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Healthcare Financial Management Lecture Packet #5
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Please review with notes page visible.
Respectfully,
GEG
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Outline
Review: Income Statement
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The Balance Sheet
The Balance Sheet: Assets
The Balance Sheet: Liabilities
The Balance Sheet: Stockholder’s Equity
The Statement of Cash Flows
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The goal of the first part of the lecture is to quickly introduce the Income Statement from the previous slide packet. In the second part of the lecture, the goal is to introduce the Balance Sheet and the Statement of Cash Flows. The Balance Sheet is a statement that summarizes a company's assets, liabilities and equity at a specific point in time. These three balance sheet segments give analysts an idea as to what the company owns and owes, as well as the amount invested by equity investors.
The Statement of Cash Flows is a document that identifies how much cash in moving into and out of the company over the specified reporting period. The Statement of Cash Flows also identifies where the money is coming from and how much is being spent.
The balance sheet and the statement of cash flows will be explain in more detailed during this power point presentation.
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| 2019 | 2018 | |
| Revenues : | ||
| Net Patient Service Revenue | $169,013.00 | $140,896.00 |
| Other Revenue | $7,079.00 | $5,704.00 |
| Total Revenues | $176,092.00 | $146,600.00 |
| Expenses: | ||
| Salaries and Benefits | $126,223.00 | $102,334.00 |
| Supplies | $20,568.00 | $18,673.00 |
| Insurance | $4,518.00 | $3,710.00 |
| Lease | $3,189.00 | $2,603.00 |
| Depreciation | $6,405.00 | $5,798.00 |
| Provision of Bad debts | $2,000.00 | $1,800.00 |
| Interest | $5,329.00 | $3,476.00 |
| Total Expenses | $168,232.00 | $138,394.00 |
| Net Income | $7,860.00 | $8,206.00 |
Income statement ended 12/31/2018 and in 12/31/2017. Income is in thousands of dollars.
Income Statement: Review
This is a full income statement of a large multi- specialty group practice clinic (similar to Gilbert Graves).
Although it is extremely important, for the this class the focus is not on generating the financial statements. Instead focus on the information being presented in each category.
When given an opportunity, quickly quiz yourself on the information contained in each subcategory (e.g. Net patient Service Revenue, Provision of Bad debts) of the income statement.
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The Balance Sheet
The Balance Sheet is a statement that summarizes a company's assets, liabilities and equity at a specific point in time. These three balance sheet segments give analyst an idea as to what the company owns and owes, as well as the amount invested by equity investors.
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The Balance Sheet
Balance Sheet:
The Balance Sheet identifies a company's financial position at the end of the accounting period.
It identifies the resources the entity has (assets) and what it owes (liabilities, stockholder’s equity).
It is also known as the statement of financial position.
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The balance sheet presents the entity's financial position in the following formula:
ASSETS= LIABILITIES + STOCKHOLDERS EQUITY.
As it name implies the categories of the balance sheet must balance.
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The Balance Sheet
The Balance Sheet-v-Income Statement:
The income statement reports the results of operations overtime.
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The balance sheet represents a single snap shot of the financial position of an organization at a given point in time (12/31/2018).
The balance sheet unlike the income statement reflects a business financial position as of a given date and becomes invalid the next day.
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The balance sheet changes every day as a business increases or decreases its assets or changes its composition of its financing.
