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CASE 31
8/13/13
Student Version
RIVER COMMUNITY HOSPITAL (B)
Financial Forecasting
Case 1 illustrated an extensive financial and operating analysis of River Community Hospital.
In this case (Case 31), students prepare a financial plan, consisting primarily of pro forma
(forecasted) financial statements for the same hospital.
This case requires many assumptions about future events at the hospital. The sole basis for making
these judgments are the historical data (and analyses conducted in Case 1 if applicable) plus
knowledge of general trends in hospital industry.
The model was constructed using the percentage of sales (constant growth rate) method of
forecasting with a totally arbitrary 10 percent growth for all balance sheet accounts and
income statement items that might be tied to volume. The 10 percent growth rate multipliers are
contained in Column I. To complete the case, students must make their own judgments about the
best forecasting technique to apply to each line as well as the input assumptions needed for the
technique selected. In essence, each line must be analyzed separately and modified as needed
to create the best possible forecast. Note that the model extends out to Column S. Also, note
that the student version of the model is the same as the instructor version.
The model is circular, and hence may require multiple recalculations before the forecasted
values stabilize. To account for this, the model is set to automatically recalculate 100 times.
Note that the model is set up very simplistically, in that any external funds needed are automatically
obtained by long-term debt financing. Furthermore, any surplus funds generated are automatically
added to the cash and investments account. Any change to these assumptions requires
revision of the model.
INPUT DATA:
Debt interest rate
KEY OUTPUT:
5.0%
2013
Op margin
6.7%
ROA
4.5%
Debt ratio
40.9%
ROE
7.7%
Current ratio
2.67
Cumulative external funds =
(in millions)
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2014
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CASE31
Statements of Operations:
(Millions of Dollars)
REVENUES
Net patient service revenue
Other revenue
Total revenues
2011
2012
2013
$28.796 $30.576 $34.584
1.237
1.853
1.834
$30.033 $32.429 $36.418
EXPENSES
Salaries and wages
Fringe benefits
Interest expense
Depreciation
Medical supplies and drugs
Professional liability
Other
Total expenses
$12.245
1.830
1.181
2.350
0.622
0.140
9.036
$27.404
$12.468
2.408
1.598
2.658
0.655
0.201
10.339
$30.327
$13.994
2.568
1.776
2.778
0.776
0.218
11.848
$33.958
$2.629
$2.102
$2.458
2011
2012
2013
$4.673
4.359
0.432
0.308
$9.772
$47.786
11.820
$35.966
$5.069
5.674
0.523
0.703
$11.969
$55.333
14.338
$40.995
$2.795
7.413
0.601
0.923
$11.732
$59.552
17.009
$42.543
$45.738
$52.964
$54.275
$0.928
1.460
$1.253
1.503
$1.760
1.176
Balance Sheets:
ASSETS
Cash and investments
Accounts receivable (net)
Inventories
Other current assets
Total current assets
Gross plant and equipment
Accumulated depreciation
Net plant and equipment
Total assets
LIABILITIES AND FUND BALANCE
Accounts payable
Accrued expenses
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CASE31
Current portion of long-term debt
Total current liabilities
Long-term debt
Net assets
0.110
$2.498
$15.673
27.567
1.341
$4.097
$19.222
29.645
1.465
$4.401
$17.795
32.079
$45.738
$52.964
$54.275
2013
$2.102
2.633
(1.315)
(0.091)
(0.395)
0.325
0.043
$3.302
$2.458
2.756
(1.739)
(0.078)
(0.220)
0.507
(0.327)
$3.357
($7.686)
($4.328)
3.549
1.231
$4.780
(1.427)
0.124
($1.303)
$0.396
4.673
($2.274)
5.069
ENDING CASH/INVESTMENTS
$5.069
$2.795
CASE31
Note: "Depreciation and noncash expenses" and "Investment in plant and equipment" data in the statements
somewhat different than they would be if calculated directly from the other financial statements becau
Financial Statement Analysis: Du Pont Analysis
Total margin
Total asset turnover
ROA = TM x TATO
Equity multiplier
2011
8.75%
0.66
5.75%
1.66
2012
6.48%
0.61
3.97%
1.79
2013
6.75%
0.67
4.53%
1.69
9.54%
7.09%
7.66%
9.54%
7.09%
7.66%
2011
2012
2013
Profitability Ratios:
Total margin
Return on assets
Return equity
8.75%
5.75%
9.54%
6.48%
3.97%
7.09%
6.75%
4.53%
7.66%
Liquidity Ratios:
Current ratio
Days cash on hand
3.91
68.08
2.92
66.87
2.67
32.72
39.73%
56.85%
3.23
2.95
4.66
44.03%
64.84%
2.32
1.26
3.53
40.90%
55.47%
2.38
1.31
3.52
66.66
2.95
0.80
58.46
2.55
0.75
57.54
2.95
0.81
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Total asset turnover
Avg collection period
Average payment period
Other Ratios:
Average age of plant
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0.63
55.25
36.39
0.58
67.73
54.05
0.64
78.24
51.52
5.03
5.39
6.12
CASE31
Copyright 2014 Health
Administration Press
Hospital.
