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.
The financial situation of any organization can be determined through a balance sheet. These sheets present yearly records of finance and can be useful in detecting discrepancies in the 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 advantages of a balance sheet are 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 indicate that the hospital is not exceeding its budget. For example in the year 2017, the total liabilities are $4,401 and the net assets are $32,079 which shows healthy financial management.
Cash Flow Statement
A cash flow statement can help in predicting the 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 if 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.
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 finance. 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 revenue of the hospital 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.
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 as compared to previous years it has not severely impacted the hospital’s finance. Other than paying close attention to the reason behind the low ending cash, there does not seem any other cause for concern.
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