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| ASSETS: | 2019 | 2018 |
| Current Assets: | ||
| Cash | $12,102 | $6,486 |
| Short Term Investments | $10,000 | $5,000 |
| Net Patient Accounts Receivable | $28,509 | $25,927 |
| Inventories | $3,695 | $2,302 |
| Total Current Assets | $54,306 | $39,715 |
| Long Term Investments | $48,059 | $25,837 |
| Property, Plant & Equipment | ||
| Land | $2,954 | $2,035 |
| Buildings & Equipment | $85,595 | $77,208 |
| Gross Fixed Assets | $88,549 | $79,243 |
| Less: Accumulated depreciation | $36,099 | $29,694 |
| Net Fixed Assets | $52,450 | $49,549 |
| Total Assets | $154,815 | $115,101 |
| LIABILITIES & EQUITY: | ||
| Current Liabilities | ||
| Notes Payable | $4,334 | $3,345 |
| Accounts Payable | $5,022 | $6,933 |
| Accrued Expenses | $6,069 | $5,037 |
| Total Current Liabilities | $15,425 | $15,315 |
| Long term debt | $85,322 | $53,578 |
| Total liabilities | $100,747 | $68,893 |
| Net Assets (equity) (not-for profit) | $54,068 | $46,208 |
| Total Liabilities & Equity | $154,815 | $115,101 |
| STOCKHOLDERS EQUITY: (for-profit) | ||
| Common Stock ($1 par value, 150,000 shares authorized, 1000 shares outstanding) | $1,000 | $1,000 |
| Capital in excess of par | $9,000 | $9,000 |
| Retained Earnings | $44,068 | $36,208 |
| Total Equity | $54,068 | $46,208 |
| Total Liabilities and Equity | $154,815 | $115,101 |
The Balance Sheet
The chart above is an illustration of a full balance sheet. Please note that this balance sheet is for academic purposes only. This balance sheet contains a section for Net Assets/ Total liabilities and Equity (which is usually found on balance sheets of not-for-profit organizations) and a category for Stockholder’s equity (which is usually found on balance sheets of for-profit organizations).
A real world balance sheet will only contain one of these categories, but not both.
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The Balance Sheet: Assets
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| ASSETS | 2019 | 2018 |
| Current Assets: | ||
| Cash | $12,102 | $6,486 |
| Short Term Investments | $10,000 | $5,000 |
| Net Patient Accounts Receivable | $28,509 | $25,927 |
| Inventories | $3,695 | $2,302 |
| Total Current Assets | $54,306 | $39,715 |
| Long Term Investments: | $48,059 | $25,837 |
| Property, Plant & Equipment (Fixed Assets): | ||
| Land | $2,954 | $2,035 |
| Buildings & Equipment | $85,595 | $77,208 |
| Gross Fixed Assets | $88,549 | $79,243 |
| Less: Accumulated depreciation | $36,099 | $29,694 |
| Net Fixed Assets | $52,450 | $49,549 |
| Total Assets | $154,815 | $115,101 |
The Balance Sheet: Assets
The example above is illustrating the asset section of the balance sheet. Liquid assets, which are assets that can easily be converted into cash within a year are listed at the top of the asset section of the balance sheet. While illiquid assets, Property, Plant and Equipment, which are the most illiquid form of an asset are listed towards the bottom of a balance sheet. Please see the next following slides for more detailed information on the asset profile on the balance sheet.
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The Balance Sheet: Short Term Assets
Current Assets
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The Balance Sheet: Short Term Assets
| ASSETS | 2019 | 2018 |
| Current Assets: | ||
| Cash | $12,102 | $6,486 |
| Short Term Investments | $10,000 | $5,000 |
| Net Patient Accounts Receivable | $28,509 | $25,927 |
| Inventories | $3,695 | $2,302 |
| Total Current Assets | $54,306 | $39,715 |
Current assets are likely to be used up or converted into cash within one business cycle ( usually 1 year).
Three very important current asset items found on the balance sheet are: cash, inventories and accounts receivables.
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The Balance Sheet: Short Term Assets
Current Assets:
Assets that are expected to be converted into cash within one accounting period (1 year).
Includes categories such as cash, short-term investments, net patient account receivable, inventories.
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Cash:
Cash account represents actual cash in hand plus money held in commercial checking accounts.
On 12/31/2019, the clinic reported having has about $12,102,000 in cash.
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The Balance Sheet: Short Term Assets
Short term investments/ marketable securities:
Cash that has been temporally invested in highly liquid, low risk securities (e.g. bank, saving accounts, money markets).
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Organizations hold short term investments because cash and money held in commercial checking accounts do not earn interest.
Thus, business should hold only enough cash and checking account balances to pay recurring operating expenses.
In most cases, any extra funds on hand should be invested in safe, short term highly liquid interest bearing securities (e.g. treasury bills, savings accounts, money markets).
