Question

Problem 1 Consider the following Green Valley Nursing Home Income Statement Revenue: Net patient service revenues Other income $2,862,000 106,146 $2,968,146 Total Revenues Expenses Salaries and benefits Medical supplies and drugs $ Insurance and other Provision for bad debt Depreciation Interest $1,132,000 966,781 296,357 110,000 85,000 206,780 S2,796,918 Total Expenses Operating income Provision for income taxes 171,228 31,167 NET INCOME 140,061 3.3(b) Why does Green Valley show a provision for income taxes while BestCare HMO does not? 3.2(c) What is Green Valley's total profit margin? Net Income Total Revenue Profit Margin #DIV/0 ! 3.2(c) How can the profit margin be interpreted?

Answer 1

3.3 b)
The Green Valley show a provision for income taxes while BestCare HMO
does not because Green Valley has of positive income before tax which
is with in the taxable limit, while BestCare HMO does not have any positive
income or occuring loses.
3.2c)
Net Income of Green Valley = $140061
Total Revenue of Green Valley = $2968146
Profit Margin = Net Income / Total Revenue = 140061/2968146 = 0.0472 or 4.72%
3.2c)
The interpretation of the profit margin :
		Common Size
Revenue	2968146	100%
Expenses:
Salaries	1132000	38.1
Supplies	966781	32.6
Insurance	296357	10.0
Bad Debt	110000	3.7
Depre	85000	2.9
Interest	206780	7.0
Total Expenses	2796918	94.2
Operating Income	171228	5.8
Taxes	31167	1.1
Net Income	140061	4.7
Of the total revenue of 100%, the total expenses and taxes are 94.2% and 1.1% respectively
Thus, the portion of net income in the revenues comes out to 4.72%.