Financial Analysis

 Scenario

In an ongoing effort to explore the feasibility of expanding services into rural areas of the state, leadership at Memorial Hospital has determined that conducting a review of its financial condition will be essential to ensuring the organization’s ability to successfully achieve its expansion goals.

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Instructions

The CFO has provided you with a copy of the organization’s financial statements. (ATTACHED) 

This information will be critical in evaluating the organization’s financial capacity to support the proposed expansion of services into the rural areas of the state.

You are asked to review these financial statements (which include the Income Statement, Statement of Cash Flows, and the Balance Sheet) and prepare an executive summary outlining the financial strength of the organization and evidence to support the expansion. Your executive summary should include the following:

  • An overview of the issue.
  • A review of critical financial ratios (Liquidity, Solvency, Profitability, and Efficiency) based on financial statements.
  • Inferences of forecasts, estimates, interpretations, and conclusions based on the key ratios.
  • Provide a recommendation based on ration analysis.

Rubric

– Comprehensive identification of summary of the issue. Includes multiple examples or supporting details. 

– Clear and thorough review of critical financial ratios–Liquidity, Solvency, Profitability, and Efficiency–based on financial statements. Includes multiple examples or supporting details per topic. 

– Clear and thorough inferences of forecasts, estimates, interpretations, and conclusions based on the key ratios. Includes multiple examples or supporting details per topic. 

– Comprehensive recommendation, based on ration analysis. Includes multiple examples or supporting details. 

1

Metropolitan Memorial Hospital

(Balance Sheet)

(in thousands)

2018 2017

3,000

700

600

$8,172

$7,350

Current Assets

Cash

$124

$280

Temporary Investments

45

30

Receivables, Net

$1,536

$1,340

Inventory

175

140

Prepaid Expenses

32

40

Total Current Assets

Long

term Investments

1,010

600

Plant and Equipment

6,980

6,580

Less accumulated depreciation

(1,730)

(1,660)

Plant and Equipment, net

5,250

4,920

Total Assets

$8,172

$7,350

Current Liabilities

Accounts Payable

$302

$370

Accrued Expense Payable

208

220

Deferred Revenues

77

60

Total Current Liabilities

587

650

Long-term liabilities

3,000

2,400

Total Liabilities

3,587

3,050

Net Assets

Unrestricted

3,

285

Temporarily Restricted

700

Permanently Restricted

600

Total net assets

4,585

4,300

Total liabilities and net assets

Metropolitan Memorial Hospital Statement of Operations

(Income Statement)

2018 2017

$285

$181



Gross patient services revenue (non-GAAP*)

$9,4

90

$8,870

Less deductions from revenues (non-GAAP)

(890)

(780)

Net patient services revenues

8,600

8,090

Other operating revenues

633

519

Total operating revenues

9,233

8,609

Operating expenses

Salaries and wages

5,678

5,

49

7

Supplies

850

823

Utilities

576

558

Insurance

46

44

Depreciation

173

168

Interest

146

142

Bad Debts

375

363

Other operating expenses

1,299

987

Total operating expenses

9,143

8,582

Operating Income

90

27

Nonoperating Income

195

1

54

Excess of revenues over expenses

$285

$

181

Changes in net assets

Unrestricted

Temporarily restricted

Permanently restricted

Total changes in net assets

285 181

*GAAP = generally accepted accounting principles

Metropolitan Memorial Hospital

(Statement of Cash Flows)

650

3,000

600

Cash Flows from Operating Activities

Cash received from patient and third-party payers

$8,404

Cash received from other operating revenue sources

Cash received from nonoperating revenue sources

180

Cash payments to employees

(4,500)

Cash payments to suppliers of goods and services

(4203)

Net cash flow from operating activities

$ 531

Cash Flows from Investing Activities

Cash payments for the purchase of plant assets

(940)

Cash payments for purchase of long-term investments

(450)

Proceeds from sales of plant assets

54

Proceeds from sale of long-term investments

49

Net cash flow from investing activities

(1,287)

Cash Flows from Financing Activities

Proceeds from Issuance of 6% bonds payable

Principal payments on long-term debt

(400)

Cash payments to retire 7% bonds payable

(2,000)

Net cash flow from financing activities

Net increase / (decrease) in cash

$(156)

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