Brandywine Homecare, a not-for-profit business, had revenues of $12 million in 2007. Expenses other than depreciation totaled 75 percent of revenues, and depreciation expense was $1.5 million. All revenues were collected in cash during the year and all expenses other than depreciation were paid in cash.
a. Construct Brandywine’s 2007 income statement.
An income statement is summarized events of financial operations or activities of an organization, which focuses on its revenues, expenses, and profitability over a period of time. It is worth noting that ...view middle of the document...
Net Income /Total Revenue = Total Profit Margin. $7.7 million /12,000,000 = $4.3 million. According to Gapenski (2008), “Cash flow can be thought of as net income plus noncash expenses” (p.84). Cash inflow usually arises from one of three activities—financing, operations or investing. The rough estimation of cash flow for Brandywine Homecare is actually the net income plus the non-cash expenses, in this case, depreciation expense. It is as follows:
$1,500,000 + $1,500,000 = $3,000,000
4.5 Consider the following balance sheet
a. How does this balance sheet differ from the one presented in Table 4.1 for Sunnyvale?
The balance sheet, which is a snapshot of the financial position of an organization at a given point in time—reports the assets of an organization and how these assets are financed (Gapenski, 2008). The difference between this balance sheet (4.5) and balance sheet presented in Table 4.1 is that balance sheet presented in Table 4.1 has three major assets: current assets, long term investments and property and equipment (fixed assets). However, the balance sheet presented in Table 4.5 has only current asset, and Net property and equipment. The other difference can be the current assets total for Table 4.1 is $54,306,000, which is for the period of 2007 but for the table 4.5, is $9,869, which is for the period of June 30th 2007.
The networking of capital of Sunnyvale balance sheet is $54,306,000 – $15,425,000 = $38,881,000; however, the net working of capital for BestCare HMO balance sheet is $3,924 - $3,456 = 468,000. According to Gapenski (2008), “ from the liquidity standpoint, the greater an organization’s net working capital, the better.” (p. 97).
b. What is BestCare’s net working for 2007?
The net working of capital for BestCare HMO balance sheet is $3,924 - $3,456 = $468,000. The net working capital is the difference between total current assets and current liabilities (Gapenski, 2008).
c. What is BestCare’s debt ratio? How does it...