Community Hospital
PART I – INTRODUCTION
In this case, Dr. Wright, just became the new manager for Community General Hospital. However, the new manager has no background in business. The hospital has struggled in the past and it is now up to Dr. Wright to take the next steps. This is the first problem, the lack of leadership and financial guidance for the hospital. The second issue is the hospitals reputation. The hospital was originally for designated for helping African Americans. This did well from 1940 to the 1960s. After desegregation the reputation for the hospital went down. Throughout the 1970s the hospital struggled with losses and debt. With a deficit of over $20million the hospital filed for bankruptcy. This brings us to the last problem, the debt of the hospital. The hospital has no money and the suppliers will not give them anything unless they pay up front. Also the hospital does not have a specialty such as OBGYN or heart disease. The hospital may succeed if Dr. Wright can put the hospital back on track or if it merges with another hospital, but by doing so that could put other hospitals and their reputations at risk.
PART 2 – METHODOLOGY
Beta = 3 a. Current Ratio = Current Assets / Current Liabilities b. Quick Ratio “Acid Test” = (Current Assets – Inventory) / Current Liabilities c. Debt Equity Ratio = Total Debt / Total Equity d. Debt to Assets Ratio = Total Debt / Total Assets e. Return on Equity Ratio = Net Income / Book Value of Equity f. Operating Margin = Total Operating Profit / Sales Revenue g. Return on Investment = Net Profit Before Taxes / Total Assets h. Z Score Ratio = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5 a. X1 = Working Capital / Total Assets b. X2 = Retained Earnings / Total Assets c. X3 = Earnings Before Interest & Taxes (EBIT) / Total Assets d. X4 = Market Value of Preferred & Common Stock / Total Liabilities e. X5 = Sales / Total Assets
PART 3 SOLUTIONS a. 0.675 =
In this case, Dr. Wright, just became the new manager for Community General Hospital. However, the new manager has no background in business. The hospital has struggled in the past and it is now up to Dr. Wright to take the next steps. This is the first problem, the lack of leadership and financial guidance for the hospital. The second issue is the hospitals reputation. The hospital was originally for designated for helping African Americans. This did well from 1940 to the 1960s. After desegregation the reputation for the hospital went down. Throughout the 1970s the hospital struggled with losses and debt. With a deficit of over $20million the hospital filed for bankruptcy. This brings us to the last problem, the debt of the hospital. The hospital has no money and the suppliers will not give them anything unless they pay up front. Also the hospital does not have a specialty such as OBGYN or heart disease. The hospital may succeed if Dr. Wright can put the hospital back on track or if it merges with another hospital, but by doing so that could put other hospitals and their reputations at risk.
PART 2 – METHODOLOGY
Beta = 3 a. Current Ratio = Current Assets / Current Liabilities b. Quick Ratio “Acid Test” = (Current Assets – Inventory) / Current Liabilities c. Debt Equity Ratio = Total Debt / Total Equity d. Debt to Assets Ratio = Total Debt / Total Assets e. Return on Equity Ratio = Net Income / Book Value of Equity f. Operating Margin = Total Operating Profit / Sales Revenue g. Return on Investment = Net Profit Before Taxes / Total Assets h. Z Score Ratio = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5 a. X1 = Working Capital / Total Assets b. X2 = Retained Earnings / Total Assets c. X3 = Earnings Before Interest & Taxes (EBIT) / Total Assets d. X4 = Market Value of Preferred & Common Stock / Total Liabilities e. X5 = Sales / Total Assets
PART 3 SOLUTIONS a. 0.675 =