Even though short term investments pay relatively low interest, any return is better than none, so such investments are preferred to pure cash holdings.
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The Balance Sheet: Short Term Assets
Net Patient Account Receivables:
Represents money to hospital/clinic/ provider for services that the hospital/clinic/ provider has already provided, but has not collected.
Net signifies the category is the amount to be collected after allowances for discounts, charity care, and bad debt losses have been applied.
See example on next slide.
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| 2019 | 2018 | |
| Revenues : | ||
| Net Patient Service Revenue | $169,013.00* | $140,896.00 |
| Other Revenue | $7,079.00 | $5,704.00 |
| Total Revenues | $176,092.00 | $146,600.00 |
The clinic expects to receive $169,013 (Net Patient Revenue) - $2,000 (Provisions for Bad Debt) = $ 167,013 in cash reserves for services provided in 2019.
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* $ 28,509 of this net patient revenue remains to be collected.
Thus $167,013- 28,509 = $138,504 , which was the patient service revenue actually collected during 2018. Or approximately $28,509/$167, 013= 17 % remains to be collected. Need for Revenue Cycle Management Strategies.
The Income Statement & Balance Sheet: Short Term Assets
Income Statement Example
The Balance Sheet: Short Term Assets
| ASSETS | 2019 | 2018 |
| Current Assets: | ||
| Cash | $12,102 | $6,486 |
| Short Term Investments | $10,000 | $5,000 |
| Net Patient Accounts Receivable | $28,509 | $25,927 |
| Inventories | $3,695 | $2,302 |
| Total Current Assets | $54,306 | $39,715 |
| Provision of Bad debts | $2,000.00 | $1,800.00 |
Expenses :
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| 2019 | 2018 | |
| Revenues : | ||
| Net Patient Service Revenue | $169,013.00 | $140,896.00 |
| Other Revenue | $7,079.00 | $5,704.00 |
| Total Revenues | $176,092.00 | $146,600.00 |
| Expenses: | ||
| Salaries and Benefits | $126,223.00 | $102,334.00 |
| Supplies | $20,568.00 | $18,673.00 |
| Insurance | $4,518.00 | $3,710.00 |
| Lease | $3,189.00 | $2,603.00 |
| Depreciation | $6,405.00 | $5,798.00 |
| Provision of Bad debts | $2,000.00 | $1,800.00 |
| Interest | $5,329.00 | $3,476.00 |
| Total Expenses | $168,232.00 | $138,394.00 |
| Net Income | $7,860.00 | $8,206.00 |
Income statement ended 12/31/2019 and in 12/31/2018. Income is in thousands of dollars.
The Balance Sheet: Short Term Assets
Income Statement
The clinic expects to receive $169,013 (Net Patient Revenue) - $2,000 (Provisions for Bad Debt) = $ 167,013 in cash reserves for services provided in 2019
__________________________________________________________
$ 28,509 of this net patient revenue remains to be collected.
Thus $167,013- 28,509 = $ 138,504 which was the patient service revenue actually collected during 2019.
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| ASSETS: | 2019 | 2018 |
| Current Assets: | ||
| Cash | $12,102 | $6,486 |
| Short Term Investments | $10,000 | $5,000 |
| Net Patient Accounts Receivable | $28,509 | $25,927 |
| Inventories | $3,695 | $2,302 |
| Total Current Assets | $54,306 | $39,715 |
| Long Term Investments | $48,059 | $25,837 |
| Property, Plant & Equipment | ||
| Land | $2,954 | $2,035 |
| Buildings & Equipment | $85,595 | $77,208 |
| Gross Fixed Assets | $88,549 | $79,243 |
| Less: Accumulated depreciation | $36,099 | $29,694 |
| Net Fixed Assets | $52,450 | $49,549 |
| Total Assets | $154,815 | $115,101 |
| LIABILITIES & EQUITY: | ||
| Current Liabilities | ||
| Notes Payable | $4,334 | $3,345 |
| Accounts Payable | $5,022 | $6,933 |
| Accrued Expenses | $6,069 | $5,037 |
| Total Current Liabilities | $15,425 | $15,315 |
| Long term debt | $85,322 | $53,578 |
| Total liabilities | $100,747 | $68,893 |
| Net Assets (equity) (not-for profit) | $54,068 | $46,208 |
| Total Liabilities & Equity | $154,815 | $115,101 |
| STOCKHOLDERS EQUITY: (for-profit) | 2007 | 2006 |
| Common Stock ($1 par value, 150,000 shares authorized, 1000 shares outstanding) | $1,000 | $1,000 |
| Capital in excess of par | $9,000 | $9,000 |
| Retained Earnings | $44,068 | $36,208 |
| Total Equity | $54,068 | $46,208 |
| Total Liabilities and Equity | $154,815 | $115,101 |
The Balance Sheet
Overall: Focus on Balance Sheet Strength.
