABC. Retrieved from https://secure.in.gov/isdh/files/2013_Memorial_Hospital_of_ABC _AFS.pdf Folger, J. (2015). What is the formula for calculating the current ratio? Investopedia. Retrieved from http://www.investopedia.com/ask/answers/070114/what-formula-calculating-currentratio.asp Nowicki, M. (2015). Introduction to the financial management of healthcare or Market and Legal Structure Discussion