Financial Management in healthcare

Financial Analysis

Financial analysis usually involves the use of financial data in order to make an assessment of the company's financial performance and it is used to make a recommendation on how to make an improvement. It is observed that financial analysis usually carries out their work in excel sheet in order to make an analyze historical data and make possible projections on how the company is going to perform in future (Hales, 2006). In this part of the paper, we are going to make an analysis of major forms of financial analysis, have a look at the way they are used in an organization and the possible similarity and differences which might exist.

There are several Financial Analysis techniques which include;

1. Vertical

2. Horizontal

3. Leverage

4. Growth

5. Profitability

In this paper, we are going to have a look at Vertical and Horizontal Financial Analysis

Vertical Financial Analysis

This is a form of financial analysis which involves having a look at the various components of the income statement and dividing them by revenues in order to express them as percentages. In order to make this exercise more effective, there is need to benchmark against them with other companies in the same industry in order to determine how well a given company is performing (Vance, 2002). It is also termed as common sized income statement as it allows an analyst to compare companies of different sizes by evaluating their margins instead of their dollars.

Horizontal Financial Analysis

Horizontal Financial analysis simply involves taking several years of financial data and making a comparison with each other in order to determine the possible growth rate.

Horizontal Analysis. This form of analysis is essential for analysis as they use it to determine whether a given company is either growing or declining and the identification of key important trends.

When building this form of financial models, there is a need to typically have at least three years of historical financial information and have at least five years of forecasted information. This in return provides 8 years of data which he/she can use in order to make a performance of meaningful trend analysis which is also used in benchmarking against other companies within the same industry (Vance, 2002,).

Comparison between Vertical and Horizontal Financial Analysis  

Horizontal vs Vertical Analysis
Horizontal Analysis usually involves analysis of financial statements for a given company over several years in order to come up with a decision.	The vertical analysis involves a comparison of one item with another in order to come up with a decision
Main Purpose
Its main purpose is to compare line items in order to calculate the change that has occurred over a given period	The main purpose of vertical analysis is to compare a change of an item in terms of percentages
Usefulness
It plays a pivotal role when it comes to comparing the company results from the previous years The horizontal analysis becomes more useful when comparing company results with previous financial years.	Vertical analysis is useful when it comes to comparing the results of a company with other companies in the same industry. .

Similarities

One of the similarities between the two is that they are all used with the aim of gauging a firm's performance against other companies in the same industry. The second use for these two financial analysis tools is that they are used by the top management of an organization in order to formulate key decisions (Hales, 2006).

With Boston Massachusetts Children’s Hospital the Liquidity ratio would be great in helping to determine if the hospital is staying on track and able to meet the obligations of its patients. The hospital needs to have a clear vision of its financial standing in order to operate successfully.

Liquidity Ratio

Current Assets for the last two years:

2012 1.9%

2011 2.4%