1. POSSIBLE ACQUISITION OF DR. FIDDLE’S PRACTICE Questions answered based on the collection of financial statements from Dr. Fiddle’s practice, Don Deruso’s site visit notes, and Key Financial Ratios

2. DOES THE PRACTICE GENERATE ENOUGH CASH TO COVER ITS CURRENT LIABILITIES? I used the Liquidity ratios to support my answer I used the Liquidity ratios to support my answer I believe the ratios show that yes this practice generates enough cash to cover its current liabilities. I believe the ratios show that yes this practice generates enough cash to cover its current liabilities.

3. CURRENT RATIO (BERRY, 2010) 2014: 124775/87799 = 1.42 times 2013: 105125/62400 = 1.68 times This shows that they are at a lower ratio in 2014 than they were in 2013. The assets are 1.42 times the liabilities which is appropriate coverage. This shows that they are at a lower ratio in 2014 than they were in 2013. The assets are 1.42 times the liabilities which is appropriate coverage.

4. QUICK RATIO (BERRY, 2010) 2014: 19000 + 75675 / 87799 = 94765/87799 = 1.08 times 2013: 23650 + 56135 / 62400 = 79785/62400 = 1.28 times This also shows a lower cash ratio in 2014 than in 2013. However, a ratio over 1 times is still sufficient to cover their current liabilities. This also shows a lower cash ratio in 2014 than in 2013. However, a ratio over 1 times is still sufficient to cover their current liabilities.

5. IS THE PRACTICE LIKELY TO BE ABLE TO MEET ITS LONG-TERM OBLIGATIONS AS THEY BECOME DUE I used the Debt Management Ratios to support my answer I used the Debt Management Ratios to support my answer I would have to answer that at this time, they are in a very risky position to be able to pay their long-term obligations. I would have to answer that at this time, they are in a very risky position to be able to pay their long-term obligations.

6. DEBT TO TOTAL ASSETS RATIO (BERRY, 2010) 2014: 2014: 181278 / 189451 = 0.96 = 96% 2013: 2013: 162900 / 170560 = 0.96 = 96% This is a risky area that needs improvement. This is a risky area that needs improvement.

7. TIMES INTEREST EARNED (BERRY, 2010) : ( 2014: (513 + 2750 = 3263) / 2750= 1.19 times 2013: (-22555 + 819 = -21736) / 819 = -26.54 times Better in 2014 than in 2013

8. FIXED CHARGE COVERAGE (BERRY, 2010) 2014: (513 + 2750 = 3263) / (17650 + 2750 = 20400) =.16 times 2013: (-22555 + 819 = -21736) / (12500 + 819 = 13319) = -1.63 times 2014 ratio is significantly better than 2013. However, still a risky amount.

9. IS THE PRACTICE INCREASING ITS PATIENT ENCOUNTERS AND COLLECTING ITS ACCOUNTS RECEIVABLE IN A TIMELY MANNER? Using the Asset Management Ratios I have discovered that this is an area that Using the Asset Management Ratios I have discovered that this is an area that needs attention to improvement Site-visit notes indicate that Dr. Fiddle is spending large amounts of time Site-visit notes indicate that Dr. Fiddle is spending large amounts of time working with her new experimental medical device. According to the Income Statement the Gross Patient Service revenue According to the Income Statement the Gross Patient Service revenue decreased from $842,000 in 2013 to $775,000 in 2014. This is an 8% decrease in revenue.

10. INVENTORY TURNOVER (BERRY, 2010) 2014 2014 310000 / 30100 = 10.30 times 2013 2013 336800 / 25340 = 13.29 times This equation shows that inventory turnover used for judging patient encounters is lower in 2014 than it was in 2013.

11. AVERAGE COLLECTION PERIOD (BERRY, 2010) 2014: 75675/849.32 = 89 days 2013: 56135/922.74 = 62 days This shows that the accounts were collected at 89 days in 2014 and 62 days in This shows that the accounts were collected at 89 days in 2014 and 62 days in 2013. The ratio shows that they are not collecting their accounts receivable as timely as they had been in 2013. This area needs improvement

12. FIXED ASSETS TURNOVER (BERRY, 2010) 2014: 2014: 310000 / 47785 = 6.49 times 2013: 336800 / 65435 = 5.15 times The fixed assets turnover is up for 2014 than from 2013 so that is a better result. However, it is a low number that we would like to see increased in the future. The fixed assets turnover is up for 2014 than from 2013 so that is a better result. However, it is a low number that we would like to see increased in the future.

