TO: Chief Executive Officer
FROM:
DATE:
SUBJECT: Assessment of Financial Statements of Good Samaritan Medical Center
Assessing the financial statements in the medical center will reflect financial position thus guiding decision making that will promote improvements. I want to inform you of the changes that took place between 2015 and 2016 as illustrated by the income statement and balance sheet reports. The possible reasons for the variances will be determined and recommendations made, that the medical center can implement.
Assessment of Income Statement
The measures of profitability that have been featured include the operating income and the excess of revenues over expenses. Between 2015 and 2016, there was a reduction in operating income. The operating income in 2015 was $4,330,000, but this had decreased to $3,747,000 (Reiter & Song, 2018). Similarly, there was a reduction in the net income at the medical center between 2015 and 2016 from $8,206,000 to $7,860,000, respectively.
Delegate your assignment to our experts and they will do the rest.
Additionally, there was a significant increase in the revenues between 2015 and 2016 from $136,594,000 to $166,232,000, respectively. The highest increase in expense was in relation to salaries and benefits that increased from $102,234,000 in 2015 to $126,223,000 in 2016.
Between 2015 and 2016, there was a significant increase in both the net patient service revenue and net operating revenues. Net patient service revenue increased from $121,765,000 in 2015 to $148,118,000 in 2016. Similarly, there was an increase in net operating revenues from $140,924,000 in 2015 to $169,979,000 in 2016.
The increase in revenues and expenses between 2015 and 2016 and a decrease in the profitability of the medical center can be attributed to the recruitment of more staff. Increased staff costs are responsible for higher revenues in 2016, particularly the salaries segment (Reiter & Song, 2018). Additionally, as there is more staff at the facility, more patients can be attended to, and this is responsible for the significant increase in revenue between 2015 and 2016. The increase in net patient service revenue was ($148,118,000-$121,765,000) is $26,353,000. The reduction in profitability could also be attributed to lower clients at the medical centers, due to poor services resulting from the reduced nurses, before the medical center decided to hire more.
Assessment of The Balance Sheet
The balance sheet outlines the assets and liabilities of the medical center. Between 2015 and 2016, there was an increase in both the assets and liabilities. The total current assets increased from $702,000 in 2015 to $1,014,000 in 2016. Nets accounts receivable is responsible for the highest increase, from $476,000 to $727,000. Increased accounts receivables indicate that the healthcare facility has more debtors in 2016 than in 2015, and the number of customers was also higher (Reiter & Song, 2018). Based on increased revenue while assessing the income statement, the increase in staff might be responsible for a hike in the patients served. Given that some of them might lack the cash to pay upfront for the services they receive at the medical center, their unpaid accounts are included in the accounts receivable section. As such, this explains the significant increase in total current assets.
Similarly, there has been an increase in the liabilities of the company. Current liabilities increased from $397,000 in 2015 to $588,000 in 2016. Total liabilities raised from $564,000 in 2015 to $742,000 in 2016. The total increase in total liabilities and equity between 2015 and 2016 was ($1,220,000-$879,000) = $341,000. There was a significant increase in the accrued expenses by the business, and this can be attributed to operational costs, associated with the growth of the business as it handles more clients. Examples of these expenses include the costs of utilities that might not be due yet, but allocations have already been made for these expenses.
Based on these financial statements, there are some recommendations I would like to make for future financial stability. These can be implemented with your permission. One would be to increase the provision for bad debts, to take into account the rise in accounts receivable. Additionally, the hospital can invest in more technology since these are one-off capital expenses and will have long-term benefits, compared to hiring more staff, which will require monthly payments (Labro & Stice-Lawrence, 2016). The overall outcome will be increased profitability and excellent services to patients.
References
Labro, E., & Stice-Lawrence, L. (2016). Updating accounting systems: long-run evidence from The healthcare sector . Working Paper. 2016. (Consultado el 11/6/2017.) Disponible en: https://sites. insead. edu/facultyresearch/research/file. cfm.
Reiter, K., & Song, P. (2018). Gapenski's fundamentals of healthcare finance. Chicago, Illinois: Association of University Programs in Health Administration. ISBN 9781567939750
