Question

Create and Interpret XXX's financial statement of cash flows for 2013. What information does it provide regarding the HMO’s sources and uses of cash over the past year? (in millions)

Statement of operations             2012                          2013

Premium Revenue                   $313.7                        357.6

Interest income                        2.4                               3.5

Total Revenues                       $316.1                        $361.1

Operating expenses:

Medical cost                             $263.0                        $291.8

Selling & admin                        36.8                            43.6

Depreciation                             4.7                               5.0

Total operating expenses      $304.5                           $340.4

Net Income                           $11.6                                 $20.7

Balance Sheets

Cash                                        $37.2                          $27.2

Marketable Securities             42.7                                60.9

Premiums Receivable               3.7                                  7.4

Total Current Assets               $83.6                           $95.5

Net fixed Assets                       30.0                             31.7

Total Assets                             $113.6                        $127.2

Medical cost payable               $44.8                          $48.7

Accounts Payable/Accruals       15.4                            17.3

Total Current Liabilities         $60.2                            $66.0

Long-term debt                        17.1                             4.2

Net assets (equity)                  36.3                             57.0

Total Liabilities & net assets $113.6                        $127.2

Other data

Medical cost ratio                            83.8% ,                               81.6%

Admin cost ratio                                   13.2%                            13.6%

Total Comm. premium revenue $170.9                               $205.6

Total Medicare Revenue               $142.8                           $152.0

Total physician service expense $125.6                           $127.1

Total inpatient expense                 $80.8                               $90.1

Total Other Medical Expense      $56.6                                $74,6

Answer 1

Interpretation :-

1) Cash flow from operating activity

;Net Income includes cash and non cash item(i.e Depreciation ), non operating income(interest income), but we have calculate cash from operating activity, So we have exclude effect of the non cash items & non operating income.

;and increase in account payable ; it means we are not paid account payable, so we have adding the increase in account payable.

2) Cash flow from Investment activity

;Opening Fixed assets balance is 30. and closing balance is 31.7 and after charging deprecation 5 , then closing balance should be 25 but the closing is 31.7 it means we have purchased the fixed assets and it is outflow of cash (31.7-25=6.7)

; Interest income on marketable security ,it is not part of our operation , so interest income is part of investment activity.

; Opening balance of marketable security is 42.7 and closing balance is 60.9 , it presents increase in investment (60.9-42.7=18.2) is purchase of new marketable investment.

3)Cash flow from financial activity

Decrease in long term debt, it means repayment of long term debt (17.1-4.2=12.9)