Financial Analysis Project
Whether you are examining the financial performance of your current employer or considering the financial position of a future employer, the need to critical analyze financial statements plays a critical role in your assessment. The purpose of this assignment is for you to apply analytical skills to gain insight into financial performance and other measures that assess an organizationâ€™s financial health and vitality.
1. Obtain the most recent annual report for your health care organization or a selected health care organization. The report should contain at income statement data and balance sheet data for more than one year for analysis purposes.
2. Analyze at least 3 (three) items on the income statement for the selected health care organization company that would be important to evaluate financial performance and discuss whether your companyâ€™s performance related to these items appeared to be improving, deteriorating, or remaining stable. Calculate some key ratios to lend support to your analysis. What are the trends are noteworthy concerning revenues and expenses. Justify your answer.
3. Analyze at least 3 (three) items on the balance sheet for your base company that would be important to evaluate the financial well-being of the organization, and discuss whether your companyâ€™s performance related to these items appeared to be improving, deteriorating, or remaining stable. Justify your answer.
4. Analyze your base companyâ€™s investing and financing activities for the most recent year as identified in the statement of cash flows, specifically identifying the two largest investing activities and the two largest financing activities. Discuss whether you agree or disagree with the investing and financing strategies that your company appears to be employing.
5. Identify 2 (two) items not included in (or derived from) the financial statements that you think would be important in analyzing the health care organization’s financial well-being.
6. Provide a general summary of overall financial performance for the selected health care organization. Based on your analysis, describe three strengths and three weaknesses that you identified that would be important considerations in a leader role.
To satisfy the expectations of the assignment:
1. You must submit the entire annual report for each company being discussed.
2. Your analysis must include page references to relevant portions of the annual reports. Your report must also contain appropriate quotation marks for quoted material and appropriate citations for material taken from sources outside the financial statements.
3. Your analysis should general comply with APA format and be 4-6 pages long.
Financial Analysis Project
Mass general Brigham Incorporated, formerly referred to as Partners Healthcare Systems incorporated, is the sole governing member of the Massachusetts General Hospital (MGH). All the activities of the Massachusetts General Hospital are therefore included in the Mass General Brigham incorporated and affiliates consolidated financial statements.
Financial Performance of Massachusetts General Hospital-Based On Income Sheet
The three key items in the MGH income statement that would be vital in helping evaluate the financial performance of the healthcare facility include the operating revenues, operating expenses, and changes in net assets in the healthcare facility. For the year 2019, the total operating revenues of Massachusetts General Hospital were $13 951,337, 000 with a slight increase in operating revenues being witnessed in 2020 as MGH reported total operating revenues of $14,058,627, 000(PWC, 2020, P.4).On the other hand, the total operating expenses for the Massachusetts General Hospital increased from $13,569,510 000 in 2019 to $14,409,140 000 in 2020, which indicated a slight increase in the operating expenses of the healthcare facility(PWC, 2020, P.4). Between 2019 and 2020, Massachusetts General Hospital witnessed a significant increase in unrestricted net assets from $285,000 in 2019 to $740,729 000 in 2020(PWC, 2020, P.4). Considering the operating revenues of MGH between 2019 and 2020, it is clear that the healthcare facility only witnessed a slight increase in operating revenue of 0.76%. The healthcare facility also witnessed a significant increase in operating expenses, with the operating expenses rising by 6.19% in 2020 compared to 2019. Massachusetts General Hospital also enjoyed a significant increase in unrestricted net assets between 2019 and 2020, with nearly 160% growth in unrestricted net assets between the two years. Considering that the Massachusetts General Hospital operating revenue only increased by 0.76% compared to a 6.19% increase in operating expenses, it is evident that the performance of MGH has been deteriorating. A significant increase in expenses in the healthcare facility did not result in a corresponding increase in revenue. Despite the organization enjoying a significant increase in unrestricted net assets between 2019 and 2020, the revenues remained low, highlighting the significant inefficiency of the healthcare facility in utilizing assets to generate revenue. Comparing the income statement of MGH between 2019 and 2020, it is therefore evident that the rising expenses significantly outpaced the growth in revenue.
