Exhibit 4.16a Key Financial Ratios Liquidity ratios Formulas Current ratio Current Assets / Current Liabilities Quick ratio (Cash + Marketable Securities + Net Receivables) / Current Liabilities Acid test ratio (Cash + Marketable Securities) / Current Liabilities Days in accounts receivable Net Patient Accounts Receivables / (Net Patient Revenues / 365) Days cash on hand [(Cash + Marketable Securities + Long-Term Investments/Operating Expenses Depreciation and Amortization Expenses) / 365] Average payment period, days Current Liabilities / [(Operating Expenses Depreciation and Amortization Expenses) / 365] Revenues, expenses, and profitability Formulas Operating revenues per adjusted discharge Total Operating Revenues / Adjusted Discharges Operating expense per adjusted discharge Total Operating Expenses / Adjusted Discharges Salary and benefit expense as percentage of operating expense Total Salary and Benefit Expense / Total Operating Expenses Operating margin Operating Income / Total Operating Revenues Nonoperating revenue ratio Nonoperating Revenues and Other Income / Total Operating Revenues Return on total assets Excess of Revenues over Expenses / Total Assets Return on net assets Excess of Revenues over Expenses / Net Assets Activity Ratios Formulas Total asset turnover ratio Total Operating Revenues / Total Assets Net fixed assets turnover ratio Total Operating Revenues / Net Plant and Equipment Age of plant ratio Accumulated Depreciation / Depreciation Expense Capital Structure ratios Formulas Long-term debt to net assets ratio Long-Term Debt / Net Assets Net assets to total assets ratio Net Assets / Total Assets Times interest earned ratio (Excess of Revenues over Expenses + Interest Expense) / Interest Expense Debt service coverage ratio (Excess of Revenues over Expenses + Interest Expense + Depreciation and Amortization Expenses) / (Interest Expense + Principal Payments) a Adjusted Discharges = (Total Gross Patient Revenue / Total Gross Inpatient Revenues) × Total Discharges. b In for-profit health care organizations, calculated as Net Income / Total Assets. c Called return on equity in for-profit health care organizations, and calculated as Net Income / Owners’ Equity. d Called long-term debt to equity in for-profit health care organizations, and calculated as Long-Term Debt / Owners’ Equity. e Called equity to total assets in for-profit health care organizations, and calculated as Owners’ Equity / Total Assets. f In for-profit health care organizations, calculated as (Net Income + Interest Expense) / Interest Expense. g In for-profit health care organizations, calculated as (Net Income + Interest Expense + Depreciation and Amortization Expenses) / (Interest Expense + Principal Payments Ratio analysis. The statement of operations and balance sheet for Longwood Community Hospital for the years ended 20X0 and 20X1 are shown in Exhibits 4.19a and 4.19b. Compute the following ratios for both years: current, acid test, days in account.

1. Exhibit 4.16a Key Financial Ratios
Liquidity ratios Formulas
Current ratio Current Assets / Current Liabilities
Quick ratio (Cash + Marketable Securities + Net Receivables) / Current
Liabilities
Acid test ratio (Cash + Marketable Securities) / Current Liabilities
Days in accounts receivable Net Patient Accounts Receivables / (Net Patient Revenues /
365)
Days cash on hand [(Cash + Marketable Securities + Long-Term
Investments/Operating Expenses Depreciation and Amortization Expenses) / 365]
Average payment period, days Current Liabilities / [(Operating Expenses Depreciation and
Amortization Expenses) / 365]
Revenues, expenses, and profitability Formulas
Operating revenues per adjusted discharge Total Operating Revenues / Adjusted
Discharges
Operating expense per adjusted discharge Total Operating Expenses / Adjusted
Discharges
Salary and benefit expense as percentage of operating expense Total Salary and Benefit Expense
/ Total Operating Expenses
Operating margin Operating Income / Total Operating
Revenues
Nonoperating revenue ratio Nonoperating Revenues and Other Income /
Total Operating Revenues
Return on total assets Excess of Revenues over Expenses / Total Assets
Return on net assets Excess of Revenues over Expenses / Net Assets
Activity Ratios Formulas
Total asset turnover ratio Total Operating Revenues / Total Assets
Net fixed assets turnover ratio Total Operating Revenues / Net Plant and
Equipment
Age of plant ratio Accumulated Depreciation / Depreciation Expense
Capital Structure ratios Formulas
Long-term debt to net assets ratio Long-Term Debt / Net Assets
Net assets to total assets ratio Net Assets / Total Assets
Times interest earned ratio (Excess of Revenues over Expenses + Interest
Expense) / Interest Expense

