In: Finance
4.1
Middleton Clinic had total assets of $500,000 and an equity balance of $350,000 at the end of 2014. One year later, at the end of 2015, the clinic had $575,000 in assets and $380,000 in equity. What was the clinic’s dollar growth in assets during 2015, and how was this growth financed?
4.5
BestCare HMO Balance Sheet
June 30. 2015
(In Thousands)
Assets:
Cash $2737
Net Premiums receivable 821
Supplies 387
Total current assets $3,945
Net property equipment 5,924
Total Asets $9,869
______
Liabilities and Net Assets
Acounts payable-medical $2,145
Servives
Accrued expenses 929
Notes Payable 382
Total current liabilities $3,456
Long-term debt $4,295
Total Liabilities $7,751
Net assets-unrestricted (equity)2,118
Total liabilities and net assets $9,869
_____
a. How does this balance sheet differ from the one presented in Exhibit 4.1 for Sunnyvale?
b. What is BestCare’s net working capital for 2015?
c. What is BestCare’s debt ratio? How does it compare with Sunnyvale’s debt ratio
Question 4.1;
Dollar growth in assets = $75000
Explanation;
Total assets at the end of 2014 are given = $500000
Total assets at the end of 2015 are given = $575000
Thus growth rate ($575000 – $500000) = $75000
This growth financed by $30000 equity and $45000 liabilities.
Explanation;
Balance Sheet |
||
2014 |
2015 |
|
Assets; |
||
Total assets |
$500000 |
$575000 |
Liabilities & Equity; |
||
Equity |
$350000 |
$380000 |
Liabilities |
$150000 |
$195000 |
Total Liabilities & Equity |
$500000 |
$575000 |
So after seeing balance sheet of both years, it is clear that total assets have been increased by $75000 whereas equity has been increased by $30000 and liabilities has been increased by $45000. Thus growth financed through equity $30000 and through liabilities $45000.
Note: Liabilities are calculated in 2014 and in 2015 as follow;
In 2014;
Total assets – Equity
$500000 – $350000 = $150000
In 2015;
Total assets – Equity
$575000 – $380000 = $195000
Question 4.5;
(a).
Difference |
4.1 |
4.5 |
Debt – equity ratio |
This firm has lower debts in compare to equity because debt equity ratio is 1.6 |
This firm has higher debts in compare to equity because debt equity ratio is 2.1 |
Current ratio |
Better liquidity because current ratio is higher that is 3.5 |
Lower liquidity because current ratio is lower that is 1.14 |
(b). BestCare’s net working capital for 2015 = $489 (Thousands)
Explanation;
Net working capital = Current assets – Current liabilities
Current assets are given = $3945
Current liabilities are given = $3456
Thus net working capital ($3945 – $3456) = $489
(c). BestCare’s debt ratio = 0.47
Explanation;
Debt ratio = Total liabilities / Total assets
Total assets are given = $9869
Total liabilities ($382 + $4295) = $4677
Thus Debt ratio for BestCare ($4677 / $9869) = 0.47
Debt ratio for Sunnyvale ($89656 / $154815) = 0.58
Thus we can say that Debt ratio of BestCare is lower in compare to Sunnyvale because BestCare debt ratio is 0.47 whereas debt ratio of Sunnyvale is 0.58.