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Creek Side Community Hospital – Financial Forecasting, Essay Example

Pages: 10

Words: 2722

Essay

This demonstrates a general financial and operating scrutiny of Creek side Community Hospital. The case necessitates many assumptions about future events at the hospital.

Input Data:     Key Output:                              
          2005 2006 2010                      
Debt interest rate 8.0%       Op margin 6.8% 7.0% 8.1%                      
          ROA   4.5% 4.8% 6.0%                      
          Debt ratio 40.9% 40.2% 36.0%                      
          ROE   7.7% 8.1% 9.4%                      
          Current ratio 2.67 2.67 2.67                      
          Cumulative external funds =   $3.570                      
           (in millions)                            
                                     
Consolidated Statements of Revenues and Expenses:                                    
(Millions of Dollars)                                    
                Growth Rate Initial Final Initial Final Initial Final Initial Final Initial Final
Revenues     2001 2002 2003 2004 2005 Forecast 2006 2006 2007 2007 2008 2008 2009 2009 2010 2010
Net patient service revenue $25.661 $27.236 $28.796 $30.576 $34.576 10.0% $38.034 $38.034 $41.837 $41.837 $46.021 $46.021 $50.623 $50.623 $55.685 $55.685
Other revenue     1.305 1.261 1.237 1.853 1.834 10.0% $2.017 $2.017 $2.219 $2.219 $2.441 $2.441 $2.685 $2.685 $2.954 $2.954
 Total revenues     $26.966 $28.497 $30.033 $32.429 $36.410 NA $40.051 $40.051 $44.056 $44.056 $48.462 $48.462 $53.308 $53.308 $58.639 $58.639
                                     
Expenses                                    
Salaries and wages   $10.829 $11.135 $12.245 $12.468 $13.994 10.0% $15.393 $15.393 $16.933 $16.933 $18.626 $18.626 $20.489 $20.489 $22.537 $22.537
Fringe benefits     1.496 1.731 1.830 2.408 2.568 10.0% 2.825 2.825 3.107 3.107 3.418 3.418 3.760 3.760 4.136 4.136
Interest expense     1.341 1.305 1.181 1.598 1.776 NA 1.776 1.842 1.842 1.905 1.905 1.963 1.963 2.016 2.016 2.062
Depreciation     1.708 1.977 2.350 2.658 2.778 10.0% 3.056 3.056 3.361 3.361 3.698 3.698 4.067 4.067 4.474 4.474
Provision for bad debts   0.546 0.589 0.622 0.655 0.776 10.0% 0.854 0.854 0.939 0.939 1.033 1.033 1.136 1.136 1.250 1.250
Professional liability   0.102 0.157 0.140 0.201 0.218 10.0% 0.240 0.240 0.264 0.264 0.290 0.290 0.319 0.319 0.351 0.351
Other     7.874 8.389 9.036 10.339 11.848 10.0% 13.033 13.033 14.336 14.336 15.770 15.770 17.347 17.347 19.081 19.081
 Total expenses     $23.896 $25.283 $27.404 $30.327 $33.958 NA $37.176 $37.242 $40.782 $40.845 $44.739 $44.797 $49.081 $49.134 $53.845 $53.891
                                     
Excess of revenues over expenses $3.070 $3.214 $2.629 $2.102 $2.458 NA $2.875 $2.809 $3.274 $3.211 $3.723 $3.664 $4.227 $4.174 $4.793 $4.748
                                     
                                     
   Consolidated Balance Sheets:                                  
                Growth Rate Initial Final Initial Final Initial Final Initial Final Initial Final
      2001 2002 2003 2004 2005 Forecast 2006 2006 2007 2007 2008 2008 2009 2009 2010 2010
Assets                                    
Cash and investments   $3.513 $5.799 $4.673 $5.069 $2.795 NA $3.075 $3.075 $3.382 $3.382 $3.720 $3.720 $4.092 $4.092 $4.501 $4.501
Patient accts rec (net)   5.915 4.832 4.359 5.674 7.413 10.0% 8.154 8.154 8.970 8.970 9.867 9.867 10.853 10.853 11.939 11.939
Inventories     0.338 0.403 0.432 0.523 0.601 10.0% 0.661 0.661 0.727 0.727 0.800 0.800 0.880 0.880 0.968 0.968
Other current assets   0.693 0.294 0.308 0.703 0.923 10.0% 1.015 1.015 1.117 1.117 1.229 1.229 1.351 1.351 1.487 1.487
Total current assets   $10.459 $11.328 $9.772 $11.969 $11.732 NA $12.905 $12.905 $14.196 $14.196 $15.615 $15.615 $17.177 $17.177 $18.895 $18.895
Gross plant and equipment   $37.999 $42.005 $47.786 $55.333 $59.552 10.0% $65.507 $65.507 $72.058 $72.058 $79.264 $79.264 $87.190 $87.190 $95.909 $95.909
Accumulated depreciation   8.831 10.092 11.820 14.338 17.009 NA 20.065 20.065 23.426 23.426 27.124 27.124 31.191 31.191 35.665 35.665
Net plant and equipment   $29.168 $31.913 $35.966 $40.995 $42.543 NA $45.442 $45.442 $48.632 $48.632 $52.140 $52.140 $55.999 $55.999 $60.244 $60.244
                                     
