Financial Analysis of Harris Memorial Hospital

The financial health of Harris Memorial Hospital is discussed in the assignment content. It highlights a high operating expense of $764,776 and an operating loss of $1.85 million. However, there is a strong liquidity position, with 27 skilled nurses working to generate additional revenue through the Harris Health Plan project. The hospital's accounts receivable has risen by 20%, while its property and equipment have long lifespans and are considered depreciable after 40 years. Overall, the financial health condition of the hospital is considered good, paving the way for new health projects. The assignment also explains the financial analysis, which recommends investing in bonds and short-term equities to generate revenue. Furthermore, two strategies for improving the hospital's financial position are discussed: implementing an orphanage home for children and conducting cancer and AIDS research programs.

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“HEALTHCARE FINANCE PROJECT”
(Part 1)
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TABLE OF CONTENTS
A. Ratio analysis.............................................................................................................................3
B. Comparison of financial strengths and weaknesses of hospital.................................................5
C. Overview of the financial Health of the hospital.......................................................................6
D. Explanation of Financial analysis..............................................................................................7
E. Two strategies for improving the hospital financial position....................................................8
Reference List....................................................................................................................................9
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A. RATIO ANALYSIS
1. Liquidity Ratio: This includes current ratio, quick ratio and cash ratio for the year ended
2017 of Harris Memorial Hospital.
So, Current Ratio for the year 2017= Current Asset / Current Liabilities
= 194235/ 103522 = 1.876
Current Ratio for the year 2016 = Current asset /Current Liabilities
= 156381/ 96897 = 1.614
So, it has been seen from above result that current ratio is increasing and for that reason the
asset earning is increasing for Harries Memorial Hospital from the year 2016 to 2017 (The
American Association of Individual Investors, 2018).
Quick Ratio:
This ratio can be calculated as follows:
Quick ratio= (Cash and Cash Equivalents + Short Term Investments + Current / account
receivables)/ Current Liabilities
So, quick ratio for the year 2017= (82815+ 0+ 70025)/103522= 1.48
Quick ratio for the year 2016= (59696 + 0+ 59939)/ 96897=1.23
So, from the above analysis it can be clearer that in both the year the Hospital has more
than one quick ratio and that means liquidity position is better for both the year.
Cash Ratio:
This ratio can be calculated as follows:
Cash Ratio is defined as
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Cash ratio= (Cash equivalents + Cash)/ current liabilities
Cash ratio for the year 2017= (82815/103522) = 0.799
Cash ratio for the year 2016= (59696/96897) =0.616
From the above ratio analysis, it can be concluded that Harris Memorial Hospital holds
good amount of Cash which they can invest in other sector for better return or they can
spread as dividend to the shareholders for goodwill.
2. Solvency Ratio
This ratio is calculated for examining the ability of the business to meet the long-term
obligations. This ratio is mostly used for current as well as prospective lenders. This ratio has
compared the cash flows with liabilities.
The ratio is given by (Net after-tax income + Non-cash expenses)/ (Short-term liabilities +
Long-term liabilities).
So, Solvency ratio for the year 2017= (800209/103522) = 7.73
Solvency ratio for the year 2016 = (746021/103522) = 7.67
So, it can be concluded from above calculation that there is a moderate solvency ratio for
which risk can be covered as it is a new business (Lane, 2018).
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B. COMPARISON OF FINANCIAL STRENGTHS AND WEAKNESSES OF
HOSPITAL
Financial Strength of Harris Memorial Hospital:
1. There are outstanding medical staff
2. Strong commitment to the staff and community
3. Higher level of organizational efficiency
4. Outstanding healthcare quality
5. Strong growth
6. High liquid cash investments
7. Good earning from charity project
8. Planned Health Insurance program
9. Fair chance of excess revenue generation (Foster, 2004).
Financial weakness of Harris Memorial Hospital:
1. Lack of adequate resources as it is a new business. Good number of stuff is needed to
recruit.
2. Shortage of critical stuff.
3. Lack of Primary care Network
4. Lack of adequate support when needed as number of donor is not increasing.
5. Gifts and long lived assets has explicit restrictions
6. Donor trust liabilities are also included and the net unrealized loss is expected as high as
$9,183,000 (Devaraj & Kohli, 2003).
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C. OVERVIEW OF THE FINANCIAL HEALTH OF THE HOSPITAL
As there is a high operating expenses as high as $764,776 there is high operating loss of $1.85
million. It is very clear to the people of Harris community there is a good promise of fund
healthcare for the indigent as well as the medically needs patients in the country.
