Description
The board of directors of Pearland Medical Center is working on a strategic financial plan for its Urology Surgery Hospital facility. One of the strategic goals is to build a new $1 million prostate cancer research wing in five years. The board is concerned that current economic conditions might reduce revenues over the next five years and they are uncertain about the fate of the planned construction project. You are a part of the team tasked with conducting a capital budgeting analysis.
Urology Surgery Hospital reported $1.5 million in revenue in 2012 and $1.3 million in 2013. The hospital’s equity was $2 million in 2013; the equity was $2.41 million in 2012. The hospital received delayed third-party payments in 2013 of $500,000.
The hospital received $250,000 in grants in 2013.
The hospital's current liabilities included operating costs of $1 million in 2012 and $1.2 million in 2013. In addition, the hospital retired $150,000 of debt in 2012 and 2013 (though it still held $750,000 in debt in 2013, compared to long-term debt of $900,000 in 2012). The hospital funded the employee pension plan with matching funds of $150,000 in both 2012 and 2013. Malpractice costs were $150,000 in 2012 and 2013. Depreciation expenses were $100,000 in 2012 and $105,000 in 2013. The hospital is a nonprofit facility so it incurs no tax liabilities.
Income Worksheet
ASSETS | LIABILITIES | NET WORTH | ||||
2012 | 2013 | 2012 | 2013 | 2012 | 2013 | |
Operating expenses | 1,000,000 | 1,200,000 | ||||
Debt retirement | 150,000 | 150,000 | ||||
Retirement plan | 150,000 | 150,000 | ||||
Malpractice costs | 150,000 | 150,000 | ||||
Depreciation | 100,000 | 105,000 | ||||
Long term debt | 900,000 | 750,000 | ||||
Net worth (Total equity) | 2,410,000 | 2,000,000 | ||||
Revenue | 1,500,000 | 1,300,000 | ||||
Equipment and fixtures | 1,000,000 | 1,000,000 | ||||
Delayed payments | 0.00 | 500,000 | ||||
Grants | 0.00 | 250,000 | ||||
Cash in bank | 2,360,000 | 1,455,000 |
- Using the format below, on page 1 of your paper, create a balance sheet as of December 31, 2012, and a balance sheet as of December 31, 2013. Compose them in a table, next to each other, so it will be convenient to compare. You can copy/paste the table below into a Word document.
- Calculate the Current Ratio, Working Capital, and Leverage (or Debt/Worth Ratio) for 2012 and 2013 (include those in your paper).
- Discuss the financial trends you believe the board should note in their planning.
Urology Surgery HospitalBalance Sheet as of Dec 31, 2012 | Urology Surgery Hospital as of Dec 31, 2013 | |
Assets | ||
Current Assets | ||
Cash in Bank | ||
Revenue | ||
Delayed Payments | ||
Grants | ||
Total Current Assets | ||
Fixed Assets | ||
Equipment and Fixtures | ||
(less Depreciation) | ||
Total Fixed Assets | ||
Total Assets | ||
Liabilities | ||
Current Liabilities | ||
Operating Expenses | ||
Debt Retirement | ||
Retirement Plan | ||
Malpractice Costs | ||
Total Current Liabilities | ||
Long-Term Liabilities | ||
Long-Term Debt | ||
Total Liabilities | ||
Net Worth (Total Equity) | ||
Total Liability and Net Worth |
Length: 3 pages, excluding reference page
2-3 references should be cited inside the essay NO PLAGIARISM
Reference page should include links so that I may check over the work cited
Explanation & Answer
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Running Head: FINANCE ESSAY FOR HEALTH CARE
Finance Essay for Health Care
Name
Institution
Date
1
FINANCE ESSAY FOR HEALTH CARE
2
Introduction
Pearland Medical Clinic board members are planning to undertake a new project for its
Urology Surgery Hospital. However, they are uncertain about the planned project's fate given the
current economic climate. They have therefore decided to conduct a capital budget analysis to
determine whether the planned project will be viable before incorporating it into the hospital
strategic plan. This paper outlines the hospital statement of financial position as at the year 2012
and 2013. It further compares the trend between the two years using three main financial ratios
namely working capital, current ratio and debt to equity ratio.
Assets
Current Assets
Cash in bank
Revenue
Delayed payments
Grants
Total current assets
Fixed Assets
Equipment & fixtures
Less depreciation
Total fixed assets
Total assets
Liabilities
Current liabilities
Operating expenses
Debt retirement
Retirement plan
Malpractice cost
Total current liabilities
Long-term liabilities
Long-term debt
Total liabilities
Net worth (total equity)
Total liabilities and net worth
Urology Surgery
Balance Sheet As
of Dec 31, 2012
Urology Surgery
Balance Sheet As
of Dec 31, 2013
$2,360,000
$1,500,000
$0
$0
$3,860,000
$1,455,000
$1,300,000
$500,000
$250,000
$3,505,000
$1,000,000
-$100,000
$900,000
$4,760,000
$1,000,000
-$105,000
$895,000
$4,400,000
$1,000,000
$150,000
$150,000
$150,000
$1,450,000
$1,200,000
$150,000
$150,000
$150,000
$1,650,000
$900,000
$2,350,000
$2,410,000
$750,000
$2,400,000
$2,000,000
$4,760,000
$4,400,000
FINANCE ESSAY FOR HEALTH CARE
3
Ratio Analysis
Ratios are very important analysis tool used in capital budgeting by most managers.
Therefore to fully understand Urology Surgery Hospital financial position, ratio analysis was
applied. The ratios used were current ratio, debt to equity ratio and working capital. The three
ratios are balance sheet ratios and hence their usage in analyzing the balance sheet presented above.
Working capital is regarded as the difference between an organization current liabilities
and current assets (Accounting Coach, 2017; Lan, 2012). It indicates whether an organization has
sufficient money to run its day-to-day operations. A positive working capital means that the
organization’s current assets are more than the current liabilities implying that the organization has
adequate cash to run its day-to-day operations whereas a negative working capital indicates
liquidity problem (Lan, 2012). This usually means that an organization’s current assets are less
than its current liabilities. The hospital working cap...