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.

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nancing must be included in the NPV analysis. Evaluate funding options for capital expansion The first question that must be addressed is the desirability of expanding a facility that is currently in financial difficulty. Simply put, why compound the problems? As there is no information of the nature of the capital expansion, its purpose, revenues or costs associated with it operation, viable funding sources if any, or cost of funding alternatives, an answer to the question cannot be framed. II. Capital Shortage Which cost cutting options did you select? Why? The only real cost cutting options are to reduce "Agency Staff" and changing skill mix by hiring unlicensed personnel to perform functions of more highly paid licensed personnel. This might actually increase staff headcount, but would permit better service revenue to service personnel cost ratios. Retention of skilled staff is an important consideration, and the cost savings of reducing benefits compared to the costs of increasing turnover would have to be determined, particularly in view of the "long term" orientation expressed by Mr. Sanchez. The comments by Mr./Ms Takeuch fit well with the comments of Mr. Sanchez already discussed. Clearly, reducing contra

Category: Business - A