Finance Management

Discuss the basic components of financial statements to include the balance sheet, income statement
and statement of cash flows. We will focus on additional analysis for discussion #8. Interpretation of financial
statements has strengths and weaknesses. One strength is that you have quantitative data (inflows/outflows)
that demonstrates organizational effectiveness in relation to finance. The weaknesses of financial statements
are that they do not illustrate underlying issues. Examples of potential weaknesses can include inflationary
impacts, ignoring non-financial matters such as social and environmental factors and not being “future
thinking.” Financial statements should be used for financial analysis, but executives must consider weaknesses
that are not illustrated on the balance sheet, income statement and the statement of cash flows. One of the key
tools to evaluate the financial status for a given health care organization is to understand ratio analysis (page
406) from a definition and formula perspective. The overall results of financial analysis which is usually
evaluated quarterly for a given health care organization is presented with strengths and weaknesses in mind
for growth and improvement.

  1. What is average profit margin for health care organizations? Research inpatient and outpatient margins for
    your answer. Are they increasing or decreasing? Why?
  2. Review page 406 of your text in relation to keys ratios. Evaluate the financial statements for HCA (balance
    sheet, income statement and the statement of cash flows) using some of the key ratios on page 406 in
    conjunction with discussion #7. Is HCA performing well? Explain using at least one paragraph.
  3. Describe at least three potential limitations for HCA that may not be illustrated on their financial statements.

Sample Solution