Four Basic Financial Statements and Their Usage in the Health Care Sphere Essay

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Introduction

A financial statement is an official record of all the financial actions that take place in any business at a particular time or a period. The inputs are updated in daily, monthly or yearly. They are significant since they give the overall financial outlook of a business and in addition, help in budgeting in the organization. This is possible as they are presented in a prearranged method and are also acutely straightforward, as a result, easy to understand. The paper discusses the four basic financial statements and their main uses in the health care environment.

Discussion

Four basic financial statements

The four basic financial statements are the statement of the financial position (balance sheet), statement of comprehensive income (profit and loss statement), statement of changes of equity and statement of cash flow. The balance sheet is a financial report that has information on the company’s liabilities, assets, and ownership equity. The other financial statement is called the profit and loss statement and is used to report on a company’s returns, operating cost, and income over a period of years. The statement of changes in equity is used to give details of the company’s equity throughout a reporting period. The statement of cash flow is used to give details about the company’s cash flow behavior. In particular, it gives information on its working, spending, and financing activities.

The purpose of each report

Balance sheet

The balance sheet is a financial statement that explains the company’s financial position in terms of assets, liabilities and capital as aforementioned. The sheet is used in the end of a financial year to set the financial records straight. It is used in addition, to calculate the company’s feasibility in order to ascertain the way that it is operating in the financial market. In this case point, a health care institution. This report, amongst the four financial statements is the only one that gives the actual date of the company’s statement in a given fiscal year. The statement is divided into three parts. The first part is the assets part that is used to calculate the amount of property that the company owns at a period. The other part is the liability division that is used to calculate the amount of money that the company owes to other people, and it is further essential in calculating the net worth of the health care institution. The capital part of the balance sheet is used to work out the owner’s equity in the company (Baker & Baker, 2011, p. 107).

Statement of comprehensive income

The purpose of this financial statement is to indicate the incomes that an institution has gotten from the sale of services and products. It is different from the balance sheet since it focuses on a longer period. The statement is additionally used to calculate the net income of the institution as at a particular date then it is summarized to a longer period. The other use of the financial statement is that it is used to calculate an institution’s cost and expenses over the revenues that include the write-offs. The write offs include the depreciation of various assets. The costs in the statement are further calculated over taxes (Gapenski, 2009, p. 342).

Statement of changes of equity

The purpose of this report is to calculate the retained earnings in an institution. This means the amount of money that the company has realized in terms of profits but has not divided it amongst the investors or shareholders of the institution. The statement is additionally used to calculate the institution’s interest in terms of the owner’s concern. The document is further used to calculate the institutions retained profits or the surplus incomes from one period of the finances to the other. Consequently, the report is further used in the calculation of dividends and losses that the company has incurred in a financial period. To add on, the statement is used to calculate the matter of redemption of stocks and to calculate the dividends earned by each single investor. It is also used to calculate the owner’s equity in the institution (Zelman, McCue, & Glick, 2009, p. 107).

Statement of cash flow

The statement of cash flow is used to look at the financial resources of an institution at a single point of time. It is also used to summarize the transactions of the business over a given interval of time. It is additionally used to calculate the company’s revenues and expenses and to match them in a given period. It is also used to calculate cash flows that are the input and output without including transactions that do not affect cash. The main purposes of this statement are generalized into three bases. It is used to calculate the operating activities, investing activities and financing activities (Gapenski, 2009, p. 363).

Who in the health care environment utilizes each report and to make what decisions?

Statement of cash flow

In the health care industry, the statement of cash flow is utilized by the managers of the health institutions to make fundamental financial health care decisions regarding the amount of resources that the business has. The document is further used to make decisions in the health care environment that affects the continued operations of the hospital in a given period. The statement is further used by financial analysts in order to give out financial details of health care institutions that can be used to present a clearer understanding of the needed goals. The management of private healthcare institutions additionally use the details provided by the statement of cash flow to report to the stakeholders (Gapenski, 2009, p. 363). The statement is additionally used by the health care practitioners to make a collective bargaining power since they have an adequate knowledge of the institutions financial position.

Statement of changes of equity

The statement of changes of equity is used by the financers who want to lend credit to mainly private healthcare institutions to make out the financial credit worthiness of the business. The report is further used to by the media to give out the financial position of any health care institution for the view of the public to enhance any interest that it has (Zelman, McCue, & Glick, 2009, p. 107).

Statement of comprehensive income

This financial statement is used in the health care environment to give out the financial position of the business so that financial institutions can use it to decide whether it can lend out credit to them (Baker & Baker, 2011, p. 258). It is further used by insurance companies in deciding whether it can lend insurance options to the health care institution. The government uses it to tax the health care institution.

Balance sheet

Prospective investors especially in health care institutions use this statement to assess the financial position of the business so that they can know whether they can invest in it (Gapenski, 2009, p. 342). Financial analysts also use this statement to calculate the future of any health care institution.

Conclusion

In conclusion, the financial statement is a weighty document for any institution. Therefore, it is utilized by many people to come out with a decision on whether they wish to carry on with the health care institution or not. Consequently, they should be utilized to make the best financial decisions.

References

Baker, J. J., & Baker, R. W. (2011). Health care finance: basic tools for nonfinancial managers. Massachusetts: Jones & Bartlett Publishers.

Gapenski, L. C. (2009). Fundamentals of Healthcare Finance. Michigan: Health Administration Press.

Zelman, W. N., McCue, M. M., & Glick, N. D. (2009). Financial management of health care organizations: an introduction to fundamental tools, concepts, and applications. New Jersey: John Wiley & Sons.

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"Four Basic Financial Statements and Their Usage in the Health Care Sphere." IvyPanda, 28 Apr. 2022, ivypanda.com/essays/four-basic-financial-statements-and-their-usage-in-the-health-care-sphere/.

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IvyPanda. (2022) 'Four Basic Financial Statements and Their Usage in the Health Care Sphere'. 28 April.

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IvyPanda. 2022. "Four Basic Financial Statements and Their Usage in the Health Care Sphere." April 28, 2022. https://ivypanda.com/essays/four-basic-financial-statements-and-their-usage-in-the-health-care-sphere/.

1. IvyPanda. "Four Basic Financial Statements and Their Usage in the Health Care Sphere." April 28, 2022. https://ivypanda.com/essays/four-basic-financial-statements-and-their-usage-in-the-health-care-sphere/.


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IvyPanda. "Four Basic Financial Statements and Their Usage in the Health Care Sphere." April 28, 2022. https://ivypanda.com/essays/four-basic-financial-statements-and-their-usage-in-the-health-care-sphere/.

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