Topic MECHANISMS FOR EVALUATING FINANCIAL HEALTH OF HEALTH CARE ORGANIZATIONS Slp 3 Academic Level : Bachelor Paper details The board of directors of Pearland Medical Center is working on a strategic financial plan for its Urology Surgery Hospital facility. One of the strategic goals is to build a new $1 million prostate cancer research wing in five years. The board is concerned that current economic conditions might reduce revenues over the next five years and they are uncertain about the fate of the planned construction project. You are a part of the team tasked with conducting a capital budgeting analysis. Urology Surgery Hospital reported $1.5 million in revenue in 2012 and $1.3 million in 2013. The hospital’s equity was $2 million in 2013; the equity was $2.41 million in 2012. The hospital received delayed third-party payments in 2013 of $500,000. The hospital received $250,000 in grants in 2013.
The hospital’s current liabilities included operating costs of $1 million in 2012 and $1.2 million in 2013. In addition, the hospital retired $150,000 of debt in 2012 and 2013 (though it still held $750,000 in debt in 2013, compared to long-term debt of $900,000 in 2012). The hospital funded the employee pension plan with matching funds of $150,000 in both 2012 and 2013. Malpractice costs were $150,000 in 2012 and 2013. Depreciation expenses were $100,000 in 2012 and $105,000 in 2013. The hospital is a nonprofit facility so it incurs no tax liabilities. Required Reading Accounting For Management. (2013). Vertical analysis (common-size analysis) of financial statements. Retrieved from http://www.accountingformanagement.org/vertical-analysis-of-financial-statements/ Albrecht, C. & Albrecht, C. (2008). The nature of financial statement fraud. Internal Auditing, 23(4), 22-27. National Health Care Anti-Fraud Association. (2016). The challenge of health care fraud. Retrieved from https://www.nhcaa.org/resources/health-care-anti-fraud-resources/the-challenge-of-health-care-fraud.aspx U.S. Securities and Exchange Commission. (n.d.) Beginners’ guide to financial statements.
Retrieved from http://www.sec.gov/investor/pubs/begfinstmtguide.htm Module Overview Financial statements are the primary medium for reporting the financial standing of organizations in terms of the “bottom line.” Financial statements provide information categorized as assets or liabilities. Financial statements come in four primary forms: the income statement, balance sheet, statement of cash flows, and statement of retained earnings. Income Statement An income statement reports the amount of revenue gained by a company over a specified period of time. Most common are organizational income statements covering a 1-year period ending at a specific date, ordinarily December 31 of a calendar year. Monthly statements are usually prepared for use by management; and quarterly statements must be made available to the board of directors or to the stockholders of publicly held corporations. The instrument reveals the “bottom line” of the company’s net earnings and losses. The income statement is a report that shows how much revenue a company earned over a specific time period (usually for a year or some portion of a year). The income statement also shows the costs and expenses associated with earning that revenue. The literal “bottom line” of the statement usually shows the company’s net earnings or losses. This provides a financial summary of how much the company earned or lost over the period. The income statement lists company assets. Assets include revenue from sales and revenue from investments or other sources. The costs of achieving the revenue, such as marketing, must be subtracted from the revenue total, and the result is the gross profit. The operating expenses are costs, and make up the second part of the income statement. Expenses include salaries, production costs, facilities costs, etc. Operating expenses are deducted as part of the production costs. Depreciation of equipment must be deducted from the gross profit. The deduction of operating expenses from the gross profit results in the income from operations. The next step is to introduce the income from or the costs of interest. Interest income is added and interest costs are deducted from operating income. The final step is to calculate and deduct taxes from the operating income. The result is the net profit or loss for the business. Earnings per share (EPS) is calculated based on the net profit or net loss. The core components of the income statement are revenues, expenses, and profitability (net income). Expenses decrease the organization’s profitability; thus expenses are subtracted from revenues to determine profitability: Net Income = Revenues – Expenses