Dr. Fiddles Medical Practice

 Does the practice generate enough cash to cover its current obligations? ◦ Based on the 2014 income statement, Dr. Fiddle’s practice generates enough cash to cover its current obligations. The liquidity ratio, using the quick or acid test shows that the practice is able to cover current obligations 1.08 times. (Bracker, 2012)

This being said, during the visit to Dr. Fiddle’s office, it was revealed that Dr. Fiddle took a voluntary pay cut in 2014 to give the appearance that the profitability margin was much better than it would have been otherwise.

 Is the practice likely to be able to meet its long-term obligations as they become due? ◦ Data in 2014 shows that the practice is not likely able to meet long term obligations. Solvency ratio analysis is used to determine this information. The debt management ratio for fixed charge coverage (or the income available for meeting fixed charges / fixed charges = times.) (McGraw Hill Professional Publishing, 2010) This shows that the practice was not able to meet their long term obligations in 2014.

 Is the practice increasing its patient encounters and collecting its accounts receivable in a timely manner? ◦ The Income statement shows a decrease in patient service revenue in 2014 from 2013 which could mean that there were less patients. It could also mean that not all monies were collected from patients. ◦ The asset management ratio in 2014 shows that the trend is worse than it was in The 2014 calculation shows that average collection period was days, while in 2013, the average was days to collect. Based on this information, the answer is no, the practice is not collecting its AR in a timely manner.

 What is the practice’s net worth, or equity, and is it improving? Is the practice improving its profitability on a sustainable basis? ◦ The balance sheet shows the practice had a net worth of $189,451 in This is an increase of $18,891 over the 2013 net worth. ◦ During Don’s visit he did note that most of the non- operating gain on the 2014 income statement was generated from a one-time insurance distribution by the FDIC from a failed bank that Dr. Fiddle was banking with. ◦ The practice increased its profitability by over 300% from 2013 to This is outstanding and is a very good sign of growth and potential for the practice to continue in this direction.

◦ Although this is on the qualitative side of analysis, it is an important factor to consider. (Investopedia Staff, 2014)  The new medical diagnostic device that Dr. Fiddle purchased from a colleague has the potential to revolutionize the worldwide market in the medical field.  This could have a huge impact on the hospital and has potential to give them an edge above other hospitals. It could increase the value of the hospital and not just Dr. Fiddle’s practice.

 How might the hospital’s acquisition of Dr. Fiddle’s practice impact the future financial performance of the practice itself? ◦ The practice is a sole proprietorship and therefore the burden of all debts and liabilities are the sole responsibility of Dr. Fiddle. (McGraw Hill Professional Publishing, 2010) ◦ The acquisition of the practice by the hospital would remove this financial burden from one person to an organization. ◦ With the use of hospital accounting staff to manage the daily operations of business, the practice has potential to become more profitable, not only for the practice itself, but also for the hospital.

◦ The location of the practice and its proximity to the hospital have been successful for Dr. Fiddle and for the hospital. ◦ She has been responsible for sending patients for services to Stronger Memorial Hospital: she has sent over 250 for inpatient services and over 1,100 for outpatient services each year.

Because of this location, and the fact that the hospital could use the rented office space that she has for another physician to practice, make this location even more attractive. If she were to sell to another hospital, the patients that were likely to be sent to Stronger Memorial would likely be sent to that other hospital.

 All factors considered, do you think it is a good idea for the hospital to acquire the practice? Why or why not? ◦ This decision should be made based on both the quantitative and qualitative factors. ◦ I think it is a good idea for the hospital to acquire this practice and it goes beyond the “bottom line”. There are many qualitative factors to take into account and what that means for the hospital on many levels is all positive.

 With the help of accounting staff to take care of the day to day operations of the business. Dr. Fiddle would have more time to focus on being a Dr. and continuing her research with the use of the hospital facilities.  Dr. Fiddle’s patients would not need to find a new doctor, if she continued to practice out of her former office. There is also room for another Dr. to move into her location. If two doctors were able to send twice as many patients to Stronger Memorial Hospital for both inpatient and outpatient services, the bottom line for the hospital would also increase.

 Bracker, K. (2012, June 28). You Tube. Retrieved February 11, 2016, from Financial Ratios - Liquidity Asset Management and Debt Management:  Investopedia Staff. (2014, March 17). How do I take qualitative factors into consideration when using fundamental analysis? Retrieved February 14, 2016, from Investopedia LLC:  McGraw Hill Professional Publishing. (2010). Financial Statement Analysis. Retrieved February 10, 2016, from Financial Accounting DeMYSTiFieD: nt%20for%20Business/Financial_Accounting_DeMYSTiFieD%20Ch13.pdf  Clip Art Microsoft Office