Percentage of assets/liabilities in short term –v- long term.
The clinic expects to receive $169,013 (Net Patient Revenue) - $2,000 (Provisions for Bad Debt) = $ 167,013 in cash reserves for services provided in 2019.
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$ 28,509 of this net patient revenue remains to be collected.
Thus $167,013- 28,509 = $ 138,504 which was the patient service revenue actually collected during 2019.
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The Balance Sheet: Short Term Assets
Net Patient Account Receivables (continued):
If the clinic were to ever close its doors on the last day of 2019, its patient account receivable balance of $28,509 should fall to zero when the entire amount was eventually collected .
Except for errors in the bad debt forecast.
If the clinic continues an ongoing enterprise, the receivables balance never really falls to 0: This occurs because new services are constantly being provided that creates new billings and hence new receivables that are added to it.
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The Balance Sheet: Short Term Assets
Inventories:
Inventory category encompasses the clinics investment in medical supplies.
The value of supplies on hand at the end of 2019 was $3,695.
As with cash accounts, it is not in the businesses best interest to hold excessive inventories.
The goal is to just keep enough to maintain supplies to guard against unexpected surges in usage.
Inventories above the minimum level create unnecessary costs.
Many health organizations are limiting their investment in inventories through aggressive inventory management (delivers the inventory to providers just before it is needed).
Just in Time inventory management is relatively new in healthcare organizations.
We will revisit inventory management later.
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The Balance Sheet:
Long Term Assets and Investments
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The Balance Sheet: Long Term Assets
| Long Term Investments | $48,059 | $25,837 |
| Property, Plant & Equipment(Fixed Assets): | ||
| Land | $2,954 | $2,035 |
| Buildings & Equipment | $85,595 | $77,208 |
| Gross Fixed Assets | $88,549 | $79,243 |
| Less: Accumulated depreciation | $36,099 | $29,694 |
| Net Fixed Assets | $52,450 | $49,549 |
| Total Assets | $154,815 | $115,101 |
| 2019 | 2018 |
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The Balance Sheet: Long Term Assets
Long-term Investments:
Economic resources that the hospital owns (e.g. corporate bonds, and government securities) and intends to hold for more than 1 year.
Effective working capital management balances assets between short term and long term securities.
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The Balance Sheet: Long Term Assets
Not-for-profit hospital strategies and long term investments:
Not-for-profit organizations typically carry large amount of long term securities investments.
This occurs because of the depreciated cash flow strategy (money from accumulated depreciation).
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Not-for-profit organizations place money from accumulated depreciation in long term investments so that they can access it later for capital improvements.
Remember from the last lecture, the cash generated from accumulated depreciation is taken out every year.
This cash is not paid to a collector of depreciation.
Eventually, the funds invested in long term securities will be used to purchase real assets that provide new or improved services to the clinic’s patients.
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Remember from the last lecture, the cash generated from accumulated depreciation is not paid to a collector of depreciation (Not one cent of depreciation were paid out as cash).
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The Balance Sheet: Long Term Assets
For-profit hospital strategies and long term investments:
It is unlikely that a for-profit healthcare business would amass such a large amount of long term investments (securities), unless the funds were earmarked for particular use in the next few years.
The stockholders in for-profit organizations would prefer to have all of the businesses capital invested in operating assets.
