Key Financial Statements and Their Usage in Healthcare Organizations
Financial reporting is crucial in healthcare since it allows allocating the available financial resources successfully and avoiding excessive expenses, at the same time maintaining the quality standards consistent. Therefore, detailing financial statements is a crucial step toward managing organizational assets appropriately. Unless a coherent and well-thought-out financial statement is designed for a healthcare organization, the latter will unable to develop a cost-efficient approach toward managing its resources and, therefore, will fail to meet the quality standards of appropriate patient care.
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Generally accepted accounting principles (GAAP) define financial statements that a healthcare organization must issue to carry out its activities. Furthermore, it should be noted that the choice of financial statements is determined by the type of company that issues them. For healthcare organizations, the following documents must be considered a necessity: a statement of financial position, a balance sheet, a statement of cash flows, a statement of operations, a statement of change in net assets, and a statement of changes in equity (Flood, 2014). The specified reports allow making essential decisions regarding the available investment options, taxation issues, credit decisions, etc. (Wahlen, Baginski, & Bradshaw, 2014).
Financial Statements: Analysis and Interpretation Techniques
As a rule, several options for carrying out an analysis of financial statements are identified. The comparison of financial ratios is typically viewed as the most common one. To interpret the results of the measurement process, one will have to consider the relations between the variables that the identified ratios incorporate. Afterward, a comparison between the desired outcome and the current one will have to take place so that a further course of action could be determined.
Assessing how different aspects of a company’s performance are related to each other, i.e., carrying out a ratio analysis, can be deemed as the primary tool for carrying out a financial analysis and interpreting the retrieved data (Paterson, 2014). Therefore, the analysis of ratios, fund flows, and cash flows can be considered the key techniques for working with financial data (Duncan, 2014).
Ratio Analysis of Financial Statements: An Overview
As stressed above, the ratio analysis is the most common type of interpreting financial data. It should be noted at this point that there are a plethora of financial ratios that can be used for the analysis of a company’s progress (Paterson, 2014). Furthermore, several types of ratios can be identified. These include the profitability measurement ratios (e.g., the return of assets), debt ratios (e.g., debt/equity ratio), cash flow indicators (e.g., operating cash flow ratio), liquidity measurement ratios (e.g., quick ratio), investment valuation ratios (e.g., price/earnings ratio), and operating performance ratio (e.g., fixed-asset turnover) (Flood, 2014).
It should also be borne in mind that several strategies for interpreting the specified statements exist. For instance, one may engage in the assessment of a company’s performance over a specific number of years (e.g., two, five, ten, etc.). Thus, the vertical analysis of a company’s performance is determined. The application of a horizontal method, in the course of which a healthcare facility’s performance is assessed based on the financial data retrieved over a single year, in turn, sheds light on the specifics of interactions between different aspects of a company’s performance can be identified and analyzed (Wahlen et al., 2014).
Management Reports, Their Function, and Effects
Apart from analyzing the available information successfully, one must also consider controlling the existing situation. Among the most common control options, reports need to be considered first because of their simplicity and efficiency. In other words, management reports allow supervising the process of healthcare services delivery and determining problems and obstacles to the identified process (Duncan, 2014). Furthermore, management reports provide healthcare managers with an opportunity to maintain the quality of services consistent (Paterson, 2014).
The effects of management reports, however, may vary depending on the specifics of the workplace environment in which they are deployed. As a rule, the adoption of the reporting system created an opportunity for increasing the probability of a positive patient outcome. Similarly, the instances of a patient experiencing health concerns during the treatment process are prevented or reduced once the opportunity to use reports as the means of gathering the relevant data is provided (Flood, 2014).
Financial Statement Analysis for Nurse Managers: Implications
There is a direct connection between financial issues and the quality of provided care. As long as the available financial resources are allocated successfully, the needs of patients can be met correspondingly. However, to make sure that the financial assets should be used in the most efficient manner possible, a nurse manager must explore the financial statements of the organization in question. Thus, major expenses can be avoided, and a sensible approach toward using the organization’s resources can be adopted. Furthermore, the foundation for sustainable use of the financial resources can be built, thus, leading to a significant increase in the quality of care and the opportunities for investing in R&D, crucial inventory (e.g., health-related equipment, medicine, qualified staff, etc.), and other important aspects of high-quality care (Wahlen et al., 2014).
Duncan, I. (2014). Managing and evaluating healthcare intervention programs. Winsted, CT: ACTEX Publications.
Flood, J. M. (2014). Wiley GAAP 2015: Interpretation and application of generally accepted accounting principles 2015. New York, NY: John Wiley & Sons.
Paterson, M. A. (2014). Healthcare finance and financial management: Essentials for advanced practice nurses and interdisciplinary care teams. Mancaster, PA: DEStech Publications.
Wahlen, J. M., Baginski, S. P., & Bradshaw, M. (2014). Financial reporting, financial statement analysis and valuation. Boston, MA: Cengage Learning.