BHA FPX 4008 Assessment 2 Financial Statement Analysis

• BHA FPX 4008 Assessment 2

Introduction

This paper analyzes St. Anthony Medical Center’s financial statements over the past three years to evaluate its current financial position. This analysis focuses on the organization’s financial obligations, asset and liability trends, accounts receivable changes, and patient revenue. By examining these key components, we aim to understand the hospital’s financial health better and make projections for the upcoming fiscal year. This financial assessment aligns with the objectives of BHA FPX 4008 Assessment 2, which emphasizes using financial data to guide effective decision-making.

Financial Position

Importance of Financial Ratios

Financial ratios are valuable tools for analyzing an organization’s fiscal health. Liquidity ratios, for instance, measure an organization’s ability to cover current liabilities with its current assets. Calculating the liquidity ratio for St. Anthony Medical Center involves dividing current assets ($191,246,229) by current liabilities ($231,341,925), yielding a ratio of 0.83. A ratio below 1 indicates financial concern, as the organization may struggle to meet its short-term obligations (Center for Health Information and Analysis, 2023).

Leverage ratios evaluate the burden of debt on the organization to assess long-term financial stability. These ratios provide insight into the hospital’s financial soundness and capacity to sustain growth while managing liabilities.

Trends Over Three Years

Over the past three years, St. Anthony Medical Center’s liquidity ratio has remained relatively flat, with only a 0.03-point difference. Despite this stability, the organization is experiencing cash flow challenges, highlighted by the CEO’s statement about overdrawing for payroll. Additionally, the balance sheet shows a $20 million increase in fixed assets due to ongoing expansion, contributing to the organization’s long-term assets but needs to enhance liquidity immediately.

Periods of expansion often lead to temporary cash shortages as increased revenues from new services or facilities may take time to materialize (Finkler et al., 2020). A detailed income statement analysis can help develop strategies to address these financial concerns.

Comparison to Previous Years

Analyzing Trends in Assets and Liabilities

Comparing financial data over time provides valuable insights into profitability and operational trends. At St. Anthony Medical Center, total assets decreased by $8,643,117 compared to two years ago, despite a slight increase in the past year. This growth in assets is primarily tied to fixed assets from expansion activities.

On the liabilities side, accounts payable have consistently increased, reflecting the expansion’s financial demands. Once construction is completed and revenues stabilize, the organization should prioritize reassessing liabilities to identify opportunities for reduction.

Accounts Receivable Changes

Accounts receivable represent the money owed to the organization for services rendered. Over the past three years, St. Anthony Medical Center has seen a decrease in accounts receivable by $13,755,722, which is a positive trend indicating improved collection efficiency. The CEO’s remarks during a board meeting credit this improvement to aggressive collection efforts and a focus on reducing the days in accounts receivable (AR).

To sustain this progress, the hospital could implement upfront copay collection, electronic claims submissions, and timely follow-up on delayed payments from patients and insurance companies (Mathis & Lewis, 2011). These actions will further enhance liquidity and cash flow.

Analyzing Financial Obligations

Accounts Payable

Accounts payable have grown significantly over the past three years, largely due to expansion-related expenses. Reducing these liabilities should be a focus for improving liquidity. Addressing long-term debt is another critical area. Though the hospital’s notes payable decreased two years ago, they increased in the past year. Refinancing debt at lower interest rates could improve profit margins and alleviate financial pressure (Finkler et al., 2020).

Patient Revenue

Patient revenue at St. Anthony Medical Center has increased over the past three years, rising from $992,725,461 to $1,282,520,098. However, this growth is only partially due to higher patient volumes, which the CEO noted are declining. The revenue increase is primarily attributed to higher reimbursement rates from the hospital’s new bariatric practice.

To address declining patient volumes, the organization could invest in marketing efforts to highlight its expanded services. Renegotiating contracts with insurance providers to secure better reimbursement rates could also significantly enhance net patient revenue. Currently, contractual adjustments are rising and have limited net patient service revenue growth to $2,482,862 despite the significant increase in total patient revenue.

Conclusion

Financial statement analysis provides critical insights into an organization’s fiscal health, helping leaders make informed decisions. By examining trends over time, organizations can identify strengths, weaknesses, and opportunities for improvement.

To ensure long-term sustainability, St. Anthony Medical Center must address challenges such as declining liquidity, increasing accounts payable, and reduced patient volumes. However, positive trends in accounts receivable and patient revenue from new services suggest growth potential. St. Anthony Medical Centre can build a successful and sustainable financial future by implementing strategic financial management practices, as outlined in BHA FPX 4008 Assessment 2.

Read more about BHA FPX 4008 Assessment 1 Developing an Operating Budget for complete information about this class.

References

Center for Health Information Analysis. (2023). Interpretation of Financial Ratios.

https://www.chiamass.gov/interpretation-of-financial-ratios/#:~:text=This%20ratio%20measures%20the%20ability,to%20meet%20its%20financing%20commitments.

Finkler, S. A., Calabrese, T. D., & Smith, D. L. (2022). Financial management for public, health, and not-for-profit organizations (7th ed.). Sage.

Griffin, M. (2015). How to Read and Interpret Financial Statements, Second Edition: A Guide to Understanding what the Numbers Really Mean. AMACOM.

Mathis, D. & Lewis, M. (2011). How to increase upfront collections, reduce patient accounts receivable, and improve your cash flow. The Journal of Medical Practice Management, Vol.26(Issue 6), 336-8.