Problems

17.1 a. Modern Medical Devices has a current ratio of 0.5. Which of the
following actions would improve (i.e., increase) this ratio?

CR = CA/CL

so answer D is correct because Purchase additional inventory on credit (i.e., accounts

payable).well be increase your current ratio

b. Assume that the company has a current ratio of 1.2. Now which of
the above actions would improve this ratio?

answer A is correct Use cash to pay off current liabilities.

17.2 Southwest Physicians, a medical group practice, is just being formed.

It will need $2 million of total assets to generate $3 million in revenues.
Furthermore, the group expects to have a profit margin of 5
percent. The group is considering two financing alternatives. First, it can use all-equity financing
by requiring each physician to contribute his or her pro rata share. Alternatively, the practice can
finance up to 50 percent of its assets with a bank loan. Assuming that the debt alternative has no
impact on the expected profit margin, what is the difference between the expected ROE if the
group finances with 50percent debt versus the expected ROE if it finances entirely with equity
capital?

$2 million of total assets

$3 million in revenues

a profit margin of 5 PERCENT

if entirely with equity capital it will affect on the owner ship status of the
organization and weakened it so :

Profit margin × Revenues = 0.05 × 3,000,000 = 150,000

ROE = Net income / Total equity = 150,000 / 2,000,000 = 0.075 = 7.5%

If the group uses 50 percent debt, it would require only $1 million in

equity

Increase the liability claims but if hospital can't meet the claims it will be face the
bank rotary

Assuming that the debt has no impact on the profit margin, the net income remains at
150,000

ROE = 150,000 / 1,000,000 = 0.15 = 15.0%.

 17.3 Riverside Memorial’s primary financial statements are presented in
exhibits 17.1, 17.2, and 17.3.
a. Calculate Riverside’s financial ratios for 2010. Assume that Riverside
had $1,000,000 in lease payments and $1,400,000 in debt
principal repayments in 2010. (Hint: Use the book discussion to
identify the applicable ratios.)
b. Interpret the ratios. Use both trend and comparative analyses. For
the comparative analysis, assume that the industry average data
presented in the book is valid for both 2010 and 2011.

PROFITBILATY :

A) Total profit margin= net income/total revenue = 2395 /108029 = 2.2%

B) ROA=NI/TA=2395/148650=1.6%

Return on equity = Net Income/Total Equity= 2395/ 98792=2.42% C)

Operating margin = Operating income / Total revenue = 400/106034=0.00377= 0.3% D)

LIABILITY :

Current ration = Current Assets / Current Liability =31280/ 13332=2.34 TIMES A)

B) DOCH =18.9 DAYS

DEBT :

A) DEBT RATIO =TOTAL DEBT / TOTAL ASSEST=49858/148650 = 0.335=33.5%

TIE RATIO= EBIT/INTEREST EXPENSE=(2395+1521) / 1521 = 2.57 times B)

the number of dollars of account income available to pay each dollar of interest

expense.
ASSER RATIOS:

FA TURNOVER=TOTAL REVENUE / NET FIXED ASSETS = 106034/108029= 9% A)

TA TURNOVER= TOTAL REVENUE / NET ASSETS= 108029/148650 = 0.72 B)

C) DIPAR= NET PATIENT ACCOUNT REC. / (NET PATIENT SERVICE REV./365)

=20738/95398/365=79 days

AVARGE=ACC. DEP / DEP= 21030/4025=5.2 year