I.

II.

Executive Summary
(wala pa)
Problems
General: Community General Hospital suffered losses through the years after
desegregation.
Specific:
1.
2.
3.
4.

III.

Adaptability of the management on the present situation.

Inefficient and ineffective credit management.
Competence in the industry.
The wrong person at the right position.

Data Analysis
The situation shows the problem faced by Community General Hospital, a
small private hospital, of the Province of Bukidnon in Central Mindanao.
The hospital existed firstly on World War II as Netibo Memorial Hospital,
a place for the segregated ones; this was when discrimination was at trend.
The years 1950-1960s were the most prosperous period of the hospital.
Then a problem occurred during desegregation in 1960s. At that moment,
the operation of the hospital was affected because many people prefer the
large and better equipped hospitals. Their profitability, solvency, and cash
flows were bad. They suffered from losses and bad debts- Php402, 000 budget
deficit in 1993 and creditors began demanding cash payments.
They believed that a new facility, new location and a new name would
save the hospital. They issued Php15 million bonds and community pledge of
Php1.5 million for them to continue operating. But they still ended up with a
Php749, 000 deficit. They asked for help but it didnt last long.
In 1995, CGHs occupancy rate rose due to their new facility and
equipment but due to high turnover of administration and conflicts between
supporters and management, they sustained losses. By 2010, the board of
supporters agreed to file for bankruptcy and their quality rating continued to
suffer. In 2012, their petition was granted.
By mid-2015, the hospital was still running with a large fund deficit
managed by Dr. Noli Waray, who is not a business expert.
Financial Statement Analysis for 2014
A. Profitability

Profit Margin = Net Income / Revenue

= -671,004 / 10,112,009
= -6.64%
Profit Margin compares the entitys net income to its revenue. It
measures a firms ability to translate sales into earnings for shareholders.
In this case, the hospital has a -6.64% of its profit margin suggesting
that for every P1.00 revenue generated, the hospital needs to contribute
additional money from its budget fund.
Return on Total Assets = Net Income / Total Assets
= -671,004 / 10,543,410
= -6.36%
Return on assets is calculated as net income divided by total assets.
It is a measure of how efficiently a firm utilizes its assets. A high ratio
means that the company is able to efficiently generate earnings using its
assets.
The hospitals Return on Total Assets result has a negative amount
which means that the entity are doing worse in utilizing its assets.
Return on Common Equity (ROE) = Net Income / Total Equity
= -671,004 / -15,996,631
= 4.19%
ROE is a profitability ratio that measures the rate of return on
common stockholders investment.
This case shows that for every P1.00 the hospital generates a net
income there is a P0.0419 return to the shareholders. But the hospital
already incurred losses thus the shareholders also has a loss -P0.0419 for
every loss of P1.00.
B. Liquidity
Current Ratio = Current Assets / Current Liabilities

= 3,065,309 / 4,538,563
= 0.675x
The Current Ratio measures a companys current assets against its
current liabilities. It indicates if the company can pay off its short term
liabilities in case of an emergency by liquidating its assets.
In this case, the hospital shows a low current ratio. This indicates
that the company is having a hard time settling its current obligations. Its
current ratio is below 1.00x which means that even if the hospital liquidate
its all current assets, it would still be unable to cover all its current
liability.
Quick Ratio

(Current

Assets

Inventories

Prepaid

Expenses) / Current Liabilities

= (3,065,309 - 277,191 - 102,066) / 4,538,563
= 0.592x
The acid test ratio is similar to the current ratio except that
Inventory, Supplies, and Prepaid Expenses are excluded. In other words,
the acid test ratio compares the total of the cash, temporary marketable
securities, and accounts receivable to the amount of current liabilities.
The quick ratio of the hospital is low and indicates that the hospital
cannot pay its entire current liabilities even after all its quick assets.
B. Debt Management Ratio
Debt Ratio = Total Debt / Total Assets
= 26,540,041 / 10,543,410
= 251.72%
Debt Ratio measures the percentage of the hospitals total assets
financed by debt. High percentage means that the entity is greatly finance
by the creditor and the opposite is correct. In this case, the hospital greatly
relies for its finances in debts. Its debt to asset ratio is 251.72%.
Debt to Equity Ratio

= Total Liabilities / Total Equity

= 26,540,041 / -15,996,631)
= -165.91%
The debt-to-equity ratio measures the amount of debt capital a firm
uses compared to the amount of equity capital it uses. It shows the
percentage of company financing that comes from creditors and investors.
A higher debt to equity ratio indicates that more creditor financing (bank
loans) is used than investor financing (shareholders).
The hospital has a negative equity thus has also a negative debtequity ratio, means that the hospital has accumulate more losses.
C. Asset Management Ratios
Receivable Turnover = Net Revenue / Average Receivable
= 9,858,446 / (1,547,237+2,108,591)/2
= 5.393x
The Receivable Turnover measures how quickly and efficiently a
company collects its outstanding bills. A high receivable turnover indicates
that cash is collected more quickly for the use of the company. But a low
receivable turnover indicates that the customers are struggling to pay their
debts.
This shows that the average receivables are fully collected 5.393
times in a period.
Average Age of Receivable

