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Financial ratios for University Hospitals

Consider the financial ratios for University Hospitals of Cleveland (UH), Medical Mutual Health Insurance
(MMO), and Kaiser Health Plans (K-P)
Note: “Capital” in the turnover and return ratios is assumed to be the amount provided by long term debt financing plus equity (where “equity”
is typically labeled “net assets” on not-for-profit” balance sheets). In other words, it is permanent capital raised excluding trade credit.
Then the DuPont chart relationships for 2021 financial statements are as follows:
Margin x Turnover x Leverage = Return on Equity
(profit/revenue) (revenue/capital) (capital/equity) = (profit/equity)
UH: 8.8% x 0.2 x 2.1 = 11.8%
MMO: 5.3% x 0.8 x 1.5 = 6.5%
K-P: 8.7% x 1.2 x 1.5 = 15.3%
[a]. For each of these, what factors are the most important determining the level of each multiplier in the relationship? Explain your rationale. (Note: Attached note from class on drivers of financial structure in Appendix A might help in considering candidates)
[b]. How do you suppose the recent epidemic affected this data for each organization? Why?

Sample Solution

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