2. Debt service coverage ratio (Excess of Revenues over Expenses + Interest
Expense + Depreciation and Amortization Expenses) / (Interest Expense + Principal Payments)
a Adjusted Discharges = (Total Gross Patient Revenue / Total Gross Inpatient Revenues) × Total
Discharges. b In for-profit health care organizations, calculated as Net Income / Total Assets.
c Called return on equity in for-profit health care organizations, and calculated as Net Income /
Owners’ Equity. d Called long-term debt to equity in for-profit health care organizations, and
calculated as Long-Term Debt / Owners’ Equity.
e Called equity to total assets in for-profit health care organizations, and calculated as Owners’
Equity / Total Assets.
f In for-profit health care organizations, calculated as (Net Income + Interest Expense) / Interest
Expense.
g In for-profit health care organizations, calculated as (Net Income + Interest Expense +
Depreciation and Amortization Expenses) / (Interest Expense + Principal Payments
Ratio analysis. The statement of operations and balance sheet for Longwood Community
Hospital for the years ended 20X0 and 20X1 are shown in Exhibits 4.19a and 4.19b. Compute
the following ratios for both years: current, acid test, days in accounts receiv- able, average
payment period, long-term debt to net assets, net assets to total assets, total asset turnover, fixed
asset turnover, operating revenue per adjusted discharge, oper- ating expense per adjusted
discharge, salary and benefit expense as a percentage of total operating expense, return on total
assets, and operating margin. After calculating the ratios, comment on Longwood’s liquidity;
efficient use of assets or activity ratios; revenue, expense, and profitability; and capital structure
relative to its industry benchmarks for its respective bed size (listed in Exhibit 4.16a). Cite at
least two meaningful ratios per category. Assume for this analysis that Longwood is a 350-bed
facility and its adjusted discharges were 5,500 for 20X0 and 5,400 for 20X1.
EXHIBIT 4.19a STATEMENT OF OPERATIONS FOR LONGWOOD COMMUNITY
HOSPITAL Longwood Community Hospital Statement of Operations for the Years Ended
December 31, 20X1 and 20X0 (in thousands) 20X1 20X0
Revenues
20x1
20x0
Net patient service revenue
54,000
$53,000
Other revenue
1,000
500

3. Total operating revenues
55,000
53,500
Expenses
Salaries and benefits
23,000
22,000
Supplies and other expenses
20,000
23,000
Depreciation
10,000
9,000
Total operating expenses
53,000
54,000
Operating income
2,000
(500)
Excess of revenues over expenses
2,000
(500)
Increase (decrease) in net assets
$2,000
($500)
Balance sheet for longwood community hospital Exhibit 4.19b
Particulars
20x1
20x0
Current Assets
Cash and Cash Equivalents
$6,000
$4,000
Net patient receivables
10,000
8,500

4. Prepaid expenses
1,400
1,300
Total current assets
17,400
13,800
Noncurrent assets
Plants, property, and Equipment
Gross plant, property &Equip.
27,000
24,000
(Less accumulated depreciation)
(1,500)
(1,300)
Net plant, property, and equip.
25,500
22,700
Construction in progress
1,000
4,000
Total assets
$43,900
$40,500
Current liabilities
Account payable
$500
$750
Salaries payable
7,800
9,000
Total current liabilities
8,300
9,750
Long-term liabilities
Bond payable
9,000

5. 8,000
Total long-term liabilities
9,000
8,000
Net Assets
26,600
22,750
Total liabilities and net assets
$43,900
$40,500
Revenues
20x1
20x0
Net patient service revenue
54,000
$53,000
Other revenue
1,000
500
Total operating revenues
55,000
53,500
Expenses
Salaries and benefits
23,000
22,000
Supplies and other expenses
20,000
23,000
Depreciation
10,000
9,000
Total operating expenses
53,000
54,000
Operating income

6. 2,000
(500)
Excess of revenues over expenses
2,000
(500)
Increase (decrease) in net assets
$2,000
($500)
Solution
Answer:
Ratio Analysis of LONGWOOD COMMUNITY HOSPITAL
Comment : Liquidity
As we seen, Current Ratio of the Firm in 2001 was 2.10 whereas in 2000 was 1.42 and acid test
ratio of The Firm in 2001 was 1.93 and in 2000 was 1.28 shown the liqudity increase of the Firm.
This is good sign of Firms growth.
Effeciency use of Asset
Total asset Turnover ratio 1.25 in 2001 where as1.32 in 2000 and fixed asset ratio 2.16 in 2001
and 1.78 in 2000. Total asset effeciency is slightly reduced wheres as Fixed asset effeciency
increase. This is due to increase of liqudity ratio. Over all asste performance of the firm is good.
This indicate the Management go in right poistion but Management also keep in mind to improve
the Total asset turnover ratio.
Revenue, Expenses & Profitibility
Revenue is 55000 in 2001 and 53500 in 2000, Expenses 53000 in 2001 and 54000 in 2000 and
Profit 2000 in 2001 and -500 in 2000. Revenue of the firm increase also expenses decrase and
firm give the profit of 2000 in 2001 while the tfirm made the loss 500 in 2000. It show
Managemnet control the expenses and increase the revenue. This is prove that decision of the
management is right.
Capital Structure
Capital of the Firm also increase from 40500 to 43900, and long term liability also increase from
8000 to 9000. Management should intrduce to their contribution for expension of the firm. Fund
also raised from Long term Liabilties such as bond. But in future Interest expenses on this
liabilities will reduced the profitibality of the firm. So Managemnt try to best to do not accept the
long term liabilities.Ratio20012000Current Ratio2.101.42Acid Test Ratio1.931.28Days in
Account receivables5 days4 daysAverage Payment Period5 days6 daysLong Term debt To Net

7. Asset0.340.35Net Asset to Total Asset0.610.56Total Asset Turnover1.251.32Fixed Asset
Turnover ratio2.161.78Operating Revenue peradjusted discharge109.91Operating Expenses
peradjusted discharge9.6410Salary and Benefit Expenses as percentageof Total
Expenses43.40%40.74%Return On Total Asset4.56%-1.23%Operating Margin3.64%-0.93