These assets usually earn a higher return than securities investments.
There will be stockholder pressure on management to return this capital to owners (as dividends or stock repurchases).
See next slide for more information.
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Einhorn Sues Apple Wants Company To Let Go Of Cash
http://www.usatoday.com/story/tech/2013/02/07/greenlight-sues-apple-wants-more-cash/1898807/#
9:07a.m. EST February 8, 2013
SAN FRANCISCO -- Apple came under siege today by an influential institutional investor seeking to unlock its massive $137 billion cash war chest's dividend potential, in growing signs of such unrest and shareholder angst with the company's poor stock market performance of late.
Billionaire hedge fund manager David Einhorn of Greenlight Capital is agitating for investor action and has filed a lawsuit in plans to oppose a proposal concerning its cash pile, scheduled to come up for a shareholder vote on Feb. 27.
"It's very odd that Apple is just sitting on all this cash when it's clear that its growth has slowed down," says Richard Sloan, an accounting professor at the University of California, Berkeley. "Value investors are thinking more about distributing free cash flow.“
Dividend activism is likely to stick Apple CEO Tim Cook in the hot seat next week at an expected appearance at a Morgan Stanley investor conference.
Apple issued a statement saying management and the board "have been in active discussions about returning additional cash to shareholders,….”
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Although this article is outside of the healthcare arena, it is providing some valuable information on the difference between for-profit and non for profit strategies when it comes to long-term cash investments.
Essentially the shareholders of for profit organizations do not want these organizations to hold on to excessive amounts of cash. Instead, these investors prefer a return of investment in the form of a dividend payout.
This is essentially what is associated with Apple controversy illustrated above. Please see supplemental reading folder for a copy of the full text article.
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The Balance Sheet: Long Term Assets
For-profit hospital strategies and long term investments:
If a for-profit organization requires more capital for asset acquisitions, it can obtain more debt financing or obtain more common stock.
Access to capital markets is seen as a real economic advantage that for- profit providers have over not for profit providers.
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For-profit –v- Not for Profit hospital strategies:
This slide is from lecture packet 3, which focused on net income stratified by type of hospital (e.g. governmental, for-profit, not-for-profit) and then for all hospitals. For the purpose of this section, focus on the for-profit and not-for profit hospitals. Then focus on the category titled Net Income from Other Sources: (areas identified in red):
From the above information, it can be seen that not-for-profit hospitals have a greater percentage of their income from other sources (non patient care) come from investments, government appropriations, and other non-patient care type of activities (e.g. retail, investments). While, for-profit hospitals earn a significant majority of their net income from patient care activities.
There are several reasons associated with the focus on net income. One main reason is the influence (viewpoint) of shareholders. Shareholders of for-profit hospitals want there investment going into patient care activities and not in other areas such a retail or investments. A shareholder who wants to invest in a retail company, will invest in a retail company and not a hospital who happens to also do retail. We will revisit this topic again later.
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The Balance Sheet: Long Term Assets
Fixed Assets:
When compared to current assets and long term security investments, fixed assets are highly illiquid and are used over long periods of time by the organization.
While current assets rise and fall spontaneously with an organization’s level of operations.
Fixed assets (e.g. land, buildings and equipment) are normally maintained at a level sufficient to handle peak demand.
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The Balance Sheet: Long Term Assets
Property, Plant and Equipment:
Economic resources such as land, buildings, and equipment.
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Gross Fixed Assets:
Historical cost of the assets: (done before you take out the accumulated depreciation).
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Accumulated Depreciation:
Accumulated depreciation is known as a contra-asset because it is a negative asset.
The greater the value of this account the smaller the organizations total assets.
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(net) PPE:
The amount that has been depreciated over the life of the property, plant and equipment.
Gross Fixed assets - Accumulated Depreciation: ($88,549-$36,099) = $52,450.
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The Balance Sheet: Liabilities
Liabilities identifies what the company owes. Similar to the asset section of the balance sheet, there are two main categories: current liabilities and non-current liabilities.
