Economics case study

Economics case study

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Final Project (Financial Statement Analysis)

You are asked to analyze the following case study in your final project.  Refer to the course
assessment document and the handout  (i.e., Guidelines) for the format of your report and page
and typeface restrictions.


Riverview Community Hospital  is a 210-bed, not-for-profit, acute care hospital with a
long-standing reputation for providing quality healthcare services to a growing service area.
Riverview competes with three other hospitals in its metropolitan statistical area (MSA) – two
not-for-profit and one for-profit.  It is the smallest of the four but has traditionally been ranked
highest in patient satisfaction polls.
Hospitals are accredited by the Joint Commission, an independent not-for-profit
organization whose mission is to improve the safety and quality of healthcare provided to the
public through accreditation and related services. (For more information on the Joint
Commission, visit their website at  Although accreditation is
optional for hospitals, it is generally required to qualify for governmental (Medicare and
Medicaid) reimbursement, and hence the vast  majority of hospitals apply for accreditation.
Riverview passed its latest Joint Commission accreditation with “flying colors” receiving full ac-
creditation, the highest of the accreditation categories.
In recent years, competition among the four hospitals in Riverview’s service area has
been keen but friendly.  However, a large for-profit chain recently purchased the for-profit
hospital, which has resulted in some anxiety among the managers of the other three hospitals
because of the chain’s reputation for aggressively increasing market share in the
markets they serve.
Relevant financial and operating data for Riverview are contained in Exhibits 1.1 through
1.4, and selected industry data are contained in Exhibits 1.5 and 1.6. (Note that the industry data
given in the case are for illustrative purposes only and do not represent actual data for the years
specified. For a better idea of the type of comparative data actually available for hospitals, see
the Ingenix website at
Assume that you have just joined the staff of Riverview Community Hospital as a special
assistant to the CEO.  On your first day on the job, the CEO Melissa Randolph, stated that
the best way to get to know the financial condition of the hospital is to conduct a thorough
financial statement analysis; thus she assigned you the task.  Although you also believe that this
is a good way to get started, you wonder whether Melissa has any ulterior motives.  Perhaps the
hospital is having problems and she thinks that you can spot them or perhaps she wants to test
your analytical skills.  Melissa is from the “ old school” of hospital management and has been
looking for someone to bring modern management methods to the hospital.
In any event, she has already scheduled a financial performance analysis presentation at
the next board of trustees meeting as a way for you to meet the board members.  To help you
structure your presentation, Melissa suggested that you make the following points;
1. Briefly interpret three key financial statements for Riverview Community Hospital.
2. Present an overview of the hospital’s financial position using the Du Pont equation as
a guide.
3. Use ratio analysis to identify the hospital’s specific financial strengths and
weaknesses.  But, she warned, the board is not going to appreciate a lengthy dialogue
with too many individual ratios.  Focus on key findings and one or two ratios per
category—don’t put them to sleep!  Also, use graphs or other techniques to
summarize the data.
4. Summarize your evaluation of the hospital’s financial condition.  However, don’t just
rehash the numbers;  rather, present your views on the potential underlying economic
and managerial factors that might have caused any problems that surfaced in the
financial and operating analysis.
5. Make any recommendations that you believe the hospital should follow to ensure
future financial soundness.