Operating indicator analysis and interpret the hospital’s economic value


6. On the basis of the limited amount of information provided in the case, what are your recommendations to the board to correct any weaknesses noted?

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7. This analysis focused on Du Pont and ratio analysis techniques. What other techniques can be used in financial statement analysis?

8. What additional information would be useful in the analysis?

9. What are the major problems one encounters in performing financial statement and operating indicator analyses?

10. Calculate and interpret the hospital’s economic value added for 2007-2009. Is this measure of managerial performance consistent with your other conclusions?

11. What 5 financial and/or operating indicator metrics would you use on a KPI dashboard? Justify your choices. Solution Preview

1. Examine the hospital’s statements of cash flows. What information do they provide regarding the hospital’s sources and uses of cash over the past four years?

Cash flow statement is one of the most important financial statements. Cash flow statement is different from Income statement and Balance sheet. Income statement measures the profitability of the firm during a given period. Balance sheet portrays the assets and liabilities of the firm. Cash flow statement depicts cash inflows and outflows of the firm. It divide and tells about the cash flow of the three activities of the firm:
1) Cash flow from operations
2) Cash flow from financing activity
3) Cash flow from Investing activities.

– Investing section- Organization is acquiring huge amount of fixed assets. This means that the hospital is into expansion mode as both the items are having huge cash outflows.

– Financing section- Retirement of Debt.
This means that the organization is reducing the debt.

• Operating activities – Net cash provided by operating activities has reduced but still it is positive.
Decline in the operating cash flow is a concern.


2. Use the Du Pont equation to obtain a rough feel for the financial condition of the hospital. What are your conclusions?

Du Pont analysis is an extremely useful way of seeing how the various ratios determined a firm’s profitability. The extended Du Pont equation is particularly useful:

ROE = Profit Margin x Total Assets Turnover x Equity Multiplier
= Net Income / Sales x Sales / Total Assets x Total Assets / Common Equity


Net Profit Margin= Net Profit 6.73%

Asset Turnover = Sales 67.08%
Total Assets

Equity …

Solution Summary
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