Nursing

Financial Statement Analysis

Jeffrey Kalinowski

BHA-FPX4008

Capella University

Mary Baker

10/26/2021

Financial Statement Analysis

Financial statement analysis is a process of analyzing and interpreting a firm or a

company’s financial statements for the purpose of decision making. Analysis of financial

statements are needed by different company’s stakeholders such as managers, directors, customers,

investors, regulators and external auditors. These stakeholders use the analyzed financial

statements to determine profitability of the organization, fulfilling oversight responsibilities to

protect shareholders interest and also using the analysis to see how the organization is performing.

These financial statements include; statement of financial position (balance sheet), which provides

information on the position of the firm by focusing on the assets, liabilities and capital, the income

statement which list out expenses, and income for the financial period, statement of cash flows

which present cash flows from organization’s operating activities during the financial year. These

three types of financial statement are used and applied in vila health care. Financial statements are

crucial to health centers as they show the performance of the facility and the resources entrusted to

it.

There are various tools and techniques of financial analysis that are employed in

organization for analyzing and interpreting the financial statements. They are majorly classified

into three categories that is cross-sectional analysis, time series analysis and cross –sectional cum

time series analysis. Cross- sectional analysis (inter-firm analysis comparison) helps in analyzing

and compare financial features of two different firms but operating on the same field for instance

we can compare the financial performance of Vila health care with another healthcare center and

try to see which is better. On the other hand, time series analysis also called intra-firm comparison,

comparison is made between two different items or products of financial statement within the same

unit firm. Cross-sectional cum time series analysis is used to compare financial characteristics of

two or more organizations for a given accounting period like over a year.

Financial statements analysis tools are comparative financial statements, common size statements,

trend analysis and finally ratio analysis. Common size analysis and ratio analysis are the most

common used techniques for analyzing financial statements (Finkler, Smith, & Calabrese, 2020).

Comparative financial statement compares the performance of the firm with the previous year’s

financial statements and this enables them to obtain information and identify points of weakness

which calls for applications of corrective measures. In this tools there are two types namely income

statements and statement of financial position and they are normally prepared and reported for

analysis. Comparative balance sheet it shows different assets and liabilities of the firm on different

years to make comparison of balances from one year to another. It always has three columns, the

two columns display the original balance sheets and the third column is used to show the change

(increase /decrease). Income statements provides the results of the operations of the organization.

Vital components of income statements are net sales, expenses, office expenses and cost of goods

sold. In non –profit organizations and institutions, income statements show surplus or deficit while

in other organization they show net profit or net loss.

Ratio is an expression that shows relationship between two factors or variables. financial

statement ration aids in analyzing and interpretation of the various factors in accounts. financial

ratios give detailed information that helps in examining the actual picture on how the firm is

performing. Ratios provides high clarity and the meaning of financial statement by bringing out

information that was not apparent. It provides information suitable for timely quality and informed

decision making. Ratios helps in identifying the solvency and the profitability of the organizations

as well as ensuring effective cost control. In additional ratios provide a basis of of evaluating the

organization operational efficiency and also enhance comparison of the firm’s performance with

similar firms in the industry. Another importance of ratios is that its forms the basis of for future

forecast and planning by providing performance pattern and trends. There are different types of

financial ratios that are calculated in different ways thereby giving different meanings. These ratios

are liquidity ratio, profitability ratio, activity ratio and investor ratio. Liquidity ratio measures the

ability of the company to repay it short-term debts to meet unexpected cash needs. Current ratio is

one of the example of liquidity ratio and is calculated by dividing current assets by current

liabilities (Finkler, Smith, & Calabrese, 2020). It is also called working capital ratio.

Current Ratio = Current Assets / Current Liabilities. Vila health can use this ratio to know the

ability of the organization to pay its currents obligations using currents assets. In Vila health the

current year current ratio is given by $38,448,695/ $29,874,878 which is equal to 1.287. return on

asset ratio is one of the activity ratio and it measures the profitability of the company and

organizations. it is calculated by dividing net income by average total assets.

Financial statement analysis is reported to the users for easier decision making and to make

necessary adjustments (Robinson, 2020). Health care reports plays crucial role as it helps in

minimizing errors and enhance the acquisition of important patient’s data, improve health care

processes and reducing the health care expenditures. Health care financial reporting helps in

increasing efficiency, performance of the health care organizations as well and optimizing health

care metrics. Financial reporting enhances preventive management by viewing both historical data

and current data to spot serious medical issues before they arise (Agyekum, Finney, Omar and

Tang, 2019). Cutting down unnecessary cost in health care centers is one of the advantages of

financial reporting. This is done by collecting and analyzing operational cost associated with the

health care organizations and streamline budgeting by making adjustments. Financial reports allow

health care management team to identify pattern, financial challenges and tracing the financial

performance in real time. Moreover, financial reporting helps health care centers to manage their

debt by looking on the current assets and liabilities. financial reports are needed by government for

taxation purposes, hence accurate financial reports will lead to correct income tax realization as

well as saving time. It enables accountability in health care centers.

Balance sheet has the following components; asserts which are classified into fixed

assets and current assets, liabilities which are classified into long-term liabilities and short-term

liabilities and finally capital. In St. Anthony Medical Center, Vila Health, the values of current

assets are decreasing from previous year to the current year this indicates that the facilities has is

experiencing financial distress and the health center can fail to meet its financial obligations to

creditors. Net Property, plant and equipment of Vila health are decreases from $142,722,960 to

$136,126,182 and then increases to $141,461,961. This indicates that the health center went

through financial difficulties but currently improving by purchasing of assets to improve its

services to patients. In any successful firm, assets are more than liabilities indicating that the firm is

able to fulfil its obligations. In St. Anthony Medical Center, total liabilities are more than total

assets. For instance, current year total liabilities is $231,341,925 while the total current year assets

is $191,246,229. This implies that the health center is experiencing financial distress and cannot be

in a position to meet its obligations.

The financial position of St. Anthony Medical Center was better in 2 Year Prior Ending:

6/30 than the other years. The health center is performing poorly this is because liabilities exceeds

assets. Account receivables are reducing from 2 years prior, 1 year prior and current year prior

respectively. This implies that the health care is expecting to receive low money in future.

References

Finkler, S. A., Smith, D. L., & Calabrese, T. D. (2020). Financial management for public, health,

and not-for-profit organizations (6th ed.). CQ Press.

Agyekum, A., Finney, S., Omar, A. and Tang, A., 2019. 2016 Presidential Election - The Winners

and Losers in the Health Care Industry. International Journal of Accounting and Financial

Reporting, 9(4), p.260.

Siekelova, A., Kliestik, T., Svabova, L., Androniceanu, A., & Schonfeld, J. (2017). Receivables

Management: The Importance Of Financial Indicators In Assessing The

Creditworthiness. Polish Journal Of Management Studies, 15.

Robinson, t., 2020. International financial statement analysis workbook. [Place of publication not

identified]: john wiley & Sons.