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Mathematics & Economics
Math Problem
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What is the Megatropolis Hospital's Operating Margin? (Math Problem Sample)


Refer to Megatropolis Hospital’s financial statements below for calculating the ratios requested in problems 1 to 6.
Statement of Operations
For the Year Ended December 31, 2010
Revenues, Gains, Other Support
Net patient service revenue $ 1,500,000
Other revenue 200,000
Total Revenue 1,700,000
Nursing Services 1,200,000
Administrative Services 200,000
Depreciation 100,000
Other Expenses 50,000
Total Expenses 1,550,000
Operating Income 150,000
Investment Income 50,000
Excess of revenues over expenses 200,000
Increase in Unrestricted Net Assets $ 200,000
Note: Questions are on next page. 
Megatropolis Hospital
Balance Sheet
As of December 31, 2010 (2009 omitted)
Current Assets
Cash and cash equivalents $ 50,000
Net patient receivables 350,000
Total Current Assets 400,000
Properties and Equipment
Gross properties and equipment $ 900,000
Less accumulated depreciation 475,000
Net Properties and Equipment 425,000
Total Assets $ 825,000
Liabilities and Net Assets
Current Liabilities
Accounts Payable 200,000
Salaries Payable 50,000
Total Current Liabilities 250,000
Notes Payable 200,000
Unrestricted Net Assets 375,000
Total Liabilities and Net Assets $ 825,000
1. What is Megatropolis Hospital’s operating margin?
2. What is Megatropolis Hospital’s days in accounts receivable?
3. What is Megatropolis Hospital’s long-term debt to net assets ratio?
4. What is Megatropolis Hospital’s age of plant?
5. What is Megatropolis Hospital’s fixed asset turnover ratio?
6. What is Megatropolis Hospital’s days cash on hand?


Megatropolis Hospital's Financial Statements
Student's Name:
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Megatropolis Hospital's Financial Statements
Question One
What is Megatropolis Hospital's operating margin?
Operating margin measures a company's total profitability as total revenue percentage. Operating margin or operating profit margin finds out how much revenue you have after paying operating costs and variable costs. It should indicate the revenue available for covering non-operating costs such as interests. Operating margin ration helps investors and creditors in decision-making. Stable companies that make more money from operation activities are good to invest in and lend money. Expense
Operating margin=net operating incomeoperating income×100=operating revenue-operating Expenseoperating revenue×100
1500170=8.82%. The hospital is earning about $0.09 (8.82/100) for every dollar of sales before interest and tax.
Question two
What is Megatropolis Hospital's days in accounts receivables?
Days in account receivables is the number of days that an invoice is converted to payment or days a company receives payment on goods it has sold. Numbers, which are more than 40, indicate significant pressure on cash flow and collection problem. Numbers that are lower than 40 days indicate strict credit policies that may prevent high returns on sales.
Days in Account Receivable=Net Patient accounts receivablesNet Patient Service revenue×360
=85 days
This ratio indicates the number accounts received by Megatropolis in a year. Low days means the company has poor credit collection process.
Question three
What is Megatropolis Hospital's long-term debt to net assets ratio?
Long-term debt to net assets ratio
The long-term debt to net assets ration determines the hospital's total assets that are financed by loans and its financial obligations that are old than one year (the rati...
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