What were Brandywine net income, total profit, margin and cash flow

Problem 3.5

 

Brandy Wine Homecare

Income Statement

December 31, 2011

 

Revenues:

Total revenues                                                                         $12,000,000

 

Expenses:

Expenses                                                                                     $9,000,000

Depreciation                                                                             $1,500,000

Total expenses                                                          $10,500,000

Revenue over expenses (Net Income)                         $1,500,000

 

  1. What were Brandywine’s net income, total profit, margin and cash flow?

Net income = Total revenue – Total expenses

= $12,000,000 – $10,500,000

=$1,500,000

Its net income would be $1,500,000

 

Total profit margin = Net Income / Total Revenues

=1,500,000 / $12,000,000

=0.125 = 12.5%

Its total profit margin is 12.5%

 

Cash flow = Net Income + Depreciation Expense

= $1,500,000 + $1,500,000

= $3,000,000

Its total cash flow is $3,000,000

 

  1. Now, suppose the company changed its depreciation calculation procedures such that its depreciation expense doubled. How would this change affect Brandywine’s net income, total profit margin and cash flow?

 

Revenue                                                                        $12,000,000

Total revenue                                                            $12,000,000

Expenses:

Depreciation ($1,500,000×2)                           $3,000,000

Other   ($12,000,000 x 75/100)                       $9,000,000

 

Total expenses= Depreciation + other expenses

$1,500,000 x 2 + $9,000,000 =   $12,000,000

 

Total revenue – total expenses = Net income or Profit

$12,000,000 – $12,000,000= $0

 

What were Brandywine’s 2007 net income, total profit margin, and cash flow?

 

The net income =                                                                                   $0

Total profit margin=                                                                            $0

Cash flow=                                                                                                 $3,000,000

 

  1. Suppose the change has halved, rather than doubled, the firm’s depreciation expense. Now, what would be the impact on net income, total profit margin, and cash flow?

 

Net income = $12,000,000 – $9,000,000 – .75 = $2,250,000

Total profit margin = $2,250,000 / 12,000,000 = 0.188 = 18.8%

Cash flow = $2,250,000 + 0.75 = $3,000,000

 

 

Problem 4.5

 

BestCare HMO

Balance Sheet

June 30, 2011

(in thousands)

 

Assets

Current Assets:

Cash                                                                        $2,737

Net premiums receivable                                 $821

Supplies                                                                  $387

Total current assets                             $3,945

Net Property and equipment                           $5,924

Total Assets                                                           $9,869

 

Liabilities and Net Assets

Accounts payable-medical service                 $2,145

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

 

 

  1. How does this balance sheet differ from the one presented in Exhibit 4.1 for Sunnyvale?

The balance sheet differences between BestCare and Sunnyvale are:

-BestCare doesn’t have long and short-term investments.

-Sunnyvales short and long-term investments cover 58,059,000 of their assets.

-BestCare has unrestricted net assets

 

  1. What is BestCare’s net working capital for 2011?

Net working capital = Total current assets  – total current liabilities

$xxx– $3,456,000

net working capital = xxx

 

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  1. What is BestCare’s debt ratio? How does it compare with Sunnyvale’s debt ratio?

Debt ratio = total debt / total assets

$7751/$9869=0.7854 = 78.54%

The debt ratio is less than Sunnyvale’s.

 

 

Problem 4.6

 

Green Valley Nursing Home, Inc.

Balance Sheet

December 31, 2011

 

 

 

Assets

 

Current Assets:

Cash                                                                                               $ 105,737

Investments                                                                              $ 200,000

Net patient accounts receivable                                      $ 215,600

Supplies                                                                                       $ 87,655

Total current assets                                               $ 608,992

Property and equipment                                                                   $ 2,250,000

Less accumulated depreciation                                                      $ 356,000

Net property and equipment                                            $ 1,894,000

Total assets                                                                                              $ 2,502,992

 

Liabilities and Shareholders’ Equity

 

Current Liabilities:

Accounts payable                                                                    $ 72,250

Accrued expenses                                                                  $ 192,900

Notes payable                                                                           $ 180,000

Total current liabilities                                         $ 445,150

Long-term debt                                                                                       $ 1,700,000

 

Shareholders’ Equity:

Common stock, $10 par value                                          $ 100,000

Retained earnings                                                                  $ 257,842

Total shareholders’ equity                                  $ 357,842

Total liabilities and shareholders’ equity                   $ 2,502,992

 

  1. How does this balance sheet differ from the ones presented in Exhibit 4.1 and problem 4.5?

This balance sheet has net premiums receivable line. Those are premiums that are collected through accounts receivable. The notation of a premium signifies a capitation system that receives premiums up front before services are performed.

 

  1. What is Green Valley’s net working capital for 2011?

Net working capital = Total current assets  – total current liabilities

$608,992 – $72,250

Net working Capital = $536,742

 

  1. What is Green Valley’s debt ratio? How does it compare with the debt ratios for Sunnyvale and BestCare?

Debt ratio = total debt / total assets

445,150 / $2,502,992 = 0.1778 = 17.78 %

The debt ratio is less in comparison.