The Role of Financial Statement
As a health care manager, daily management tasks include financial management. Financial management includes items such as labor cost, equipment cost, and a budget that controls the operations. Proper operations requires planning and control. The budget is created using the basic financial information and accounting principles that an organization uses in its monthly, quarterly, and annual financial reports.
After learning the basics of financial statements, it is very important for a health care manager to understand the basic five areas of performance that set the financial plan for the organization. Define and provide an example of what the following mean:
Define the following terms, and explain why they are important in a health care organization:
Total asset turnover
Include a minimum of 2 references.
The Role of Financial Statement
Financial statements show the overall financial health of an organization. The statements help determine whether there are enough assets to help meet the upcoming liabilities. Additionally, financial statements can help in monitoring the progress of an organization by comparing them with the previous financial statements. There are numerous terms used in financial statements. Short-term solvency refers to a ratio that is used to determine the current financial state of an organization through measuring the assets currently being used by the loss or profits made in the organization. If there are fewer liabilities, then it means that there are higher chances of recovering from debt loss. For example, one can use the current assets involved and the equity or debt. Activity refers to any action that an organization undertakes to aid in achieving its economic goals and objectives. An example is anything to do with the movement of money, such as cash inflow and outflow.
Financial leverage refers to an investment plan of using borrowed money, especially the use of different financial tools or borrowed capital to surge the possible investment return t. An example of financial leverage is if an organization utilizes debt financing through borrowing $20 million and it has a total of $25 million to invest in commercial processes and more chances to upsurge the value of shareholders. Profitability is the ability to make a profit whereby the income is higher than expenses (Waxman & CHSE, 2017). For example, if the money made from patients is higher than the expenses spent by the hospital, then that is considered profit. Value refers to the material, monetary, or assessed worth of an asset, good, or service. For example, the value of money can be assessed by the quantity or quality of goods exchanged for money.
The current ratios are assets that cash or will be converted into cash in one year or even less and the liabilities that will be returned in one year or less. The current ratio helps compare all the company’s assets to the company’s liabilities. With the current ratio, the creditors and investors know the liquidity of an organization and the ease of a healthcare organization can pay its current liabilities. The total asset turnover is the ratio of total sales or revenue to average assets. It aids in comparing the sales of a company to the asset base. It also aids in measuring the ability of an organization to efficiently make sales, and it is used by third parties to assess the operations of a nosiness. In healthcare, it can be used as an indicator of the efficiency with which an organization is using its assets to generate revenue. A debt ratio is a financial ratio that assesses the degree of an organization’s leverage. It is the ratio of total debt assets to the total fixed assets articulated as a percentage or a decimal. It is the proportion of the Assets of an organization that are financed by debts. In healthcare, it shows the hospital’s debt compared to overall equity in a hospital.
Profit margin refers to the difference between the selling price of a product or service and the cost of producing and marketing it. It can also be defined as the percentage of revenue that an organization retains as income after deducting the expenses. Health care organizations can know the profits they have made by calculating the profit margin. This will help them make critical decisions on whether there are areas that need improvements to make higher profits for quality improvement projects in the facility.
Waxman, K. T., & CHSE, F. (Eds.). (2017). Financial and business management for the doctor of nursing practice. Springer Publishing Company.