Accounting and Financial Analysis

Expert Solution Preview

Introduction:
As a medical professor, it is important to explore the financial aspects of healthcare organizations. Understanding the balance sheets, costs, and corporate structures of healthcare organizations is critical for the success of any medical student. In this assignment, we will cover various topics related to healthcare organization finance such as balance sheets, costs, corporate structures, assets, and economic stability.

1. Why are balance sheets important to healthcare organization finance, and what area of the balance sheet would you consider the most critical?
Balance sheets are important in healthcare organization finance because they provide a snapshot of an organization’s financial standing. The balance sheet contains information about a healthcare organization’s assets, liabilities, and equity. The most critical area of the balance sheet is the assets section. This section provides information on what the healthcare organization owns and what will generate future revenue. It helps investors, creditors, and management to determine an organization’s ability to pay off debts and expand its operations.

2. Comparing organizational costs, which costs does nursing administration have little control over, and why? Which costs would be most important if you are expanding your services and considering quality improvement measures?
Nursing administration may have little control over fixed costs such as rent, heating, and insurance. These costs are essential for a healthcare organization to operate, but nursing administration cannot easily reduce or optimize them. The costs that would be most important if expanding services and considering quality improvement measures will be variable costs. These costs fluctuate with increased or decreased production and include costs of medical supplies, labor, and marketing. By controlling these costs, nursing administration can increase productivity, manage capacity, and improve overall quality.

3. Compare and contrast for-profit and not-for-profit corporate structures based on the information available from a balance sheet and an income statement? Fundamentally, what are the differences?
For-profit corporations aim to maximize shareholder wealth while not-for-profit corporations aim to provide healthcare services for the public good. The primary difference in balance sheets is that for-profit corporations have shareholders’ equity, whereas not-for-profit corporations have retained earnings or revenues that are plowed back into the organization to meet its objectives. The income statement of a for-profit corporation shows revenues minus expenses equaling profits, while the income statement of a not-for-profit corporation shows revenues minus expenses equaling surplus or deficit. Fundamentally, for-profit corporations generate profits for their shareholders which increase shareholder value while not-for-profit corporations reinvest their surplus to improve the quality of care, expand services or reduce spent.

4. Goodwill and patents are considered what types of assets? Give detailed examples and explain.
Goodwill is an intangible asset that arises when one company acquires another company for a price higher than the book value of its assets. It represents the value of the acquired company’s reputation, relationships, and other intangible assets. Goodwill appears on the balance sheet and reflects the excess amount paid over the fair market value of the acquired company. Patents are an exclusive legal right that allows the inventor to protect their inventions from being sold, used, or distributed by others without permission. Patents appear as intangible assets on the balance sheet and provide the owner with exclusive rights to produce and sell the product or service.

5. Compare and contrast assets which are the essential economic lifeblood of a healthcare organization stability. Give detailed examples and explain.
The essential economic lifeblood of healthcare organizations’ stability includes current assets such as cash, accounts receivables, and inventories. Cash is the most important asset because it enables healthcare organizations to meet their short-term obligations such as staff salaries, equipment maintenance, and utilities. Accounts receivables represent the money owed by patients or insurers for services provided and are vital to the healthcare organization’s financial stability. A third critical asset considered as an economic lifeblood is inventories, which are the stocks of medicines, medical supplies, and equipment. By keeping ample inventories, healthcare organizations can reduce waiting time for patients and ensure prompt treatment.