There is a strong growth in the liquidity position in the year 2017 from the other year 2016. There
are altogether 27 skilled Nurse who are tremendously working day and night for the patients. The
approximate construction contract is $7,360,000 which can be repayment by additional revenue
generation through Harris Health Plan project (Cleverley & Cleverley, 2018).
The accounts receivable is up to 20% rising whereas it is 29% from the health plan project. As per
the agreements it is restricted to use the asset and only 20% can be reinvesting for better return.
This concludes not much investment possible from the cash or revenue generation.
However, the property and other equipment have long life and are considered as depreciable after
40 years. For that scenario, hospital is no need to extra high cost to implement in other physical
resources.
So, the overall financial health condition can be considered as good and ongoing for the new
health project, Harris Memorial Hospital (Richter & Muhlestein, 2017).
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D. EXPLANATION OF FINANCIAL ANALYSIS
The long term debt is measured and the revenue bonds is totaling as high as $15,700,000. There
are advance refunds of $31,280,000. The revenue bonds as well as other interest can generate
above 50% ($439,597) of the operating expenses which is $ 764,776 for the year ended 2017. It is
thus recommended to invest more amounts in bonds profile as well as the short term equities. As
total income from Healthcare services ($619,596) is not enough to cover up the expenses. So, for
higher revenue generation, Harris memorial hospital has only way of capital investment and other
projects of research where they will be offered extra investments. Interest rate swap agreements
have a good amount of return which is basically based upon the market rates. So, for the risk
coverage Harris Memorial Hospital should invest 40% of their revenue to Health insurance plan
which will be supportive to their tax benefit as well. The book value for the medical building is
approximately $10,900,000 which in turn can be a stable income provision and for that reason
there is a good profit. But this cannot cover the expenses made by goods and services which is
approximately $1, 37,400,000. So company has to go for borrowings. The Charitable Foundation
thus has a good imitative and works collaborate with Harris Memorial hospital (Harris Health
System, 2016).
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E. TWO STRATEGIES FOR IMPROVING THE HOSPITAL FINANCIAL
POSITION
Two Strategies:
1. To implement an orphanage home from child and other medical support for critical care of
child, for that MEDSURE program is subjected to implement for insurance purpose.
According to the World and U.S news this kind pf program is necessary for accessing the
more opportunities in case of health and care organizations. These programs also provide a
better understanding for creation of compelling narratives which will foster the greater
understanding for the shared challenges as well as the greater support with people-centered
policies.
2. To implement cancer and aids recovery research program which is needed to be developed
under community foundation. This initiative will increase the financial revenues by
accumulating such projects from WHO or UNICEF. Through this kind of program, it is
very important to modify the patient care as good as possible. There is a positive impact
has been observed towards the healthcare association which having the benefits of urgent
care and cure. Also the research opportunities are found to be enhanced within this kind of
program which is also tremendously helpful for the improvement of financial position of
the healthcare associations (Pollitt & Bouckaert, 2017).
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REFERENCE LIST
Cleverley, W., & Cleverley, J. (2018). Essentials of Healthcare Finance. Retrieved from
http://samples.jbpub.com: http://samples.jbpub.com/9781284094633/FrontMatter.pdf
Devaraj, S., & Kohli, R. (2003). Performance impacts of information technology: Is actual usage
the missing link?. . Management science, 273-289.
Foster, G. (2004). Financial Statement Analysis,. New York: Pearson Education India.
Harris Health System. (2016). Harris Health Annual Report. Retrieved from
https://www.harrishealth.org:
https://www.harrishealth.org/SiteCollectionDocuments/annual-reports/annual-report-
2016.pdf
Lane, M. (2018). Ratio Analysis. Retrieved from http://www.zenwealth.com:
http://www.zenwealth.com/BusinessFinanceOnline/RA/RatioAnalysis.html
Pollitt, C., & Bouckaert, G. (2017). Public Management Reform: A Comparative Analysis-Into the
Age of Austerity. . London: Oxford University Press.
Richter, J. P., & Muhlestein, D. B. (2017). Patient experience and hospital profitability: Is there a
link? Health care management review, 247-257.
The American Association of Individual Investors. (2018). 16 Financial Ratios for Analyzing a
Company’s Strengths and Weaknesses. Retrieved from http://www.aaii.com:
http://www.aaii.com/journal/article/16-financial-ratios-for-analyzing-a-companys-
strengths-and-weaknesses.touch
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