Consider the following financial statements for Green Valley Nursing Home, Inc., a for-profit, long-term care facility: Green Valley Nursing Home, Inc., Statement of Income and Retained Earnings, Year Ended December 31, 2015 Assets Green Valley Nursing Home, Inc., Balance Sheet, December 31, 2015 Revenue: Net patient service revenue $3,163,258 Other revenue Total revenues 106,146 $3,269,404 Expenses: Salaries and benefits $1,515,438 Medical supplies and drugs 966,781 Insurance 296,357 Current Assets: Cash Marketable securities Net patient accounts receivable Supplies Total current assets Property and equipment Less accumulated depreciation Net property and equipment Total assets $ 105,737 200,000 215,600 87,655 $ 608,992 $2,250,000 356,000 $1,894,000 $2,502,992 (continued) Provision for bad debts 110,000 Depreciation 85,000 (continued from previous page) Interest 206,780 Liabilities and Shareholders' Total expenses $3,180,356 Equity Operating income Current Liabilities: $ 89,048 Accounts payable Provision for income taxes 31,167 Accrued expenses Net income $ 57,881 Notes payable Current portion of long-term debt Total current liabilities $ 72,250 192,900 100,000 80,000 Retained earnings, beginning of year $ 199,961 Retained earnings, end of year $ 257,842 Long-term debt Shareholders' Equity: Common stock, $10 par value Retained earnings Total shareholders' equity Total liabilities and shareholders' equity $ 445,150 $1,700,000 $ 100,000 257,842 $ 357,842 $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) Current ratio 5.2% 2.0 Days cash on hand 22 days Average collection period 19 days Debt ratio 71% 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? (Hint: These ratios are discussed in the supplement to this chapter.)

Consider the following financial statements for Green Valley Nursing Home, Inc., a for-profit, long-term care facility: Green Valley Nursing Home, Inc., Statement of Income and Retained Earnings, Year Ended December 31, 2015 Assets Green Valley Nursing Home, Inc., Balance Sheet, December 31, 2015 Revenue: Net patient service revenue $3,163,258 Other revenue Total revenues 106,146 $3,269,404 Expenses: Salaries and benefits $1,515,438 Medical supplies and drugs 966,781 Insurance 296,357 Current Assets: Cash Marketable securities Net patient accounts receivable Supplies Total current assets Property and equipment Less accumulated depreciation Net property and equipment Total assets $ 105,737 200,000 215,600 87,655 $ 608,992 $2,250,000 356,000 $1,894,000 $2,502,992 (continued) Provision for bad debts 110,000 Depreciation 85,000 (continued from previous page) Interest 206,780 Liabilities and Shareholders' Total expenses $3,180,356 Equity Operating income Current Liabilities: $ 89,048 Accounts payable Provision for income taxes 31,167 Accrued expenses Net income $ 57,881 Notes payable Current portion of long-term debt Total current liabilities $ 72,250 192,900 100,000 80,000 Retained earnings, beginning of year $ 199,961 Retained earnings, end of year $ 257,842 Long-term debt Shareholders' Equity: Common stock, $10 par value Retained earnings Total shareholders' equity Total liabilities and shareholders' equity $ 445,150 $1,700,000 $ 100,000 257,842 $ 357,842 $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) Current ratio 5.2% 2.0 Days cash on hand 22 days Average collection period 19 days Debt ratio 71% 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? (Hint: These ratios are discussed in the supplement to this chapter.)

College Accounting, Chapters 1-27

23rd Edition

ISBN:9781337794756

Author:HEINTZ, James A.

Publisher:HEINTZ, James A.

Chapter24: Analysis Of Financial Statements

Section: Chapter Questions

Problem 1SEB

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