Question

Problem #3 You are examining Salem Inc. which is a Healthcare Organization. You have examined the 2017 annual report of the organization. Here is the following financial information you have in front of you. Patient Revenue $10,000,000 Interest Expense $5,000 Net Fixed Assets $5,000,000 Current Assets $800,000 Current Liabilities $300,000 Net Accounts Receivable $100,000 Accumulated Depreciation $90,000 EBIT $25,000 Total Debt $2,000,000 Net Income (revenues-expenses) $200,000 Total Equity $3,000,000 Depreciation Expense $20,000 Based upon this information calculate: (5 points for each ratio = 35 total points) A) Current Ratio B) Times Interest Earned Ratio C) Fixed Asset Turnover D) Debt to Equity Ratio E) Total Margin Ratio F) Return on Net Assets Ratio G) Average Age of Plant Please include calculations, I must have them to understand how the problem was solved Thank you

Answer 1

Data provided in the question -

Patient Revenue	10,000,000
Interest Expense	5,000
Net Fixed Assets	5,000,000
Current Assets	800,000
Current Liabilities	300,000
Net Account Receivable	100,000
Accumulated Depriciation	90,000
EBIT	25,000
Total Debt	2,000,000
Net Income	200,000
Total Equity	3,000,000
Depriciation Expense	20,000

A) Current ratio = Current Assets/Current Liabilities = 800,000/300,000=2.67

B) Times Interest Earned Ratio=EBIT/Interest Expense = 25,000/5,000=5.0

C) Fixed Assets Turnover= Revenue/Net Fixed Assets = 10,000,000/5,000,000=2.0

D) Debt-Equity Ratio=Debt/Equity=2,000,000/3,000,000=0.67

E)Total Margin Ratio=Net Income/Revenue=200,000/10,000,000 * 100 = 20%

F) Return on Net Assets Ratio = Net Income/Net Assets

Net Assets will include Fixed assets + Current Assets - Current Liabilities = 5,000,000 + 800,000 - 300,000 = 5,500,000

= 200,000/5,500,000=0.0363

G)Average Age of Plants =

Net Fixed Assets = Gross Fixed Assets - Accumulated depriciation

Gross Fixed Assets = 5,000,000+90,000 = 5,090,000

Average Age of Plants = Gross Fixed Assets/Depriciation Expense = 5,090,000/20,000=254.5 Years

Please comment, in case you need more information. Thank You.