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| LIABILITIES & EQUITY | 2019 | 2018 |
| Current Liabilities | ||
| Notes Payable | $4,334 | $3,345 |
| Accounts Payable | $5,022 | $6,933 |
| Accrued Expenses | $6,069 | $5,037 |
| Total Current Liabilities | $15,425 | $15,315 |
| Long term debt | $85,322 | $53,578 |
| Total liabilities | $100,747 | $68,893 |
| Net Assets (equity) | $54,068 | $46,208 |
| Total Liabilities & Equity | $154,815 | $115,101 |
The Balance Sheet: Liabilities
The example above is illustrating the liabilities section of a balance sheet.
The current liabilities are obligations which must be paid within a year. Included in this category are items such as: notes payable, accounts payable and accrued expenses.
Non current liabilities represent money that the company owes one year or more in the future. This category includes items such as long term debt.
Please see the next series slides for more detailed information on the liability section on the balance sheet.
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The Balance Sheet: Liabilities
Current & Non Current Liabilities
The Balance Sheet: Liabilities
Notes Payable:
Many health care business use shot term debt to finance to finance seasonal or cyclical working capital (current asset) needs e.g. payroll financing.
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Accounts Payable:
What the hospital owes to suppliers and other trade creditors for merchandise and services purchased from them, but for which the hospital has not paid.
Obligations that have been incurred as of the balance sheet date but have not yet been paid.
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Accrued Expenses:
Expenses that occur at the end of the reporting period, but is not yet paid
e.g. employee salaries
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The Balance Sheet: Liabilities
Long-term Debt:
Economic obligations, debts that are due in more than one year.
The long term section lists any debt owed to banks and other creditors (e.g. bond holders) as well as obligations under certain types of lease arrangements.
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The Balance Sheet: Equity
The equity section of the balance sheet represents the ownership claim on the company.
In for-profit firms this is known as shareholders equity.
In not-for-profit firms, this is known as net asset.
Please see the next following slides for more detailed information on the equity section on the balance sheet.
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The Balance Sheet: Equity
Net Assets:
The term net asset is used when an organization has not-for-profit status.
The difference between assets and liabilities (when a business’s liabilities are stripped out).
Dollar value of assets remaining.
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The Balance Sheet: Equity
Fund Accounting:
Many not-for-profit balance sheets classify certain assets and equity (net asserts) accounts as being restricted.
When a not for profit organization receives contributions from donors for specific purposes, the organization must create a separate fund account.
Fund Account: A fund is defined as a self-contained pool set up to account for a specific activity or project. Each fund account typically has its own assets, liabilities, and equity balance.
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| Stockholder’s Equity | 2019 | 2018 |
| Common Stock ($1 par value, 150,000 shares authorized, 1000 shares outstanding) | $1,000 | $1,000 |
| Capital in excess of par | $9,000 | $9,000 |
| Retained Earnings | $44,068 | $36,208 |
| Total Equity | $54,068 | $46,208 |
| Total Liabilities and Equity | $154,815 | $115,101 |
The Balance Sheet: Stockholder’s Equity
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The Balance Sheet: Stockholder’s Equity
Shareholder's Equity:
The difference between assets and liabilities in for profit health care organizations.
Shareholder's equity represents the ownership interest of the stockholders in the organization.
Also known as owner's equity, net worth.
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The Balance Sheet: Stockholder’s Equity
The stockholder's section of the balance sheet consists of two parts: contributed capital and accumulated earnings.
Contributed Capital:
Contributed capital is not identified as such on the balance sheet.
The sum of common stock and capital in excess of par accounts.
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The Balance Sheet: Stockholder’s Equity
Common Stock:
Common stock is the money that is invested in the organization by its owners.
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Capital in Excess of Par:
Capital received from stockholders over par value or stated value of the stock issued.
e.g. if 1000 shares of $10 par value common stock is issued at a price of $12 per share, the additional paid-in capital is $2000.
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The Balance Sheet: Stockholder’s Equity
Retained Earnings:
Income earned by organizations that are reinvested into a business.
Not-for-Profit organizations cannot make dividend payments and all of the retained earnings must be reinvested into the business.
With for-profit hospitals: some or all of the retained earnings may be distributed to owners by making dividend payments.