13. TOTAL ASSETS TURNOVER (BERRY, 2010) 2014: 2014: 310000 / 189451 = 1.64 times 2013: 336800 / 170560 = 1.97 times This value is down for 2014 and both numbers are very low. This is an area that also needs improvement.

14. PROFITABILITY RATIOS Profitability ratios show very low percentages. However, these numbers are up in 2014 from 2013. Profitability ratios show very low percentages. However, these numbers are up in 2014 from 2013. Per your site visit notes: Per your site visit notes: That number is influenced by a large pay cut that Dr. Fiddle took to improve profitability. That number is influenced by a large pay cut that Dr. Fiddle took to improve profitability. A substantial increase in non-operating gain in 2014 was from an insurance distribution payment. A substantial increase in non-operating gain in 2014 was from an insurance distribution payment.

15. PROFIT MARGIN ON REVENUE (BERRY, 2010) 2014: 2014: 513 / 310000 = 0.0017 = 0.17% 2013: -22555 / 336800 = -0.07 = (7%) loss

16. RETURN ON TOTAL ASSETS (BERRY, 2010) 2014: 2014: 513 / 189451 = 0.0027 = 0.27% 2013: -22555 / 170560 = -0.13 = (13%) loss

17. RETURN ON EQUITY (BERRY, 2016) 2014: 2014: 513 / 8173 = 0.06 = 6% 2013: -22555 / 7660 = -2.94 = (294%) loss

18. HOW MIGHT THE HOSPITAL’S ACQUISITION OF DR. FIDDLE’S PRACTICE IMPACT THE FUTURE FINANCIAL PERFORMANCE OF THE PRACTICE ITSELF If the hospital were to acquire Dr. Fiddle’s practice, she would receive a salary based on her productivity (Jain, 2012). This would encourage her to see more patients or possibly get a partner to increase the Gross Patient Service Revenue. If the hospital were to acquire Dr. Fiddle’s practice, she would receive a salary based on her productivity (Jain, 2012). This would encourage her to see more patients or possibly get a partner to increase the Gross Patient Service Revenue. The practice will receive better reimbursement rates from Medicare/Medicaid and other insurance companies (Jain, 2012). This will increase the Gross Patient Service Revenue. The practice will receive better reimbursement rates from Medicare/Medicaid and other insurance companies (Jain, 2012). This will increase the Gross Patient Service Revenue. The personnel employed by the practice would be absorbed as hospital staff. This would reduce the practice’s operating expenses by eliminating the salaries and wages, and employee benefits (139279 + 13041 = 152320). This would decrease the total expenses from $342812 to $190492. The personnel employed by the practice would be absorbed as hospital staff. This would reduce the practice’s operating expenses by eliminating the salaries and wages, and employee benefits (139279 + 13041 = 152320). This would decrease the total expenses from $342812 to $190492.

19. ALL FACTORS CONSIDERED, DO YOU THINK IT IS A GOOD IDEA TO ACQUIRE THE PRACTICE? I have considered all documentation provided and yes, I believe it would be a good idea to acquire this practice at this time. Financial statements Financial statements The Debt Management ratios and the Profitability ratios show an improvement in financial matters. The Liquidity and the Asset Management ratios show weakening numbers. All of the ratios show areas that need improvement. Site visit considerations Site visit considerations Office is in a prime location to acquire additional patient load Office has enough space to potentially add another physician. This would increase income and patient load. Dr. Fiddle is a strong supporter of Stronger Memorial Hospital’s facility that we would hate to lose. The experimental diagnostic device and patent association to Stronger Memorial Hospital could be a great benefit.

20. REFERENCES Berry, L. (2010). Financial Accounting Demystified. CFA Resources. Retrieved from cfaresources.s3.amazonaws.com/BACommunications/Accounting for Business/Financial_Accounting_Demystifiedh13.pdf Jain, M. (2012, March 12). Doctors in private practices are now joining hospital staffs. From The Washington Post, Health & Science. Retrieved from www.washington.post.com/national/health-science/doctors-in-private-practices-are-now-joining-hospital-staffs/2012/02/14/gIQAEFz07R_story.html