ethod of
ultipliers are
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eded for the
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Also, note
casted
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e automatically
automatically
equires
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CASE31
Growth Rate
Forecast
13.0%
0.5%
NA
Initial
2014
$39.080
$1.843
$40.923
Final
2014
$39.080
$1.843
$40.923
Initial
2015
$44.160
$1.852
$46.013
Final
2015
$44.160
$1.852
$46.013
Initial
2016
$49.901
$1.862
$51.763
Final
2016
$49.901
$1.862
$51.763
15.0%
8.0%
NA
3.0%
20.0%
6.0%
14.5%
NA
$16.093
2.773
1.776
2.861
0.931
0.231
13.566
$38.232
$16.093
2.773
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2.861
0.931
0.231
13.566
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$18.507
2.995
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2.947
1.117
0.245
15.533
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$18.507
2.995
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2.947
1.117
0.245
15.533
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$21.283
3.235
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3.036
1.341
0.260
17.785
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$21.283
3.235
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3.036
1.341
0.260
17.785
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NA
$2.691
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Growth Rate
Forecast
Initial
2014
Final
2014
Initial
2015
Final
2015
Initial
2016
Final
2016
NA
31.0%
10.0%
15.0%
NA
5.0%
NA
NA
$3.158
9.711
0.661
1.061
$14.592
$62.530
19.870
$42.659
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9.711
0.661
1.061
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$62.530
19.870
$42.659
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12.721
0.727
1.221
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$65.656
22.818
$42.839
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12.721
0.727
1.221
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$65.656
22.818
$42.839
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16.665
0.800
1.404
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$68.939
25.853
$43.086
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16.665
0.800
1.404
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$68.939
25.853
$43.086
NA
$57.251
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30.0%
-5.0%
$2.288
1.117
$2.288
1.117
$2.974
1.061
$2.974
1.061
$3.867
1.008
$3.867
1.008
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CASE31
5.0%
NA
NA
NA
1.538
$4.943
$16.257
34.770
1.538
$4.943
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1.615
$5.651
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1.615
$5.651
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1.696
$6.571
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1.696
$6.571
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NA
$55.970
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$1.281
$1.281
$0.064
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2014
2015
2016
2017
2018
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2.861
(2.298)
(0.060)
(0.138)
0.528
(0.059)
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2.947
(3.010)
(0.066)
(0.159)
0.686
(0.056)
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3.036
(3.944)
(0.073)
(0.183)
0.892
(0.053)
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3.127
(5.166)
(0.080)
(0.211)
1.160
(0.050)
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3.220
(6.768)
(0.088)
(0.242)
1.508
(0.048)
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($2.978)
($3.126)
($3.283)
($3.447)
($3.619)
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0.073
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0.077
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0.081
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0.085
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0.089
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2.795
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CASE31
Industry
Median
3.48%
0.89
3.10%
1.94
2014
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2015
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2016
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2017
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2018
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6.01%
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Industry
Median
2014
2015
2016
2017
2018
3.48%
3.10%
6.01%
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1.99
15.89
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48.40%
64.70%
2.23
1.35
3.22
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63.95
3.38
1.76
59.11
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0.92
60.73
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1.03
62.38
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1.16
64.08
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1.30
65.83
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1.45
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CASE31
0.89
75.67
56.52
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90.70
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105.15
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121.90
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141.31
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163.82
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7.39
6.94
7.74
8.52
9.27
10.00
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CASE31
Initial
2017
$56.388
$1.871
$58.259
Final
2017
$56.388
$1.871
$58.259
Initial
2018
$63.719
$1.880
$65.599
Final
2018
$63.719
$1.880
$65.599
$24.476
3.494
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3.127
1.609
0.275
20.364
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$24.476
3.494
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3.127
1.609
0.275
20.364
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$28.147
3.773
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3.220
1.931
0.292
23.317
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$28.147
3.773
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3.220
1.931
0.292
23.317
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Initial
2017
Final
2017
Initial
2018
Final
2018
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21.831
0.880
1.614
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$72.386
28.980
$43.406
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21.831
0.880
1.614
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$72.386
28.980
$43.406
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28.599
0.968
1.856
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$76.005
32.200
$43.805
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28.599
0.968
1.856
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$76.005
32.200
$43.805
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$5.027
0.958
$5.027
0.958
$6.535
0.910
$6.535
0.910
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1.781
$7.765
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1.781
$7.765
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1.870
$9.314
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1.870
$9.314
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CASE31
END
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