Vago Taylor Dr. Point
Health Finance Management- HAS 525
December 11, 2011
Milwaukee Surgical Supplies, Inc., sells on terms of 3/10, net 30. Gross sales for the year are $1,200,000 and the collections department estimates that 30% of the customers pay on the tenth day and take discounts, 40% pay on the thirtieth day, and remaining 30% pay, on average, 40 days after the purchase. (Assume 360 days /year.) 1. Calculate the firm’s average collection period.
ACP=(.30*10)+(.40*13)= 8 days
2. Calculate the firm’s current receivables balance.
Receivables balance= ADB*ACP= $1,200,000*8= $9,600,000
3. Calculate the firm’s new receivables balance if Milwaukee Surgical toughened upon its collection policy, with the result that all non-discount customers paid on the 30th day.
ACP= (.30*10)+(.40*30)= 18 days
ADB= 1200000*18days= $21,600,000
4. Assuming the cost to the firm to carry receivables is 8% per annum, calculate the annual savings resulting from the toughened credit policy. (Assume the entire amount of receivables had to be financed.)
5. What is the primary difference between financial statement analysis and operating indicator analysis and why are both types useful to health services managers?
A financial statement analysis is the process of using data contained in a business’s financial statements to make judgments about financial condition. There are three basic financial statements: the income statement, the balance sheet, and the statement of cash flows. These statements show the firm’s operations and its financial position. The data obtained is detailed for two or three most recent periods, and a historical summary of key operating statistics for longer periods are included. Financial statement analysis is applied to historical data, which reflect the results of past managerial decisions and...