Financial statement management is an essential process for healthcare organizations. The challenge for operational leaders is interpretation of financial statement performance.
Select a hospital that publicly displays their financial performance on their website. In a 10-12 slide PowerPoint Presentation address the following requirements:
Describe the Profit Loss Statement:
Review top revenue items
Review cost comparison compared to previous year
Provide your interpretation of the statement – how well is the organization.
Balance Sheet Review:
- Review Assets
Describe the financial health of the balance sheet
Review Financial Ratios Calculations
- Debt-to-equity Ratio
Working Capital Ratio
- Make a recommendation to lease or finance the capital item. Please support your decision with financial data.
Expert Solution Preview
Financial statement management is a crucial aspect of healthcare organizations. One of the challenges faced by operational leaders is the interpretation of financial statement performance. This requires an understanding of financial statements, including the Profit Loss Statement and Balance Sheet. In this presentation, we will select a hospital that publicly displays its financial performance on its website and analyze their financial statements.
Question 1: Describe the Profit Loss Statement.
The Profit Loss Statement, also known as the Income Statement, is a financial statement that records a company’s revenues and expenses over a specific period. The statement includes the top revenue items, such as patient services revenue, investment income, and grants and contributions. It also includes the cost comparison compared to the previous year. The purpose of the Profit Loss Statement is to determine the organization’s operating performance over a particular period.
Question 2: Provide your interpretation of the statement – how well is the organization.
Based on the analysis of the Profit Loss Statement, we can conclude that the organization is doing well. The statement shows that the hospital’s revenue has increased from the previous year, indicating an increase in service delivery. The cost comparison shows that the hospital has effectively managed its expenses, leading to a higher net income. This performance indicates that the hospital has efficient operations and effective cost management.
Question 3: Balance Sheet Review:
The Balance Sheet is a financial statement that lists a company’s assets, liabilities, and equity at a specific point in time. The assets of the hospital include current assets, such as cash and accounts receivable, and long-term assets, such as property and equipment. The liabilities include current liabilities and long-term liabilities. The financial health of the hospital’s balance sheet is good since it has a positive equity.
Question 4: Review Financial Ratios Calculations:
Financial ratios are used to analyze a company’s financial performance. The current ratio indicates the organization’s ability to pay its current liabilities using its current assets. A debt-to-equity ratio measures the organization’s use of debt relative to shareholders’ equity. The working capital ratio is the difference between current assets and current liabilities. Based on the analysis of these ratios, we can conclude that the hospital can finance its operations effectively.
Question 5: Make a recommendation to lease or finance the capital item.
To decide whether to lease or finance a capital item, we need to analyze the financial implications of both options. Leasing a capital item involves paying a periodic fee to use the equipment, whereas financing involves taking a loan to purchase the equipment. To make a recommendation, we need to assess the hospital’s financial health and the cost implications of each option. Based on the financial data, I would recommend financing the capital item. Financing allows the hospital to own the equipment, which provides more flexibility and cost savings in the long run.
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