Healthcare Finance SLP 3

Mechanisms for Evaluating Financial Health of Health Care Organizations

The board of directors of Pearland Medical Center is working on a strategic financial plan for its Urology Surgery Hospital facility. One of the strategic goals is to build a new $1 million prostate cancer research wing in five years. The board is concerned that current economic conditions might reduce revenues over the next five years and they are uncertain about the fate of the planned construction project. You are a part of the team tasked with conducting a capital budgeting analysis.

Urology Surgery Hospital reported $1.5 million in revenue in 2012 and $1.3 million in 2013. The hospital’s equity was $2 million in 2013; the equity was $2.41 million in 2012. The hospital received delayed third-party payments in 2013 of $500,000.

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The hospital received $250,000 in grants in 2013.

The hospital’s current liabilities included operating costs of $1 million in 2012 and $1.2 million in 2013. In addition, the hospital retired $150,000 of debt in 2012 and 2013 (though it still held $750,000 in debt in 2013, compared to long-term debt of $900,000 in 2012). The hospital funded the employee pension plan with matching funds of $150,000 in both 2012 and 2013. Malpractice costs were $150,000 in 2012 and 2013. Depreciation expenses were $100,000 in 2012 and $105,000 in 2013. The hospital is a nonprofit facility so it incurs no tax liabilities.

Income Worksheet

ASSETS

LIABILITIES

NET WORTH

2012

2013

2012

2013

2012

2013

Operating expenses

1,000,000

1,200,000

Debt retirement

150,000

150,000

Retirement plan

150,000

150,000

Malpractice costs

150,000

150,000

Depreciation

100,000

105,000

Long term debt

900,000

750,000

Net worth (Total equity)

2,410,000

2,000,000

Revenue

1,500,000

1,300,000

Equipment and fixtures

1,000,000

1,000,000

Delayed payments

0.00

500,000

Grants

0.00

250,000

Cash in bank

2,360,000

1,455,000

  1. Using the format below, on page 1 of your paper, create a balance sheet as of December 31, 2012, and a balance sheet as of December 31, 2013. Compose them in a table, next to each other, so it will be convenient to compare. You can copy/paste the table below into a Word document.
  2. Calculate the Current Ratio, Working Capital, and Leverage (or Debt/Worth Ratio) for 2012 and 2013 (include those in your paper).
  1. Discuss the financial trends you believe the board should note in their planning.

Urology Surgery Hospital Balance Sheet

as of Dec 31, 2012

Urology Surgery Hospital
Balance Sheet

as of Dec 31, 2013

Assets

Current Assets

Cash in Bank

Revenue

Delayed Payments

Grants

Total Current Assets

Fixed Assets

Equipment and Fixtures

(less Depreciation)

Total Fixed Assets

Total Assets

Liabilities

Current Liabilities

Operating Expenses

Debt Retirement

Retirement Plan

Malpractice Costs

Total Current Liabilities

Long-Term Liabilities

Long-Term Debt

Total Liabilities

Net Worth (Total Equity)

Total Liability and Net Worth

Length: 3 pages, excluding title page and references.

Required Reading

Accounting For Management. (2013). Vertical analysis (common-size analysis) of financial statements. Retrieved from http://www.accountingformanagement.org/vertical-an…

Albrecht, C. & Albrecht, C. (2008). The nature of financial statement fraud. Internal Auditing, 23(4), 22-27.

National Health Care Anti-Fraud Association. (2016). The challenge of health care fraud. Retrieved from https://www.nhcaa.org/resources/health-care-anti-f…

U.S. Securities and Exchange Commission. (n.d.) Beginners’ guide to financial statements. Retrieved from http://www.sec.gov/investor/pubs/begfinstmtguide.h…