Total assets     $39.627 $43.241 $45.738 $52.964 $54.275 NA $58.348 $58.348 $62.827 $62.827 $67.755 $67.755 $73.176 $73.176 $79.139 $79.139
                                     
Liabilities and Fund Balance                                
Accounts payable     $1.068 $1.273 $0.928 $1.253 $1.760 10.0% $1.936 $1.936 $2.130 $2.130 $2.343 $2.343 $2.577 $2.577 $2.834 $2.834
Accruals     0.692 0.942 1.460 1.503 1.176 10.0% 1.294 1.294 1.423 1.423 1.565 1.565 1.722 1.722 1.894 1.894
Current portion of LT debt   0.136 0.290 0.110 1.341 1.465 10.0% 1.612 1.612 1.773 1.773 1.950 1.950 2.145 2.145 2.359 2.359
  Total current liabilities   $1.896 $2.505 $2.498 $4.097 $4.401 NA $4.841 $4.841 $5.325 $5.325 $5.858 $5.858 $6.444 $6.444 $7.088 $7.088
Long-term debt     $15.959 $15.775 $15.673 $19.222 $17.795 NA $17.795 $18.619 $18.619 $19.403 $19.403 $20.134 $20.134 $20.795 $20.795 $21.365
Net assets (Equity)   21.772 24.961 27.567 29.645 32.079 NA 34.954 34.888 38.162 38.099 41.822 41.763 45.991 45.938 50.731 50.685
                                     
Total liabilities and funds   $39.627 $43.241 $45.738 $52.964 $54.275 NA $57.590 $58.348 $62.106 $62.827 $67.083 $67.755 $72.568 $73.176 $78.614 $79.139
                                     
                                     
              External funds needed $0.758 $0.824 $0.722 $0.785 $0.673 $0.731 $0.608 $0.661 $0.525 $0.571
              Additional LT debt $0.758 $0.824 $0.722 $0.785 $0.673 $0.731 $0.608 $0.661 $0.525 $0.571
              Added interest exp $0.061 $0.066 $0.058 $0.063 $0.054 $0.058 $0.049 $0.053 $0.042 $0.046
              Cumulative external funds = $3.570                
                                     
Consolidated Statements of Cash Flows:                                    
(Millions of Dollars)                                    
        2002 2003 2004 2005   2006 2007 2008 2009 2010          
Cash Flow From Operations                                
Income from operations     $3.214 $2.629 $2.102 $2.458   $2.809 $3.211 $3.664 $4.174 $4.748          
Noncash expenses     1.952 2.326 2.633 2.756   3.056 3.361 3.698 4.067 4.474          
Change in NWC (ex cash)     2.026 0.423 (0.202) (1.733)   (0.454) (0.499) (0.549) (0.604) (0.664)          
    Net cash flow from operations   $7.192 $5.378 $4.533 $3.481   $5.411 $6.074 $6.813 $7.638 $8.557          
                                     
Cash Flow From Investing                                
Fixed asset acquisitions     ($4.722) ($6.402) ($7.686) ($4.328)   ($5.955) ($6.551) ($7.206) ($7.926) ($8.719)          
                                     
Cash Flow From Financing                                
Long-term debt       ($0.184) ($0.102) $3.490 ($1.427)   $0.824 $0.785 $0.731 $0.661 $0.571          
                                     
Net Increase (Decrease) In Cash $2.286 ($1.127) $0.395 ($2.273)   $0.279 $0.307 $0.338 $0.372 $0.409          
Beginning Cash/Investments   3.513 5.799 4.673 5.069   2.795 3.075 3.382 3.720 4.092          
                                     