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| ASSETS: | 2019 | 2018 |
| Current Assets: | ||
| Cash | $12,102 | $6,486 |
| Short Term Investments | $10,000 | $5,000 |
| Net Patient Accounts Receivable | $28,509 | $25,927 |
| Inventories | $3,695 | $2,302 |
| Total Current Assets | $54,306 | $39,715 |
| Long Term Investments | $48,059 | $25,837 |
| Property, Plant & Equipment | ||
| Land | $2,954 | $2,035 |
| Buildings & Equipment | $85,595 | $77,208 |
| Gross Fixed Assets | $88,549 | $79,243 |
| Less: Accumulated depreciation | $36,099 | $29,694 |
| Net Fixed Assets | $52,450 | $49,549 |
| Total Assets | $154,815 | $115,101 |
| LIABILITIES & EQUITY: | ||
| Current Liabilities | ||
| Notes Payable | $4,334 | $3,345 |
| Accounts Payable | $5,022 | $6,933 |
| Accrued Expenses | $6,069 | $5,037 |
| Total Current Liabilities | $15,425 | $15,315 |
| Long term debt | $85,322 | $53,578 |
| Total liabilities | $100,747 | $68,893 |
| Net Assets (equity) (not-for profit) | $54,068 | $46,208 |
| Total Liabilities & Equity | $154,815 | $115,101 |
| STOCKHOLDERS EQUITY: (for-profit) | 2007 | 2006 |
| Common Stock ($1 par value, 150,000 shares authorized, 1000 shares outstanding) | $1,000 | $1,000 |
| Capital in excess of par | $9,000 | $9,000 |
| Retained Earnings | $44,068 | $36,208 |
| Total Equity | $54,068 | $46,208 |
| Total Liabilities and Equity | $154,815 | $115,101 |
The Balance Sheet
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The Statement of Cash Flows
The Statement of Cash Flows is a document that identifies how much cash in moving into and out of the company over the specified reporting period. The Statement of Cash Flows also identifies where the money is coming from and how much is being spent.
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| 2019 | 2018 | |
| Cash Flows from Operating Activities | ||
| Net Income | $7,860 | $8,206 |
| Adjustments : | ||
| Depreciation | $6,450 | $5,798 |
| Increase in patient accounts receivables | -$2,582 | -$1,423 |
| Increase in inventory | -$1,393 | -$673 |
| Decrease in accounts payable | -$1,911 | -$966 |
| Increase in accrued expenses | $1,032 | $865 |
| Net cash from Operations | $9,411 | $11,807 |
| Cash Flow from Investing Activities | ||
| Capital Expenditures | -$9,306 | -$1,953 |
| Cash Flow from Financing Activities | ||
| Increaes in Short term investments | -$5,000 | $0 |
| Increases in notes payable | $989 | $0 |
| Increases in long term investments | -$22,222 | -$20,667 |
| Increase in long term debt | $31,774 | $0 |
| Net cash from financing | $5,511 | -$20,667 |
| Net increase (decrease) in cash | $5,616 | -$10,813 |
| Cash beginning of year | $6,486 | $17,299 |
| Cash, end of year | $12,102 | $6,486 |
The Statement of Cash Flows
Please analyze the following:
Is cash flowing in or out and what could it mean? Cash beginning or year/ end of year.
Because companies can generate cash in several different ways, the statement of cash flows is separated into three separate sections: cash flows from operating, investing and financing.
Cash Flow from Operating Activities: This section tells you how much cash the company is generating from its core business as opposed to peripheral activities such as investing or borrowing. This is the area you should focus most of your attention on because it paints the best picture of how well a firm’s business operations are producing cash.
Cash Flow From Investing Activities:
This section of the cash flow statement shows the amount of cash firms spend on investments. Investments are usually classified as either capital expenditures—money spent on new items such as equipment, or anything else needed to keep the business running. Or monetary investments such as the purchase or sale of government bonds.
Cash Flow from Financing Activities :
The cash flow from financing activities section includes any activities that involve the company’s owners or creditors. For example the issuance of common stock, and the repayment of debt.