= 365 / Receivable Turnover

= 365 / 5.393.....
= 67.678 or 68 days

The Average Age of Receivables indicates how many times per

period the company collects customers accounts receivable and turns it to
cash.
The average age of receivable is 68 days, signaling that on average
receivables were fully collected 5.393 times (receivable turnover) during
the period or once every 68 days (365 5.393).
Fixed Asset Turnover Ratios

= Revenue / Net Fixed Assets

= 9,858,446 / 6,868,138
= 1.435x
Fixed Asset Turnover Ratio measures how the company generates
revenue using its plant and equipment. High fixed asset turnover means that
the entity effectively generates income relative to its small amount of fixed
assets.
In the case, Community General Hospital has a 1.435x fixed asset
turnover.
Total Asset Turnover Ratio

= Revenue / Average Total Assets

=

9,858,446

(10,600,209+10,543,410)/2
= .932x
Total Asset Turnover Ratio measure the ability of the company to
generate revenue through utilization of its total assets. If a company can
generate more sales with fewer assets, the turnover ratio is high and this
will be a good indicator if the company is effectively utilizing their assets.
A lower turnover ratio tells that the company is not using its assets
optimally.

IV.

Key Decision Criteria

1. Considers the skills, experience and expertise of the management.
2. Improve credit management.
3. Increase the profitability.
4. Increase competitive advantages.
5. Enhance the risk management.

V.

ALTERNATIVE ANALYSIS
We can see that deficits and insolvency were just a result of sudden
desegregation which was not adapted by the management. We always wanted
a better financials statement and a better position in the market.
The following are the alternative that could solve or lessen the problems
faced by the management.

A. Reorganize the administration.

Hospital has to be managed by persons with expertise in
profitability,

solvency,

cash

flows,

etc.

Reorganization

of

the

administration and management also includes the training, seminars, or

admission of the management to business related activities for better
business learning.
Pros

The present status of the company will be analyzed.

Can enhance financial statement figures

Cons

It is costly.
The change it brings might not be beneficial to the company as a

whole or in a long run.

New and effective decisions could not be implemented due to their
enclosure with the culture of the company.

B. Hire financial analysts and planner.

It needs a business expert to make the firms life longer. Hospital is
part of the world of business, so a financial analyst can contribute a lot in
the success of the company.
Pros
The present status of the company will be analyzed reliably.
More adaptive to change.
New and effective decisions could be implemented because they
are not enclosed with the culture of the company per se.
Cons

It is costly.
It would deal to decisions new to the management.
It would increase employee turnover.

C. Associate with investors.

Investors include bondholders and shareholder. With such, the
company will be having more funds to use in its existence.
Pros
More fund for the operations
Beneficial when facing high risk period of financial challenges
Ease the lack of cash flow

Cons

More debts, more interest, more expense

Hard to find for the company
Mismanagement of funds might still exist

D. Convert to a smaller but the same business venture.

They have the option to sell its assets and operate minimally. They
could indulge in nursing houses, home of the aged, or to small clinics.
This also includes being in the field of more specialized field of medicinesurgeons, pediatricians, etc.
Pros
Less cost in operations
Less taxes
Less maintenance
Cons

Small revenues
If same management, its operation will cease.

Evaluation of Alternatives
Using the matrix . (paki butangi.;)
(Insert Book 1.xls)\
VI.

ACTION AND IMPLEMENTATION PLAN

Step 1: Hire a financial analyst.
Step 2: Collect data of the hospital and all the factors that lead to their bankruptcy.
Step 3: Analyzing the gathered datas.
Step 4: Plan necessary actions to improve the condition of the hospital then
implement.
The Community General Hospital will implement several short sessions of
technical training programs, with follow-up sessions at desired intervals. This will
expose employees to the condition of the hospital and to acquire the latest
information in their field.

Implement new processes to improve efficiency by correctly flexing staff

to volumes and decreasing the staffing costs without compromising the quality of
care provided.
Establishing network within the community as well as providing
workshops for doctors to gain reputation and vast knowledge.
Get the governing board directly involved or hands-on the hospital.
Provide incentives that will help motivate the employees and for them to
improve their work performance.
Step 5: Monitor the solutions, its effects to the firms resources and stakeholders,
the hospitals timeline and progress. If the result are not what the firm expected
then review alternatives.
Wala pay Implementation
Recommendation
Base on the result in our evaluation of alternatives we recommend to hire
financial analyst or planner as a key person in decision making of the Community
General Hospital.