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Analyzing Financial Indicators for Decision Making

Analyzing Financial Indicators for Decision Making

The first question concerns the basic nature of the hospital. Is the hospital a for-profit or a non-profit organization? Based on the quotation " . . . patient volumes and revenues are growing at a rapid rate, the profitability is dropping" indicates a for profit operation. There is also a severe shortage of solid information in the case, and the financial information provided is minimal.

The underlying problem is management. When the CEO of an organization says, "We will have to further cut down cost by taking a loan."; it might be an indication that management is less skilled in business practice than one could wish. When the statement following this is, "If we can't improve our cash flow situation soon, we are in trouble. However we should not only look at short term budget goals." Cash flow problems are today! If they are not resolved, there is reason to doubt that long-term goals are relevant.

I. Financial accounting from the Perspective of a Cardiac Care hospital

In accounting practice, a for-profit cardiac care hospital is little different than any other service providing organization. The sources of revenue, and the classification of expense may be unique, but this is true in many types of business.

There are basically two ways of improving a working capital shortage; or in other words, improving the current and quick ratios.

The cash turnover cycle, the time between the provision of the service and the collection of the bill must be reduced. This will permit more rapid payment of current liabilities, and hopefully, increase the cash balance. The drawback from a working capital standpoint is that Accounts Receivable are also reduced as the cash cycle improves. The key here is to reduce accounts payable more rapidly than receivables.

An equity investment, or the proceeds of long-term debt invested in working capital are the alternatives, ...

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Analyzing Financial Indicators for Decision Making. (1969, December 31). In LotsofEssays.com. Retrieved 06:37, March 29, 2024, from https://www.lotsofessays.com/viewpaper/1689106.html