Case Study 2
1. Create and interpret Commonwealth’s statement of cash flows for 2013. What information does it provide regarding the HMO’s sources and uses of cash over the past year? Statement of Cash Flows (2013):
(Millions of Dollars)
CASH FLOW FROM OPERATIONS
Income from operations
$20.7
Depreciation expense
5.0
Increase in premiums receivable
(3.7)
Increase in medical costs payable
3.9
Increase in payables/accruals
1.9
Net cash flow from operations
$27.8
CASH FLOW FROM INVESTING
Fixed asset acquisitions
($6.7)
Increase in marketable securities
($18.2)
Net cash flow from investing
($24.9)
CASH FLOW FROM FINANCING
Decrease in long-term debt
(12.9)
Net cash flow from financing
($12.9)
Net increase (decrease) in cash
($10.0)
Beginning cash
37.2
Ending cash (calculated)
$27.2
Actual ending cash (Check figure)
$27.2
2. Use the Du Pont equation to obtain a rough feel for Commonwealth’s financial condition as compared to national averages. What are your conclusions? Du Pont Analyses:
2012
2013
Ind. Avg.
Total margin
3.67%
5.73%
2.90%
Total asset turnover
2.78
2.84
3.10
ROA = PM x TATO
10.21%
16.27%
8.99%
Equity multiplier
3.13
2.23
3.16
ROE = ROA x Equity multiplier
31.96%
36.32%
28.41%
ROE (Check figure)
31.96%
36.32%
3. Conduct a financial statement and operating indicator analysis and interpret the resulting data. Use both national and state competitor data in the analysis. (Note that all ratios do not have a complete set of comparative data.) Ratio Analyses:
Total Margin
2012
2013
Sparta
10.5%
Sparta
9.1%
Proxima
9.1%
Upper Quartile
5.5%
Upper Quartile
5.5%
WellLife
5.8%
WellLife
4.8%
Commonwealth 5.7%
State median
4.8%
State median
4.7%
State average
3.8%
Signet Healthcare
3.2%
Commonwealth
3.7%
Median
2.9%
Signet Healthcare
3.0%
Lower Quartile
(Millions of Dollars)
CASH FLOW FROM OPERATIONS
Income from operations
$20.7
Depreciation expense
5.0
Increase in premiums receivable
(3.7)
Increase in medical costs payable
3.9
Increase in payables/accruals
1.9
Net cash flow from operations
$27.8
CASH FLOW FROM INVESTING
Fixed asset acquisitions
($6.7)
Increase in marketable securities
($18.2)
Net cash flow from investing
($24.9)
CASH FLOW FROM FINANCING
Decrease in long-term debt
(12.9)
Net cash flow from financing
($12.9)
Net increase (decrease) in cash
($10.0)
Beginning cash
37.2
Ending cash (calculated)
$27.2
Actual ending cash (Check figure)
$27.2
2. Use the Du Pont equation to obtain a rough feel for Commonwealth’s financial condition as compared to national averages. What are your conclusions? Du Pont Analyses:
2012
2013
Ind. Avg.
Total margin
3.67%
5.73%
2.90%
Total asset turnover
2.78
2.84
3.10
ROA = PM x TATO
10.21%
16.27%
8.99%
Equity multiplier
3.13
2.23
3.16
ROE = ROA x Equity multiplier
31.96%
36.32%
28.41%
ROE (Check figure)
31.96%
36.32%
3. Conduct a financial statement and operating indicator analysis and interpret the resulting data. Use both national and state competitor data in the analysis. (Note that all ratios do not have a complete set of comparative data.) Ratio Analyses:
Total Margin
2012
2013
Sparta
10.5%
Sparta
9.1%
Proxima
9.1%
Upper Quartile
5.5%
Upper Quartile
5.5%
WellLife
5.8%
WellLife
4.8%
Commonwealth 5.7%
State median
4.8%
State median
4.7%
State average
3.8%
Signet Healthcare
3.2%
Commonwealth
3.7%
Median
2.9%
Signet Healthcare
3.0%
Lower Quartile