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Jan 9, 2024
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Financial Viability
Sharon Sornoza
South University
NSG6605 Quality Outcomes and Financial Management in Healthcare Organizations CP01
Dr. Linda Robinson
December 15, 2023
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Financial Viability
Financial reports are critical to evaluating the company's financial stability within the healthcare organization. Critical financial statements are used to report the organization's finances: the statement of financial position (or balance sheet), the statement of operations
(or income statement), the statement of changes in net assets
(or changes in equity), and the statement of cash flows
(Finkler et al., 2018, p. 111). The information obtained from these statements allows the organization to make financial decisions to further its advancement in healthcare.
Statements
The statement of financial position
, or balance sheet, specifies assets and debts (or liabilities) at a single point in time, and the total assets must equal the total debts to be balanced (Finkler et al., 2018). The equation used for this balancing sheet is assets = liabilities + net assets, which are listed in order of liquidity (Smith & Welch, 2021). As described by Smith & Welch, 2021, assets are like the money you have in your bank accounts: checking/savings, certificate of deposit (CD), and home equity. On the other hand, liabilities are listed from short-
term to long-term debt and are comparable to having a household utility bill to owing money on a 30-year bond (Smith & Welch, 2021). The operating statement,
or income statement, shows revenue gained from providing services to patients, expenses, and net income. The statement of changes in net assets
“reconciles the net assets from the end of the previous year to the end of the current year” (Finkler et al., 2018, p. 126). This document demonstrates “temporary and permanent restrictions, investment income-restricted for specific purposes, and net assets released from restrictions” (Finkler et al., 2018, p. 126). Revenue and expenses are measured using an accrual
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method where the transactions are recorded when they occur vs. only on the income statement, as seen with cash-based accounting (Smith & Welch, 2021). To further clarify, think of the accrual method as a preview of what your paycheck will look like before the funds are available in your account (revenue) and the bills you receive showing what you owe before you pay them (expenses) (Smith & Welch, 2021).
The statement of cash flows
acts like a checkbook balance sheet; it demonstrates where the money comes from, where it goes, and the ability to meet financial requirements.
Analysis of financial statements
The techniques for interpretation and analysis of financial statements, such as cash flow statements, statements of changes in net assets, and common ratios, are audits, reviewing the statement of financial position and the operating statement, and lastly, completing a ratio analysis. Notes are added to financial statements to provide a “fair representation of the financial
position, results of operations, and cash flows of the organization per generally accepted accounting principles (GAAP). Notes are written to depict the type of accounting principle used for inventory, any charity care provided by the organization, or any pending loss from litigation case decisions. Ratio analysis examines the relationship between two numbers and converts them into percentages. Examples include determining the healthcare organization's occupancy rate and comparing ratios against the industry and other similar-sized facilities. The common size ratio aims to “make an organization comparable to other organizations of different sizes” (Finkler et al., 2018, p. 128).
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Some key common size ratios are: (Finkler et al., 2018, Exhibit 7.2)
Conclusion
As discussed above, all the financial statements represent the organization's financial history and stability to sustain operations. Critical financial statements are used to report the organization's finances: the statement of financial position (or balance sheet), the statement of operations
(or income statement), the statement of changes in net assets
(or changes in equity), and the statement of cash flows. The nurse manager needs to obtain their organization’s financial
statement with audits to understand how well or poorly the organization is doing financially and its implications for their budget. Management reports focus on future results that are not limited by the rules of GAAP and are specific to their department, allowing a better understanding of the
financial goals and limitations and how to keep their department within the budget.
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References
Finkler, S. A., Jones, C. B., Kovner, C. T., & Mose, J. (2018). Financial management for nurse managers and executives
(5th ed.). Saunders/Elsevier.
Smith, T. B., & Welch, T. D. (2021). Interpreting organizational-level financial statements. Nursing Administration Quarterly
, 45
(4), 353–359. https://doi.org/10.1097/naq.0000000000000483