Acc – ex17.5 green valley nursing home, inc. 31298



Question17.5 Consider the following financial statements for Green Valley Nursing Home, Inc., a for-profit, long-term profit long-term care facility: Green Valley Nursing Home, Ince Statement of Income and Retained Earnings Year Ended December 31, 2XXX Revenue: Net patient service revenue $3,163,258 Other revenue $106,146 Total revenues $3,269,404 Expenses: Salaries and benefits $1,515,438 Medical supplies and drugs $966,781 Insurance and other $296,357 Provision for bad debts $110,000 Depreciation $85,000 Interest $206,780 Total expenses $3,180,356 Operating income $89,048 Provision for income taxes $31,167 Net income $57,881 Retained earnings, beginning of year $199,961 Retained earnings, end of year $257,842Green Valley Nursing Home, Inc. Balance Sheet Year Ended December 31, 2XXX Assets Current Assets: Cash and cash equivalents $105,737 Investments $200,000 Net patient accounts receivable $215,600 Supplies $87,655 Total current assets $608,992 Property and equipment $2,250,000 Less accumulated depreciation $356,000 Net property and equipment $1,894,000 Total assets $2,502,992 Liabilities and Shareholders’ Equity Current Liabilities: Accounts payable $72,250 Accrued expenses $192,900 Notes payable $100,000 Current portion of long-term debt $80,000 Total current liabilities $445,150 Long-term debt $1,700,000 Shareholders’ Equity: Common stock, $10 par value $100,000 Retained earnings $257,842 Total shareholders’ equity $357,842 Total liabilities and shareholders’ equity $2,502,992 a. Perform a Du Pont analysis on Green Valley. Assume that the industry average ratios are as follows: Total margin 3.5% Total asset turnover 1.5 Equity multiplier 2.5 Return on equity (ROE) 13.1% b. Calculate and interpret the following ratios: Industry average Return on assets (ROA) 5.2% Current ratio 2.0 Days cash on hand 22 days Average collection period 19 days Debt ratio 69% Debt-to-equity ratio 2.5 Times interest earned (TIE) ratio 2.6 Fixed asset turnover ratio 1.4 c. Assume that there are 10,000 shares of Green Valley’s stock outstanding and that some recently sold for $45 per share. – What is the firm’s price / earnings ratio? – What is its market / book ratio?  “Is this question part of your assignment? We Can Help!”

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