For-Profit vs. Non-Profit Financial Statements
Ascension Health is the largest non-profit health system in the United States. In contrast, Hospital Corporation of America (HCA) is the largest for-profit health system in the United States.
Review the financial statements of both organizations and identify a minimum of five similarities or differences between for-profit and no-profit financial statements.
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Sample Answer
Healthcare Finance
A healthcare organization can either be a for-profit organization or a nonprofit organization. For-profit healthcare organizations are those entities that want to bring in more revenue than it spends to benefit the owners/investors by selling their products or services. An example of for-profit organizations in the U.S. healthcare system includes the Hospital Corporation of America (HCA) in the United States. It is one of the leading healthcare service organizations in the U.S. It operates 185 hospitals in different states (Hospital Corporation of America, 2021). On the other hand, nonprofit healthcare organizations are companies established for different purposes, such as providing a public benefit other than generating money for the owners or shareholders. They include hospitals, such as Ascension Health, one of the leading providers of healthcare services in the United States. It is a faith-based healthcare organization that is dedicated to transformation through innovation in healthcare (Ascension, 2021). Both profit-oriented and nonprofit companies are required to prepare financial statements to track their revenue and expenses. The financial statements prepared differ based on whether a company is for-profit or nonprofit. Thus, the essay aims to discuss the similarities and differences between financial statements prepared by Hospital Corporation of America (HCA) and Ascension Health.
One of the differences is that this nonprofit and for-profit organization uses financial statements with various features for reporting their assets and liabilities. Ascension Health, a nonprofit organization, uses a statement of financial position while HCA utilizes a balance sheet (Hospital Corporation of America, 2021). Ascension’s statement of financial position is aimed at providing a snapshot of Ascension Health’s finances at a specific point and the company’s assets, which can be allotted as retained earnings to shareholders. Some of the components of this financial statement include the organizations’ assets. This refers to what Ascension Health owns or has. They include its furniture and equipment, cash and money in saving and investment accounts, valuables, such as artwork, long-term investments, prepaid expenses, and investment in endowment funds. Also, the financial statement gives an account of the company’s current and non-current liabilities. They include accounts payable to vendors or service providers and loans being paid by the company, pension, and other postretirement liabilities (Ascension, 2021). Also, this financial statement provides the difference between the company’s assets and liabilities, which generates the company’s net assets, which can be unrestricted or restricted. The unrestricted assets are those the company can use in any way it wishes and at any time. But for the restricted assets, the company uses them for a specific purpose like clearing employees’ salaries (Ascension, 2021). In contrast, for-profit companies such as Hospital Corporation of America (HCA) keep balance sheets instead of the statement of financial position (Hospital Corporation of America, 2021). The balance sheet helps the company to reflect the corporation’s assets distributed as retained earnings to shareholders. The components of HCA’s balance sheet include assets. It lists the company’s assets or its value, like furniture and equipment, cash on hand, real estate, accounts receivable, and investments. It also provides information on the company’s long-term and short-term liabilities. They include the company’s debts and accounts payable (Hospital Corporation of America, 2021). Lastly, the financial statement lists the owner’s or shareholders’ equity. This includes the amount invested into the business initially, and the company decides to retain it at the end of the year rather than payout to investors. The equity is based on the company’s assets, liabilities, and prior profits. It is also used to determine the value of the company’s common and preferred stock.
The other difference between the Hospital Corporation of America (HCA) and Ascension Health is that the for-profit and non-profit organizations have different ways of reporting their income and expenses. Thus, HCA prepares an income statement known as a profit and loss statement (P&L) for reporting its incomes and costs, while Ascension Health prepares a statement of activities. HCA’s profit and loss statement accounts present diverse financial information, including sales and revenue. This includes the company’s income generated by selling its products or services (Hospital Corporation of America, 2021). The second component is operating costs and expenses. These include the costs of healthcare services or products the company has sold, office expenses, advertising costs, and marketing expenses. Thirdly, HCA’s P&L gives information about the company’s net income, which is the difference between its sales and revenue and its operating costs and expenses. The other component includes the HCA’s other sources of income and other costs. On the other hand, the company’s statement of activities lists the company’s revenue, expenses, and the change in net assets. Ascension Health’s sources of revenue include donations from individuals, grant funding, and funds released from restricted endowments (Ascension, 2021).
