ECO 605 Assignment 6.2: Ratio Analysis

Introduction

In this assignment, you will perform ratio analysis using the balance sheet for XYZ Hospital. Use the

to record your responses.

Assignment Guidelines

Instructions

1. 1. Review the following table:
      

      XYZ Hospital
      Balance Sheet
      December 31, 20xx

      	Description	Amount
      Current Assets	Cash and investments (savings/checking)	$80,000
      	Patient revenue (money owed to hospital)	$472,000
      	Inventory (on the shelf)	$16,400
      	Subtotal	$568,400
      	Less
      	Bad debt	($57,200)
      	Charitable allowance	($14,100)
      	Contractual allowance	($269,300)
      	Subtotal	($340,600)
      	Total Current Assets	$227,800
      Fixed Assets	Land	$29,000
      	Buildings (plant)	$805,000
      	Equipment	$610,000
      	Construction in progress	$37,000
      	Total Fixed Assets	$1,481,000
      	Less accumulated depreciation	($880,800)
      	Net Fixed Assets	$600,200
      	Total Assets	$828,000
      Current Liabilities	Accounts payable salaries, supplies, pharmaceutical	$36,560
      	Accrued compensation and benefits	$10,900
      	Accrued liabilities (interest, physician contracts)	$10,870
      	Total Current Liabilities	$58,330
      Debt	Long-term debt	$38,000
      	Short-term debt	$2,100
      	Total Debt	$40,100
      	Total Liabilities (Total Current Liabilities + Debt)	$98,430
      	Net Worth (Assets − Liabilities)	$729,570
      	Total Liabilities and Net Worth	$828,000

   2. Use the

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Summary

In the first lesson this week, you learned about the various financial statements needed to ascertain the business health of an organization. Given the constant changes of healthcare delivery and the growing complexity of financial arrangements, knowledge of financial statements has become a critical skill for nurse leaders. The balance sheet, the profit and loss statement, and cash flow statements help nurse leaders better understand the workings of their organizations and make better management decisions.

Given the size and importance of the healthcare industry, healthcare organizations have come under increasing financial pressure. The financial ratios presented in this lesson provide nurse managers a better understanding of the business needs of their organizations. By calculating and identifying positive and negative variances, nurse managers are equipped to explain why a healthcare budget may not meet targeted outcomes. Finally, knowledge of key performance indicators assists nurse managers in their role of procuring and administering their resources.

The underlying reasons that drive the increase are the change in current assets, fixed assets, and the current liabilities and long-term liabilities. Net worth is total assets minus liabilities (Waxman, 2018) and in the latter year, the net worth of the company increased 3%.

The gross assets of the company increased 29% and the net assets increased 94%. In 2016, the company had less current assets and more bad debt. The amount of bad debt from 2016 to 2017 decreased 26%. Bad debt is when a receivable is no longer able to be collected because a customer is not able to pay (Waxman, 2018). In 2017, the company had more current assets and less bad debt. The amount of cash/investments the company had increased 40% from the previous year. The patient revenue (accounts receivable) increased 26% ($101,880) which means that more money was owed to the company from the patients and/or insurers (Waxman, 2018). The charitable allowance did not have a significant change between the two years.

Regarding fixed assets such as land, buildings, equipment, and construction, there were no major changes and depreciation did not play an impactful role in the balance sheet. The total fixed assets change in one year was 0.2% and the less accumulated depreciation decreased 9%. The 9% depreciation accounts for the value lost on the original purchase price of the company’s fixed assets (Waxman, 2018).

The current liabilities had a decrease of 22% from 2016 to 2017. The accounts payable salaries, supplies, and pharm liabilities increased the most, 32%. The accrued compensation and benefits, accrued liabilities, and current portion of long-term debt had little effect.

The long-term liabilities of the company include bonds payable and mortgage payable. The bonds payable increased $1000 and the mortgage payable increased $200. These increases did not drastically affect the net worth of the company.

The total liabilities were less than the total assets in both years however, the difference in 2017 was greater which means that 2017 had a higher net worth for the company.

Reference

Waxman, K.T. (2018). Financial and Business Management for the Doctor of Nursing Practice. Springer Publishing Company.