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Nitisha

Kamath
PBHL 600
Professor Darryl Brown
05/06/2015

Writing Assignment #2

1)
a) Current Ratio = (Current Assets/Current Liability) = $16,889,750/$10,474,750 =
1.61
b) Days Cash on Hand =[ (Unrestricted Cash + Investments)/(Total ExpensesDepreciation)]*365 = [($178,750 + $1,100,500)/($103,000,000-$4,000,000)] *
365 = [ 1,279,250/ 99,000,000] * 365 = 4.72 days
c) Debt Financing = (Total Liabilities/Total Assets) = [($47,474,750/ $51,074,750)]
x 100 = 92.95%
d) Total Margin: (Revenue Expense)/Total Revenue = ( -$8,000,000/$95,000,000)
x 100= -8.42%
2)

The most pressing priority on the balance statement is the Debt Financing ratio. The
hospitals debt financing ratio of 92.9% is almost 2.5 times than the region median of
37.6 %. A debt financing ratio that high means that most of the hospitals assets would be
used up to pay debts thus putting the hospital at a significant financial risk. It would be
prudent to aim to decrease debts to a minimum and reduce leverage on the hospital. A
possible way to reduce liabilities by reviewing current hospital infrastructure and
technology and selling
assets purchased on debt such as highly specialized medical equipment. This would help
to lessen some debt and cause a favorable change in the ratio.

3)

The most pressing priority on the income statement is the total margin of indicating
a substantial loss of 8.4% of revenues generated by the hospital. The region median for
the same is 4.1 %. In order to pull up the margin, revenues need to be increased and
expenses need to be decreased. 75 % of Net Patient Service revenue is from Medicare
with only 25 % contribution to the latter by private insurance. The influx of young adults
into the area would increase the contribution by private insurance and help to improve
operating revenues. Outpatient services should be improved considering the younger
mean age of the new catchment population of the hospital. Developing the hospital
cafeteria and installing vending machines so as to increase other operating revenues is

also a potential way to increase revenues. In order to cut expenses, modest salary cuts and
reduction in benefits may be made.
4) Given the enclosed balance sheet and income statement of DLS, the capital improvement
program appears feasible. Currently, the financial ratios are pretty poor compared to the
industry benchmarks, the margin being negative 8.4% and debt ratio 92.9%. The goal
here is to increase revenues and reduce expenses. The influx of young adults in the region
will increase demand for outpatient services and greater reimbursement via private
insurance. Currently, outpatient services constitute only 25 % of the hospitals revenues.
Improving the range, quality and efficiency of outpatient services in the hospital has the
dual benefit of lowering expenses of maintenance and provision as well as potentially
increasing revenues owing to greater reimbursement via private insurance. Costly
inpatient equipment such as assisted ventilation devices may be sold so as to decrease
liabilities and reduce debt financing ratio (region median 37.6 %), improve current ratio
(industrial benchmark 2.0), increase days cash on hand (region median 151) and increase
margin (region median 4.1%).

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