Ending Cash/Investments   $5.799 $4.672 $5.068 $2.796   $3.074 $3.382 $3.720 $4.092 $4.501          
                                     
Cash account check               $3.075 $3.382 $3.720 $4.092 $4.501          
                                     
Note:  The historical statements of cash flows are somewhat different than would be calculated                      
From the income statements and balance sheets due to accounting complexities not shown.                    
                                     
Financial Statement Analysis: Du Pont Analysis                                    
                Industry                    
      2001 2002 2003 2004 2005 Median 2006 2007 2008 2009 2010          
Total margin     11.38% 11.28% 8.75% 6.48% 6.75% 3.48% 7.01% 7.29% 7.56% 7.83% 8.10%          
Total asset turnover   0.68 0.66 0.66 0.61 0.67 0.89 0.69 0.70 0.72 0.73 0.74          
ROA = TM x TATO   7.75% 7.43% 5.75% 3.97% 4.53% 3.10% 4.81% 5.11% 5.41% 5.70% 6.00%          
Equity multiplier     1.82 1.73 1.66 1.79 1.69 1.94 1.67 1.65 1.62 1.59 1.56          
                                     
ROE = ROA x Equity multiplier 14.10% 12.88% 9.54% 7.09% 7.66% 6.01% 8.05% 8.43% 8.77% 9.09% 9.37%          
                                     
Check ROE (Excess/Net equity) 14.10% 12.88% 9.54% 7.09% 7.66%   8.05% 8.43% 8.77% 9.09% 9.37%          
                                     
                                     
Financial Statement Analysis: Ratios                                    
                Industry                    
      2001 2002 2003 2004 2005 Median 2006 2007 2008 2009 2010          
Profitability Ratios:                                    
Total margin     11.38% 11.28% 8.75% 6.48% 6.75% 3.48% 7.01% 7.29% 7.56% 7.83% 8.10%          
Return on assets   7.75% 7.43% 5.75% 3.97% 4.53% 3.10% 4.81% 5.11% 5.41% 5.70% 6.00%          
Return equity     14.10% 12.88% 9.54% 7.09% 7.66% 6.01% 8.05% 8.43% 8.77% 9.09% 9.37%          
                                     
Liquidity Ratios:                                    
Current ratio     5.52 4.52 3.91 2.92 2.67 1.99 2.67 2.67 2.67 2.67 2.67          
Days cash on hand   57.79 90.82 68.08 66.87 32.72 15.89 32.83 32.93 33.04 33.14 33.25          
                                   
Debt Management Ratios:                                    
 Debt ratio     45.06% 42.27% 39.73% 44.03% 40.90% 48.40% 40.21% 39.36% 38.36% 37.22% 35.95%          
LT debt to equity   73.30% 63.20% 56.85% 64.84% 55.47% 64.70% 53.37% 50.93% 48.21% 45.27% 42.15%          
Times interest earned   3.29 3.46 3.23 2.32 2.38 2.23 2.53 2.69 2.87 3.07 3.30          
Fixed charge coverage   2.99 2.83 2.95 1.26 1.31 1.35 1.35 1.39 1.44 1.49 1.54          
Cash flow coverage   4.24 4.44 4.66 3.53 3.52 3.22 3.70 3.91 4.14 4.39 4.68          
                                     
 Asset Management Ratios:                                    
Inventory turnover   75.92 67.58 66.66 58.46 57.53 63.95 57.53 57.53 57.53 57.53 57.53          
Current asset turnover   2.45 2.40 2.95 2.55 2.95 3.38 2.95 2.95 2.95 2.95 2.95          
Fixed asset turnover   0.88 0.85 0.80 0.75 0.81 1.76 0.84 0.86 0.88 0.90 0.92          
Total asset turnover   0.65 0.63 0.63 0.58 0.64 0.89 0.65 0.67 0.68 0.69 0.70          
Avg collection period   84.13 64.76 55.25 67.73 78.26 75.67 78.26 78.26 78.26 78.26 78.26          
Average payment period   31.19 39.23 36.39 54.05 51.52 56.52 51.69 51.85 52.02 52.19 52.35          
                                     
                                     
Other Ratios:                                    
Average age of plant   5.17 5.10 5.03 5.39 6.12 7.39 6.57 6.97 7.34 7.67 7.97          
                                     
                                     

 

 

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