Mechanisms for Evaluating Financial Health of Health Care Organizations

Question description

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

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 900,000 750,000
Net worth (Total equity) 2,410,000 2,000,000
Revenue 1,500,000 1,300,000
Equipment and 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
  1. 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.
  2. Calculate the Current Ratio, Working Capital, and Leverage (or Debt/Worth Ratio) for 2012 and 2013 (include those in your paper).
  1. Discuss the financial trends you believe the board should note in their planning.
Urology Surgery Hospital Balance Sheet

as of Dec 31, 2012

Urology Surgery Hospital
Balance Sheetas of Dec 31, 2013
Assets
Current Assets
Cash in Bank
Revenue
Delayed Payments
Grants
Total Current Assets
Fixed Assets
Equipment and Fixtures
(less Depreciation)
Total Fixed Assets
Total Assets
Liabilities
Current Liabilities
Operating Expenses
Debt Retirement
Retirement Plan
Malpractice Costs
Total Current Liabilities
Long-Term Liabilities
Long-Term Debt
Total Liabilities
Net Worth (Total Equity)
Total Liability and Net Worth

Length: 3 pages, excluding title page and references.

REQUIRED READING

Accounting For Management. (2013). Vertical analysis (common-size analysis) of financial statements. Retrieved from http://www.accountingformanagement.org/vertical-an…

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-f…

U.S. Securities and Exchange Commission. (n.d.) Beginners’ guide to financial statements. Retrieved from http://www.sec.gov/investor/pubs/begfinstmtguide.h…

 

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