When reading the Statement of Cash Flows, please focus on items highlighted in bold. These sections represent the most important sections of the cash flow statement.
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The Statement of Cash Flows
The Statement of Cash Flows:
Provides information about an company’s cash receipts (inlays) and cash outlays for a period as they apply to operating, investing, and financing activities.
The Statement of Cash Flows is concerned with the movement of cash.
i.e. Where did the money come from and how did the organization use it?
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Cash Flow from Operating Activities:
Cash flows from operating activities comprise the first section of the statement.
These apply to cash transactions which impact net income.
Examples of cash inflows from operating activities are cash sales, customer collections on account, interest income and dividend income.
Examples of cash outflows from operating activities are paying: suppliers of merchandise, suppliers of operating expense items, employee wages, interest expense and taxes.
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The Statement of Cash Flows
Cash Flow from Investing Activities:
Investing activities relate to the purchase or sale of equity and debt securities of other entities and acquisition or sale of property plant and equipment.
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Cash Flow from Financing Activities:
Financing activities relate to obtaining equity capital, dividends payments to stock holders, debt issuance, and repayment of bonds.
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The Statement of Cash Flows
Net Increase/ Decrease In Cash Equivalents:
Computed by adding the net cash from operating, investing and financing activities.
Cash and cash equivalents, beginning of the year corresponds with the cash and cash equivalents at the end of the previous year.
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Cash, end of year:
Cash and cash equivalents (end of the year) = net increase (decrease) in cash and cash equivalents from the three activities (operating, investing, financing activities) to the cash and cash equivalents at the beginning of the year.
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| 2019 | 2018 | |
| Cash Flows from Operating Activities | ||
| Net Income | $7,860 | $8,206 |
| Adjustments : | ||
| Depreciation | $6,450 | $5,798 |
| Increase in patient accounts receivables | -$2,582 | -$1,423 |
| Increase in inventory | -$1,393 | -$673 |
| Decrease in accounts payable | -$1,911 | -$966 |
| Increase in accrued expenses | $1,032 | $865 |
| Net cash from Operations | $9,411 | $11,807 |
| Cash Flow from Investing Activities | ||
| Capital Expenditures | -$9,306 | -$1,953 |
| Cash Flow from Financing Activities | ||
| Increaes in Short term investments | -$5,000 | $0 |
| Increases in notes payable | $989 | $0 |
| Increases in long term investments | -$22,222 | -$20,667 |
| Increase in long term debt | $31,774 | $0 |
| Net cash from financing | $5,511 | -$20,667 |
| Net increase (decrease) in cash | $5,616 | -$10,813 |
| Cash beginning of year | $6,486 | $17,299 |
| Cash, end of year | $12,102 | $6,486 |
The Statement of Cash Flows
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The Statement of Cash Flows
The Income Statement -v-The Statement of Cash Flows:
The income statement reports profitability as net income (bottom line).
Thus net income is an important measure of profitability.
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However, an organization measures of financial performance (at least in the short run) depends more on the actual cash that flows (i.e. operating, investing and financing activities) into and out of the business than it does on reported net income.
In some cases business have gone bankrupt even though net income has historically been more positive.
More commonly business have reported negative net income (net loss) have survived with little or no financial damage.
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Previous lecture stated that net income is viewed as the single most important category on the financial statement.
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Income Statement
Statement of Cash Flows
Balance Sheet
Conclusion
Income Statement-v- Balance Sheet-v- Statement of Cash Flows
The purpose of this slide is to illustrate the difference in measurement of the three financial statements.
The Income Statement: The income statement is an aggregate statement which reports profitability as net income (bottom line) over a reporting period (which is usually 1 year).
The Balance Sheet: The balance sheet is a statement that summarizes a company's assets, liabilities and equity at one specific point in time. Essentially the balance sheet is a point estimate that identifies the company’s assets, liabilities and equity during one specific day.
The Statement of Cash Flows: The statement of cash flows is a statement that identifies how much cash in moving into out of the company over the specified reporting period. The Statement of Cash flows can be viewed as a measure which constantly records the movement of cash.
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Healthcare Financial Management
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