Reference no: EM132976764
Consider the attached financial statements for Healthy Body Nursing Home, Inc., a for-profit, long-term care facility.
Perform a DuPont analysis on Healthy Body Nursing Home, Inc. Assume that the industry average ratios are as follows:
Total margin: 3.5%
Total asset turnover: 1.5
Equity multiplier: 2.5
Return on equity: 13.1%
Calculate and interpret the following ratios. Industry averages have been listed next to each ratio
Return on assets: 5.2%
Current ratio: 2.0
Days cash on hand: 22 days
Average collection period: 19 days
Debt ratio: 71%
Debt-to-equity ratio: 2.5
Times interest earned ratio: 2.6
Fixed-asset turnover ratio: 1.4
Problem 1: Provide an interpretation for each of the eight ratios listed above. Specifically, what is the final answer telling you about the financial health of the business?
Problem 2: Discuss what the results of each ratio mean in relation to the industry averages. In your opinion, what can the financial manager of Healthy Body Nursing Home, Inc. do to improve the overall financial health of the business? What are some of the major limitations of ratio analysis that must be considered? Regardless of the specific line of business, should all healthcare businesses use the same set of ratios when conducting a financial statement analysis? Explain your answer.
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