Financial Performance of Massachusetts General Hospital-Based On Balance Sheet
The three items in the Massachusetts General Hospital balance sheet that would be important in helping to evaluate the financial well-being of the healthcare facility would include the total current assets, total current liabilities, and total net assets of the healthcare facility. In 2019 the total current assets of MGH were $7,250, 376 000 which rose to $9,417,936,000 in 2020(PWC, 2020, P.3). On the other hand, the total current liabilities of the MGH rose from $2,573,709 in 2019 to $4,185,610 000 in 2020(PWC, 2020, P.3). Finally, the total net assets of MGH increased from $9,747, 719, 000 in 2019 to $10,620,294000(PWC, 2020, P.3). Comparing 2019 and 2020 Massachusetts General Hospital witnessed a 30% growth in total current assets. In contrast, MGH witnessed a more than 62% increase in total current liabilities between 2019 and 2020 and only an 8.95% increase in total net assets. Comparing the changes in the total net assets and the total net liabilities of the MGH, it’s evident that between 2019 and 2020, the healthcare facility’s liabilities grew more than double compared to the facility’s assets. Comparing the growth in assets and liabilities in the MGH, it is evident that the healthcare facility’s financial performance has deteriorated significantly between 2019 and 2020. The Healthcare facility has been accumulating more liabilities than assets which have been significantly affecting its financial performance in a negative way. To improve its financial performance, the MGH needs to find ways of controlling its liabilities in a way that does not hamper growth.
Investing and Financing Activities Based On Statement of Cash Flows
Between 2019 and 2020, the Massachusetts General Hospital has been engaged in various investing and financing activities. The two largest investing activities that the Massachusetts General Hospital has involved itself in the past two years have included the purchase of property and equipment and the purchase of an investment. In 2019 MGH spent $837 584 0000 on the purchase of property and equipment (PWC, 2020, P.6). In 2020 MGH spent 563 746 000 on the purchase of property and equipment, which was significantly lower than the amount spent in 2019(PWC, 2020, P.6). The second most significant investing activity of the MGH in both 2019 and 2020 was the purchase of investments. In 2019 the healthcare facility spent $3,653,436, 000 in equipment purchase and subsequently spent $2,350,917, 000 in 2020(PWC, 2020, P.6).
On the other hand, the two largest financing activities that MGH conducted was borrowing 375,000,000 under various lines of credit and paying 1,462,860 for long-term obligations (PWC, 2020, P.6). Considering the investing activities of MGH, it is evident that the healthcare facility has begun gradually reducing the purchase of property and equipment. I agree with this strategy by the healthcare facility because the income statements of MGH suggest that the healthcare facility is not efficient in the utilization of its current resources in making profits. The healthcare facility should focus more on improving efficiency as opposed to investing money in the purchase of the property and equipment. I also agree with MGH utilizing a significant amount of their cash flow to purchase investments every year which can go a long way in helping to support the facilities operations and improve the financial position of the institution. On the other hand, I agree with the financing activities of MGH, with the healthcare facility allocating a significant amount of its cash flow to servicing long-term obligations. This is because by significantly reducing its debts, MGH can be able to improve its financial position.
Important Items Not Included In the Financial Statements
The two important items that are not included in the financial statements of the Massachusetts General Hospital but are will be vital in analyzing the financial well-being of the healthcare facility include the net margin and operating efficiency. The operating efficiency of a healthcare facility will be important to its financial success. The operating efficiency of an organization includes considering the basic operation of the profit margin of an organization after the reduction of various production costs and the cost of marketing. The operating efficiency indicates how well an organization is able to control costs (Jones et al., 2019). On the other hand, the net margin is another important metric that can be important in evaluating the financial well-being of the MGH. The net margin includes a ratio of net profit over total revenues. The healthcare facility with a low net margin is in poor financial condition because the rise in operation cost combined with other factors in the market can lead to heavy losses (Curtis & Theodore, 2019).
Summary of Overall Financial Performance of MGH
Considering the current financial performance of the Massachusetts General Hospital, the three main financial strengths that the healthcare facility enjoys in the present include having a large asset base, manageable debts, and a high number of paying patients. The Massachusetts General Hospital has a lot of assets both in property and equipment that allow it to serve patients effectively. The healthcare facility also has manageable debt and a high number of paying patients.
In contrast, the main weaknesses of MGH include having a low net margin, high operational efficiency, and uncontrolled liabilities. Despite the healthcare facility utilizing a lot of funds in the purchase of assets, the facility suffers significantly from low operational efficiency. The lack of efficiency in the utilization of assets and human resources in the healthcare facility contributes to the low net margin that makes the healthcare facility less profitable. Uncontrolled labilities also contribute to the poor financial performance of the Massachusetts General Hospital (PWC, 2020).
Curtis, P., & Theodore. (2019). Health Care Finance, the Performance of Public Hospitals and Financial Statement Analysis. EUROPEAN RESEARCH STUDIES JOURNAL, XII(Issue 4), 199–212. https://doi.org/10.35808/ersj/253
Jones, C., Finkler, S. A., Kovner, C.T., & Mose, J. (2019). Financial Management for Nurse
Managers and Executives (5th ed.). St. Louis, MO: Elsevier, Inc.
PWC. (2020). Mass general Brigham Incorporated and affiliates consolidated financial statementsSeptember 30 2020 and 2019. PricewaterhouseCoopers.