Fin 356 Case 1

Introduction
River Community Hospital is a 210 -bed, not for profit acute care hospital.
The hospital competes with three other hospitals in the area, two are not
for profit and one for profit. River Community Hospital is the smallest of
the four but stands as the highest rank in patient satisfaction. It recently
passed the latest Joint Commission survey. Aside from the positive aspects
of the hospital, there are concerns about increasing market shares among
the hospitals because recently a large for profit firm known for
aggressively increasing market shares, purchased the only profit hospital
in the area.

1. After reviewing River Community Hospital statements of cash flows, it gave

an insight of where the hospital gets its cash and what it does with it.
Between 2012 and 2013, the hospitals net cash flow from operations
increased from $3.302 to $3.357 million an increase of only 1.7%. On plants
and equipment, they spend on average $6.007 million per year. In 2011 the
hospital had $35.966 million in net plant and equipment, making this
investment an increase of 33.4%. The hospital under the financing activities
increased its use of long-term debt on net cash flow from financing by $3.477
million from 2012 to 2013. The ending cash reveal a decrease in the cash
balance from 2012 to 2013 in the amount of $2.274 million.
2. After carefully reviewing the ratio analysis, the financial strengths of the
hospital are high liquidity available. The current ratio and days cash on hand
were better than the 2013 average for the past two years.
3. 1. Negative trend in liquidity, both the current ratio and days cash on hand
have decline in the past two years.
2. Declining inpatient profitability, profit per inpatient discharge for the past
two years.
3.Negative trend in efficiency indicators, the FTEs per occupied bed have
decreased
4. Declining inpatient volume, this indicates that fact that the hospital in
patient care is being underutilized.
5.Negative trend in expenses
4. A) Total asset for 2013 is $54.275 million, the new total asset would be
$54.275-$2.0=$52.275
million. Board wants to maintain the debt ratio of
35.20%. The new total debt would be 35.20%* $52.275=$18.401 million and the
new assets would be $52.275-$18.401=$33.874 million. Net income does not
change, the new ROE would be $2.458/$33.874=7.26% ,
B)2013 total asset is $54.275 million; the new debt is
48%*$54.275=$26.052 million and new assets would be $54.275-$26.052=$28.223

million. Again, the net income does not change making the new ROE
$2.458/$28.223=8.71%
C) net income is $2.458 million, new net income is $2.458+$0.5=$2.958
million. New ROE would be $2.958/$32.079=$9.22%
D) net asset is $32.079 million * ROE 10%=$3.208 million. Total revenue is
$36.416 million, the new total margin would be $3.208/$36.416=8.81%
5. A complete breakdown of the other operations expense category.
6. Financial KPIs
- Days cash on hand
-Total margin
-Days in patient accounts receivable
-Debt ratio
-Total asset turnover
Operating KPIs
-Profit per inpatient discharge
-Profit per outpatient visit
-Occupancy rate
-FTE per occupied bed
-Outpatient labor hours per visit
7. -No. The hospitals revenue is not tied to one key patient.
- There is not enough information provided about the service product line
other than inpatient outpatient services.
- There is no information provided about the medical staff of the hospital.
- Competition among the four hospitals in the area have been keen and
friendly. But since the large for profit chain purchased the for-profit hospital, it
would be important that the other three hospitals consider the likelihood of the
current and future competition.
- There is not enough information on the prospects of the hospital.
- The hospital currently has 8 suits involving claims of various amounts, there
is no information about the regulatory environment.
8. 1) Stabilize inpatient expenses
2) Increase outpatient volume

9. Operating indicator analysis- because it tells what but not why the
current condition exists.
The statement of cash flows provides a lot of information