Question

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

Answer 1

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.