Community General Hospital

Community General Hospital

Niesha M. Felder

June 22, 2014

FINC495 - Assignment #1

1. With a quick observation of Community General Hospital’s financial statements, what can one conclude concerning a: profitability (nonprofit viability), solvency, and cash flow?

A.)Profitability – The firm is losing money every year, as evidenced by the growing fund deficit and the two years of financial statements (Stretcher, R. & Michael, T.B. (2005): Teaching Notes, Cases in Financial Management).

There are three measures in evaluates profitability, profit margin, return on asset (ROA) and return on equity (ROE). In the income statement from 1994 to 1995, the total non-operating losses were declined from $908,502 to $876,817. This shows that overall profitability of the hospital was steadily deteriorate although its revenue was increased to 10.1 million in 1995 from $8.9 million in 1994 (BWFF 3193 SEMINAR IN FINANCE – Community General Hospital, para. 19, 2012).

Profit Margin: It is mostly used for internal comparison. A low profit margin indicates a low margin of safety which means higher risk that a decline in sales will erase profits and result in a net loss, or a negative margin. Profit margin is an indicator of a company's pricing strategies and how well it controls costs. Differences in competitive strategy and product mix cause the profit margin to vary among different companies. It showed negative for both 1994 and 1995. It means that the percentage of losses decreased which is from -0.0883 to -0.0664 (BWFF 3913 SEMINAR IN FINANCE – Community General Hospital, para. 20, 2012).

Return on Asset (ROA): ROA is a measure of profit per dollar of assets. In 1994, ROA was -0.0743 and the amount increased to -0.0636 in the next year. The assets were declined from $10.6 million to $10.5 million between 1994 and 1995, so that the ROA also increased. Although CGH had high asset turnover, the poor management by Dr. Noland was led the hospital to...