For the capital budget proposal, the healthcare organization which will be used is Amedisys Inc. Through this strategic approach, the organization will be able to take advantage of the healthcare market and plan well for the future how it uses its capital. Have the appropriate procedures and policies, as well as proper planning in place would ensure that the company can acquire state-of-the-art equipment, thus enabling it to deliver quality healthcare services. It will be essential that the organization plans well for the equipment purchase and purchase the relevant equipment which will aid in enhancing service delivery.
Financial Statements
The proposed capital budget will use cash flow statements, balance sheets, as well as contractual commitments and agreements as the financial statements. Balance sheets will enable the facility to better understand its position regarding its assets and equipment and how much it has invested in equipment (Wong, 2018) . The contractual commitments and obligations will reveal the financial obligations of the company, while cash flow statements will offer a clear overview of the impact of new equipment on the cash flow, and this will map out what could rise the organization’s cash and cash equivalent.
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Impact of the Proposal
The implications of the proposed capital budget would be a long-term investment as it will affect the facility’s financial statements. Initially, when the equipment purchase process begins, the organization’s cash flow could decrease as cash will be flowing out, but in the long run, the cash inflows will increase from improved service delivery. In particular, the organization’s assets (equipment) will increase. Thus, this investment is expected to be long-term as it might take years for the facility to realize return on investment (ROI).
Fixed Budget versus Flexible Budget
A fixed budget is the type of budget in which the expenditure and income are predetermined. Regardless of any change or fluctuation, the budget remains static. Firms which are static, implement a similar kind of transactions could highly benefit from a fixed budget. However, when there are variations, a fixed budget does not become the most suitable. Conversely, a flexible budget is one which is flexible according to the current needs. For instance, if an organization sees that it could sell off more items through spending more in marketing expenses, a flexible budget might aid implement that (Vaidya, 2019) . This is the reason why a flexible budget is very effective for businesses which undergo multiple changes with a specific time. Thereby, Amedisys Inc. should use a flexible budget as a startup cost of acquiring new equipment as it will be the most effective and might need a higher budget for the initial year, which could decrease in the subsequent years (van Baal, Meltzer & Brouwer, 2016) . A flexible budget would be essential for the organization to make necessary changes based on the change in its income.
Justification of the Proposal
Ratio Selection
In order to justify this proposal, current ratio and operating margin will be used. The current ratio is a liquidity ratio for measuring a firm’s ability to meet its short-term responsibilities. It informs the analysts and investors how a firm could maximize the current assets to fulfill its current debt as well as other payables (Weygandt, Kimmel & Kieso, 2015) . On the other hand, operating margin is a profitability measure which indicates how much of money is left over after considering both the operating expenses and cost of goods sold. Through these ratios, the organization would see its current standing concerning the current assets and know what equipment it needs to buy and which it needs to upgrade.
Long-term and Short-term Impact
The two ratios mentioned above will tell whether the organization’s financial position is right or wrong for it to purchase new healthcare equipment. From the proposal, it is clear that there could be a short-term deficit effect with more liabilities, which are necessary to get the equipment required to enhance the patient care quality. Nevertheless, the assets gained would ultimately increase the organization’s revenue and offer the potential for its future growth if it continues investing on the best hospital equipment. This means that, in the long-run, the organization will benefit. Thus, the ratio analysis and financial statements provided must act as an evidence that the proposed acquisition of equipment could benefit the organization.
References
Vaidya, D. (2019, January 14). Fixed Budget vs Flexible Budget. Retrieved from https://www.wallstreetmojo.com/fixed-budget-vs-flexible-budget/
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2015). Managerial accounting . Wiley..
van Baal, P., Meltzer, D., & Brouwer, W. (2016). Future costs, fixed healthcare budgets, and the decision rules of cost ‐ effectiveness analysis. Health economics , 25 (2), 237-248.
Wong, I. (2018). Managerial Accounting Strategies for Optimal Costs.
