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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.