BHA FPX 4008 Assessment 2 Financial Statement Analysis

BHA FPX 4008 Assessment 2 Financial Statement Analysis

Introduction

The purpose of this paper is to analyze the financial statement of St. Anthony Medical Center for the past three years and understand their current financial picture. This analysis will explore the current financial obligations for St. Anthony Medical Center and how this affects projections for the next fiscal year, considering their assets and liabilities, account receivable changes, and patient revenue.

Financial Position

Financial ratios are a tool of the analyst because they are easy to calculate and can be looked at over a period of time. It is important to have a comparison for the ratio outcome to fully understand what a “good” ratio would be (Griffin, 2015). A liquidity ratio is current assets divided by current liabilities and reflect how many times “the current assets of a company “cover” current liabilities (Griffin, 2015). The ratio is then compared to the industry standard to add context to the number. The higher the ratio reflects a better ability to meet its financial obligations (Center for Health Information and Analysis, 2023). Applying this information to the balance sheet for St. Anthony Medical Center would show current assets, $191,246,229, divided by current liabilities, $231,341,925, giving a liquidity ratio of .83. Knowing anything lower than a 1 is cause for concern for the financial health of the organization. To investigate the projected longer term financial health of the organization, an analyst may look at a leverage ratio. A leverage ratio measures the burden of debt and allow a look at the long-term financial soundness of a business (Griffin, 2015). 

Comparing the balance sheet of St. Anthony Medical Center over the past three years the liquidity ratio has remained relatively flat with a .03 difference today compared to two years ago. With a negative cash flow and the CEO stating the company is overdrawing for payroll, there is cause for concern. A focus on decreasing days in accounts receivable would be a good way to increase some liquid assets. There is obvious expansion happening as reflected in a $20M increase in property, plant, and equipment, or fixed assets. This increase contributes to the overall company assets, but these items are not readily converted to cash (Griffin, 2015). Though there is a lot of data available, the balance sheet does not always tell the entire story. The organization is expanding, and it is not unusual for there to be cash shortages during this type of growth period when the increased revenues from the expansions have yet to hit the balance sheet (Finkler, et al., 2020). An analysis of the income statement will allow for plans to be developed that will bring the financial impacts desired. 

Compare Financial Position to Previous Years

There is value in comparing the previous two year’s data to gain a clearer understanding of the organization’s profitability versus looking at a single year on its own. Identifying significant trends and investigating to understand the cause will assist the organization’s leaders in determining if the trend may continue (Finkler, et al., 2020). 

Applying this look back to the St. Anthony Medical Center, there was a decrease in overall assets from two years ago to a year ago, and then a slight bump up for this current year, though, current year, there is still an overall decline of $8,643,117 from two years ago. The increase in total assets in the past year have been in fixed assets associated with the expansion. Looking at liabilities, accounts payable have increased in each year which would make sense with the known expansion in progress. Once construction is completed and revenue increases as expected, the organization can re-assess their liabilities for other potential reduction possibilities. 

Accounts Receivable Changes

Accounts receivable is the amount the organization is expecting to receive for services rendered (Finkler, et al., 2020). Income from accounts receivable have decreased at St. Anthony Medical Center over the past three years by $13,755,722. This trend is positive showing less accounts receivable meaning the organization is collecting more efficiently. This is reiterated by the CEO’s comments during the board meeting regarding the team working diligently to reduce the days in AR and aggressive collections. To continue this trend, it is suggested to collect copays upfront, submit claims electronically, and ensure proper follow-up on lagging payments from both patients and insurance companies (Mathis & Lewis, 2011).

Analyze the Financial Obligations

Looking at the St. Anthony financial obligations, accounts payable stand out with the significant increase over the past three years. Though it is noted the hospital is expanding, continued focus on decreasing the responsibilities in this category will do a lot toward raising the organizations liquidity ratio. Another area of focus could be on decreasing long term debt. The amounts payable to notes have increased in the past year, though it decreased last year from the prior year. Understanding the current financial obligations compared with previous years can help managers determine their plans for the future. Refinancing current debt may help. Finkler, et al note that “securing lower interest rates can improve the hospital’s profit margin” (2020).

Analyze Patient Revenue

Patient revenue appears to be trending positively over the past three years moving from $992,725,461 to $1,282,520,098, though this can be deceiving. We are aware from the board meeting that overall patient volumes are down. The bulk of this increase comes from higher surgery reimbursement from the new bariatric practice. In addition to working to increase patient volumes, perhaps through marketing the organization’s expansion and new offerings, contractual adjustments may also beg a look. Contractual adjustments have increase steadily and have kept the net patient service revenue increase to a mere $2,482,862 of the total patient revenue increase of $289,794,637. Working with insurance companies to negotiate better reimbursement rates could have a significant impact on the bottom line for St. Anthony Medical Center. 

Conclusion BHA FPX 4008 Assessment 2 Financial Statement Analysis

Utilizing analysis of financial statements can begin to show a picture of an organizations financial health and provide a roadmap for future planning. Looking at data over time can tell a story and identify trends that can then be used to develop and implement improvement plans (Finkler et al., 2020). Understanding how to read and use the information these tools provide are the keys to determining financial health. With the expansion and implementation of some suggested plans one could say there is a positive outlook for a successful and sustainable financial future for St. Anthony Medical Center. 

References

Center for Health Information Analysis. (2023). Interpretation of Financial Ratios. https://www.chiamass.gov/interpretation-of-financial-ratios/#:~:text=This%20ratio%20measures%20the%20ability,to%20meet%20its%20financing%20commitments.

Finkler, S. A., Calabrese, T. D., & Smith, D. L. (2022). Financial management for public, health, and not-for-profit organizations (7th ed.). Sage.

Griffin, M. (2015). How to Read and Interpret Financial Statements, Second Edition: A Guide to Understanding what the Numbers Really Mean. AMACOM.

Mathis, D. & Lewis, M. (2011). How to increase upfront collections, reduce patient accounts receivable, and improve your cash flow. The Journal of Medical Practice Management, Vol.26(Issue 6), 336-8.

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