Venice Family Clinic Assignment 8
Venice Family Clinic Assignment 8
At the most basic level, every type of business, including healthcare organizations, must analyze their financial position through the lens of their ability to operate as a going concern. A going concern is essentially an accounting term that means the organization will continue to operate into the future. Is your organization (Joslin or Venice) operating as a going concern? Tell me!
This ability is really determined in three main ways:
Can the hospital cover its expenses with its revenues (or at the very least, do expenses equal revenues so there is no loss)?
Does the hospital have enough capital to finance operations in both the short and long term?
Does the hospital have the ability to renew itself?
The first metric will be our focus at this point in the course as it is the quickest way to determine the financial condition of an organization. The other two use many other metrics that take into account the organizations future ability to generate cash and income should certain scenarios / investment decisions be made.
#1. The easiest way to answer this question is to compute the margin which is determined as follows:
(Revenues – Expenses)
Revenues
Another way to answer this question is to compute the current ratio which is determined as follows:
Total Current Assets
Total Current Liabilities
There is not a fixed rule as to what is “good” or “bad.” Usually it really does just depend on the area the facility is operating in and what is going on that year. For example, an organization that decided to pay off a great deal of its long-term debt in one year (or purchase a large piece of equipment) may appear to have a lower margin that one year. In cases like that, you may have a low or even negative margin but a decent (say >2.0) current ratio. Seemingly, they conflict but put in context they make sense. If you are given more than one year of financial data (which you are…) then you should be able to calculate the ratio for each year and determine if you are getting better or worse and hopefully why. Look for large changes, such as big equipment purchases or debt financing.
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