HAS 525 - Healthcare Finance: An Introduction to Accounting and Finance Management January 21, 2012
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. 1. Construct Brandywine’s 2007 income statement.
Month ending December 31, 2007
An income statement, or statement of operations, takes the difference between total revenues and total expenses, to show a net income (which can be profit or loss). If revenue exceeds expenses, the result is a profit. If expenses exceeds revenue, the result is a loss. The revenues and expenses, other than depreciation, were collected and paid in cash. The company uses the cash accounting method. Depreciation expense is still considered and all profits must be reinvested in the business. 2. What were Brandywine’s 2007 net income, total profit margin, and cash flow?
The net income for Brandywine Homecare is $1,500,000. The total profit margin, also known as total margin, is the net income divided by total revenues. For Brandywine Homecare it would be as follows:
$1,500,000/$12,000,000 = 0.125 or 12.5%. Each dollar of revenue that is generated produces 12.5% of net income or profit. Total margin measures expense control. Cash floe is the amount of cash that is actually generated during the year. The rough estimation of cash flow for Brandywine Homecare is actually the net income plus the non cash expenses, in this case, depreciation expense. This is shown as follows:
$1,500,000 + $1,500,000 =...