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3 pages/β‰ˆ825 words
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APA
Subject:
Health, Medicine, Nursing
Type:
Coursework
Language:
English (U.S.)
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Topic:

Mechanisms for Evaluating Financial Health of Health Care Organizations

Coursework Instructions:

MECHANISMS FOR EVALUATING FINANCIAL HEALTH OF HEALTH CARE ORGANIZATIONS
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. 
Income Worksheet
Income Worksheet
ASSETS LIABILITIES NET WORTH
2012 2013 2012 2013 2012 2013
Operating expenses 1,000,000 1,200,000
Debt retirement 150,000 150,000
Retirement plan 150,000 150,000
Malpractice costs 150,000 150,000
Depreciation 100,000 105,000
Long-term debt 900,000 2,410,000 2,000,000
Revenue 1, 500,000 1,300,000
Equipment & fixtures 1,000,000 1,000,000
Delayed payments 0.00 500,000
Grants 0.00 250,000
Cash in bank 2,360,000 1,455,000
Using the format below, on page 1 of your paper, create a balance sheet as of December 31, 2012, and a balance sheet as of December 31, 2013. Compose them in a table, next to each other, so it will be convenient to compare. You can copy/paste the table below into a Word document.
Calculate the Current Ratio, Working Capital, and Leverage (or Debt/Worth Ratio) for 2012 and 2013 (include those in your paper). 
Discuss the financial trends you believe the board should note in their planning.

Coursework Sample Content Preview:

Healthcare Finance: Mechanisms for Evaluating Financial Health of Health Care Organizations
Name
Course
Instructor
Date
Balance Sheet for 2012 and 2013
Period Ending20122013AssetsCurrent assets Cash in Bank2,360,0001,455,000Revenue1,500,0001,300,000Delayed Payments0500,000Grants0250,000Total Current AssetsFixed Assets Equipment and Fixtures1,000,0001,000,000 (less Depreciation)($100,000)($105,000)Total Fixed Assets900,000895,000Total assets4,760,0004,400,000LiabilitiesCurrent Liabilities Operating costs1,000,0001,200,000Retirement plan150,000150,000Debt Retirement150,000150,000Malpractice Costs150,000150,000Total Current LiabilitiesLong-Term Liabilities Long-Term Debt900,000750,000Total LiabilitiesNet worth (Total equity)2,410,0002,000,000Total Liabilities and net assets4,760,0004,400,000

Background
The balance sheet includes the assets and liabilities to show the financial position of a reporting entity. Health care managers need to consider financial performance and the quality of care. In making the decision whether to build a new $1 million prostate cancer research wing, it is necessary to perform a financial statement analysis. Capital projects are beneficial when they have positive cash flows, and the balance sheet analysis is necessary to determine this. Additionally, financial ratio analysis is useful to determine the financial health of Pearland Medical Center in 2012 and 2013.
Current Ratio, Working Capital, and Leverage for 2012 and 2013
The current ratio depends on the current assets and current liabilities, and in 2012 the current assets were $3,860, 000 being cash in bank and revenue, and the current liabilities were operating costs of $ 1,000,000 and $ 1,200,000 in 2012 and 2013. In 2013, the current asses were 3,505,000 represented by the cash in bank of $ 1455,000, revenue at $ 1300,000, delayed payments of $ 500,000 and grants of $ 250,000. In 2012 the current ratio was 3,860, 000/ 1000, 000= 3.86 compared to 2.92(3,505,000/1,200,000) in 2013. Even though the current ratio decreased, this shows that the organization’s liquidity position has deteriorated; Pearland Medical Center is still able to cover for the current liabilities even as efficiency of the operation cycle decreases. Hospital fiscal management influences financial performance especially when the management is actively involved in control and planning (Collum et al., 2014).
Working capital also highlights the efficiency and liquidity position of an entity and it is difference between the current assets and current liabilities (Dunham-Taylor & Pinczuk, 2015). In 2012 it was $ 2,860,000 (3860, 000- 1,000,000) and 2,305,000 (3,505,000-1,200,000) in 2013. Since the working capital shows changes in current assets and liabilities, it also reflects the cash flows (Burkhardt & Wheeler, 2013). The working capital decreased from 2012 to 2013, indicating th...
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