Financial activities are essential in the decision-making process of modern healthcare surroundings. Managers should understand the primary aspects of economic operations in the medical setting to improve the financial performance of the hospitals. The goal of health organizations is to provide quality medical services to the patients, but they need to earn profits to meet short and long-term obligations. Therefore, it is critical to assess the economic performance of hospitals to identify the strengths and minimize the weaknesses. The paper entails a financial analysis of Winthrop University Hospital. The hospital will optimize its strong areas after determining the threats by performing the economic assessment.
Analysis of Auditors Reports from KPMG
Winthrop University Hospital hired KPMG auditors to assess the accuracy and reliability of the financial reports. The financial experts revealed that the financial statements were accurate and the management can use them to make decisions. The current assets of the hospital decreased from $ 394, 659, 658 to $ 387, 885, 180 in 2014 and 2015 respectively. The short-term assets of the care setting reduced due to a decrease in the cash and cash equivalents from $ 92, 664, 401 to $ 86, 157, 656. Also, the current portion of assets decreased from $ 27, 503,730 to $ 23, 722, 871 in 2014 and 2015. The investments of the health setting decreased from $ 91, 776, 247 to $ 90, 675, 595. The funds, marketable financial assets, and interest receivable of the medical facility decreased which affected the value of the investments.
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The net assets of Winthrop University Hospital increased from $ 1, 005, 203, 954 to $ 1, 010, 677, 095 in 2014 and 2015 respectively. The total assets increased due to the rise in the volume of property, plant, and equipment from $ 437, 629, 986 to $ 480, 272, 911. The organization’s financial reports demonstrate that the care setting purchased furniture and machines. Winthrop Hospital is constructing buildings which have increased the volume of fixed assets. Also, the long-term receivables for the health organization increased from $ 52, 155, 570 to $ 54, 746, 738 in the two consecutive years. However, the long-term investments for the hospital decreased from $ 13, 118, 039 to 13, 078, 693 due to a reduction in corporate bonds. The hospital’s securities reduced from $ 1, 780, 697 to $ 1, 619, 401.
The current liabilities of the health facility decreased from $ 247, 172, 349 to $ 242, 271, 854 in 2014 and 2015. However, the net liabilities of Winthrop Hospital increased from $ 843, 712, 247 to $ 859, 408, 270. All the short-term obligations reduced except from the line of credit that rose to $ 25, 000. The hospital increased its borrowing from financial institutions to fund on-going activities. The total liabilities increased due to the rise in the value of self-insurance.
The operating revenues of the hospital increased from $ 1, 175, 945, 571 to $ 1, 266, 746, 884 in 2014 and 2015. The operating income increased due to the rise in patient facilities revenue. However, other income and total assets from restrictions decreased but did not affect the net operating value. Also, the expenses of the health organization increased from $ 1, 143, 585, 744 to $ 1, 237, 316, 546 in 2014 and 2015. The operating costs of Winthrop Hospital increased due to the rise in salaries, employee allowances, supplies, other expenses, R& D, interest expense, depreciation, and amortization.
The unrestricted assets of the care setting decreased from $ 106, 895, 431 to $ 9, 425, 508. The total changes in assets of the health facility have decreased from $ 110, 181, 731 to $ 10, 222, 882 in 2014 and 2015. Winthrop Hospital incurred losses from realized and unrealized profits in 2015 which amounted to $ 567, 946. The excess revenue decreased from $ 31, 371, 353 to $ 19, 456, 975. Also, the contribution reduced from $ 5, 072, 097 to $ 4, 148, 785. The hospital needs to increase the value of the net assets to improve its strategic performance in the medical sector.
The total cash from operating activities of Winthrop Hospital decreased from $ 62, 404, 951 to $ 34, 344, 803 in 2014 and 2015. The finances reduced because the value of net assets, the sale of property, accounts receivables, long-term funds, and accrued retirement benefits decreased in 2015. The finances used in investment operations reduced from $ 50, 358,518 to $ 16, 250, 539 in the two years. The health organization repaid its long-term loans and sold the bonds. However, it increased its credit from financial institutions to $ 25, 000,000. The total cash flow of the hospital has decreased to $ 86, 157, 656. Thus, there is a need for increasing the organization’s finances to meet short and long-term obligations.
Analysis of Auditors Reports from KPMG
The accountants of Winthrop University Hospital presented a three-month report for 2015 and 2016. The statement indicated that the operating profits of the health institution increased from $ 1.2 to $ 8.3 million. The income of the facility grew to 12.8%, and the expenses rose to 9.9%. The managers concluded that the revenue and costs increased due to the rise in the demand for medical facilities. The ambulatory surgery appointments increased to 14.4%, and emergencies rose to 9.9%. The ratio of hospital admissions rose to 5.34 in 2016. Also, the outpatient schedules increased by 17.6%, and chemotherapy processes rose to 8.5%. The income from unrealized and realized gains decreased due to the variations in market operations.
Analysis of Tax Forms
The IRC 501 provides that the health setting is exempted from income taxes. The organization’s revenue is included in the FIT. Some departments and network activities in the hospital are taxable subjects. However, the tax accounts of the sections are not material to the health organization’s consolidated reports. RRG considers the taxation regulations provided in section 832 of the IRC. The deferred tax assets have been wholly reserved because the department incurred losses. The department can encounter risks due to their inability to utilize the advanced losses in the long-term. The managers assess the tax positions each year and decided that the items in the consolidated statements are not taxable.
Financial KPIs
The critical performance measurements are vital in assessing the organization’s ability to meet economic goals. Also, the KPIs assist the finance department to monitor and optimize costs, sales, revenue, or cash flow. The first indicator is the total profit of the medical facility which demonstrates the production performance. A higher profit illustrates that the firm can retain every dollar from the sales.
Total Profit Margin= Total revenue – COGS
=1, 230, 424-(34, 769+1, 554) =1, 266, 747
The medical facility has a high-profit margin of $ 1, 266, 747 million. Therefore, the organization can retain dollars after making sales. The second KPI is the operating profit of the care setting. The current income of the health facility will indicate profitability.
Operating Profit= Operating revenue- Operating costs
=1, 266, 747-1, 237, 317=$ 29, 430
Winthrop Hospital has a significant operating profit. The company needs to improve its profits by reducing costs. The third financial indicator is the current ratio which assesses the firm ability to meet its obligations. A high current ratio demonstrates the organization can incur the current expenses.
Current ratio= Current assets/ Current liabilities
=387, 885/ 242, 272=1.6
The company has a high current ratio which indicates it has more short-term assets as compared to the liabilities. However, it is a threat in the long-term because it can discourage investors from making investments. The company is not using its finances to increase its investments. The final indicator is the return on the organization’s assets. The ratio illustrates the ability of the care setting in optimizing its assets to increase the profits.
ROA=Net income/ Total assets
= 29, 430/151, 269=0.19
The health organization has a low ROA because the employees are not optimizing the assets to increase the income. The medical professional should use the available assets to increase income. For example, the health facility can use the equipment and experience to provide high-quality services to the patients to attract customers.
Recommendations and Conclusions
Winthrop Hospital has more short-term assets as compared to the liabilities. Thus, it can increase liabilities by borrowing short-term loans to purchase long-term bonds. As a result, the company can attract investors. The facility has a significant cash flow for funding the operations. The management of Winthrop University Hospital should increase the cash flow by borrowing long-term loans to finance daily obligations. Thirdly, the hospital should optimize the assets to increase the total earnings. The analysis indicates that Winthrop Hospital has a high financial performance, but there is a need for improvement to ensure sustainability. The organization should assess its economic performance at least once a year to identify the areas of development.
