course material

1. MECHANISMS FOR EVALUATING FINANCIAL HEALTH OF HEALTH CARE
ORGANIZATIONS
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

2. 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