Dissecting the Financial Reporting Tools
The River Community Hospital is an acute care, not-for-profit hospital that has been providing quality care to its patients. However, the CEO of the hospital, Melissa Randolph, seems to think that the hospital may be facing some financial issues, so she has asked for a thorough financial statement and operating indicator analysis. It is important to have deep knowledge of financial reporting tools to develop an extensive financial report. This paper will list and analyze these tools in detail.
Balance Sheet
The financial situation of any organization can be determined through a balance sheet. These sheets present yearly financial records and can be useful in detecting discrepancies in funds. It represents the assets of the organization, which is a sum of net assets and liabilities. This sum can be shown as; “Assets = Liabilities + Net Assets”. The advantage of a balance sheet is that it can show the financial health of the organization at one glance. However, there are also some downsides to using a balance sheet as it does not show the financial growth of the company over time, so it cannot be used to make any financial predictions (Lockert, 2021).
In the balance sheet of the River Community Hospital, the liabilities do not exceed the net assets, which indicates that the hospital is not exceeding its budget. For example, in the year 2017, the total liabilities were $4,401, and the net assets were $32,079, which shows healthy financial management.
Cash Flow Statement
A cash flow statement can help predict revenue shortfalls and plan for the future accordingly. It allows the company to calculate and keep track of its entire revenue streams. However, the cons of using cash flow statements are far from the advantages as it does not show any signs of there will be a change in cash flow, which means that if the business is good, it will seem like it is going to remain that way (Gartenstein, 2018).
The Statement of Cash Flow of the hospital shows that in 2017, there was a decrease in the net cash, which was $2.274, and the ending cash was $2.795, which was less than the ending cash in 2016, which was $5.069. This indicates that the hospital suffered a minor loss in 2017.
Income Statement
The income statement shows the overall financial statement of the organization. It gives information regarding the company’s revenues and allows potential investors to quickly analyze if the company is worth investing in or not. It can be used to estimate the loss and profits in specific areas of the company’s finances. It helps in identifying competitive advantage. The disadvantage of using an income statement is that it is not able to take non-revenue factors into consideration, which can come in the way of success. It does not matter if the calculations are true or not, as they can be generated with estimated calculations as well (Gaille, 2018).
The revenue report shows a steady increase in the hospital’s revenue over the years. In 2015, the total revenue was $28,796, but in 2017, it was $34,582, which is far higher than before. This means that the hospital has been seeing a gradual increase in profits over the years.
Financial Recommendations
The reports indicate that the hospital has been managing its liabilities well against the net assets and has been seeing a gradual increase in its profits. Although the closing balance of 2017 was less than that of previous years, it has not severely impacted the hospital’s finances. Other than paying close attention to the reason behind the low-ending cash, there does not seem to be any other cause for concern.
References
Gaille, B. (2018, September 26). 18 Income Statement Advantages and Disadvantages. BrandonGaille.Com. https://brandongaille.com/18-income-statement-advantages-and-disadvantages/
Gartenstein, D. (2018). Pros and Cons of a Cash Flow Statement. Small Business – Chron.Com. https://smallbusiness.chron.com/pros-cons-cash-flow-statement-58713.html
Lockert, M. (2021, December 17). The balance sheet: A key financial document used to evaluate a company’s financial health. Business Insider. https://www.businessinsider.com/personal-finance/what-is-balance-sheet
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