Hospital Financial Condition Analysis

Project Guidelines

Introduction: This project has been designed to allow students to learn how to analyze the financial condition of a nonprofit hospital by conducting a financial condition analysis. To evaluate your understanding of the use financial statements in decision-making, you are asked to research and analyze a nonprofit hospital. Try to think of your analysis as a form of storytelling. You are going to tell the story of what your hospital has been doing for the past five years and where you think it will be going in the future.

Financial condition analysis focuses on providing a framework for using financial data in a variety of business analysis and valuation contexts. The effective analysis of a set of financial statements requires an understanding of the economic characteristics and current conditions of the healthcare industry, the strategy the hospital selects to employ to successfully compete, and the accounting principles and procedures underlying the hospital’s financial statements.

Before you begin to create your written outline and undertake the analysis of your hospital’s financial statements, you will need to compile the relevant information. The lists presented in this document are intended to serve as guides to help you accumulate useful information and to organize that information effectively. Not every item listed will be relevant to your hospital. Further, based on your outside resources, you may wish to include additional facts or opinions not covered in the document. Be sure to cite any outside resources used were necessary.

Remember that your audience are creditors who what to know whether they should lend your organization money. While gathering information for this project, you should perform an ethical audit of the hospital examining any ethical issues resulting from the nature of the hospital’s services, policies, operations, governance structure, or competitive environment.

Materials: You will be assigned a hospital and provided an Excel file with five years of financial statement data (i.e., balance sheet, income statement, and statement of cash flows). Templates are provided for areas to complete the analysis.

Required Submissions: Each student will submit a portfolio containing the following items: (1) the EXCEL spreadsheet containing the hospital’s financial statements, common-size and trend analysis, and financial ratio computations using cell formulas and (2) a WORD document addressing the required elements/analysis.

Format: The report should be well written, highlighting significant information. References must be appropriately cited using APA style. Double-spaced, one-inch margins, 12-point Times New Roman font.
Include a title page that follows APA format

Part I: Tell me about your Organization

This part of the analysis will focus on your hospital’s background information. The purpose is to use a variety of resources to research your organization and to then prepare a well-written summary describing the hospital that is two to five pages long.

Requirements: Research and then describe your organization’s primary business activities. Also include a brief historical summary, mission statement (this will be a direct quote), charity care and financial assistance policies, primary service area, recent developments within the organization, future direction, the socio-economic, demographic, and healthcare needs of the community your facility serves, recent developments and other items of significance to your organization.

Include information from a variety of resources.

  • Explore the organization’s website. An organization’s website usually provides updated, comprehensive information including links to current news items and community health information. Note that the hospital is the one posting the information to it’s website, and therefore, the information may be biased in favor of the organization. 

  • Select at least two significant news items (not obtained from the organization’s website) related to your organization from recent business periodicals/newspapers. These can generally be found from an internet search. 

  • To maintain tax-exempt status a hospital must perform a community health needs assessment and make it available on their website. This assessment provides a great overview of the background of the community served and the environment in which the organization operates. 

  • The respective State Department of Health can be a source of information as well. 
Part II: Conduct a Financial Analysis 
This part of the assignment will focus on the financial condition of your hospital. Using the Excel file provided you will prepare trend analyses and common-size statements, classify cash flow patterns, compute ratios, and prepare a well-written analysis summarizing the key finding (i.e., significant amounts, trends, and relationships) identified of your analysis that is two to five pages long. 
The following is necessary to complete your analysis:
  • Prepare common-size statements for the Balance Sheet and Income Statement 

  • Prepare trend analyses (horizonal analysis) for the Balance Sheet and Income Statement using 
2012 as your base year 

  • Classify the cash flow pattern for the Statement of Cash Flows 

  • Calculate the ratios listed on the Ratio Analysis worksheet for the five years of information. 
There are ratios beyond what as covered in class and you will need to perform some outside 
research to understand how to interpret these ratios. Use Excel formulas and Cell References1 for all!! 
Part III: Would You Advise a Creditor to Lend to This Organization? 
Prove a recommendation that is at least two pages based on your research, analysis, and sound reasoning that answers the above question. Identify 3-5 significant points that justify your conclusion. Support your points with a comprehensive explanation incorporating sound reasoning. 


Part I: Organization Overview

Primary business activity


Historical summary


Mission Statement


Charity care and financial assistance policies

Primary service area

Socio-economic, demographic, and healthcare needs of the community Recent development and other significant information
2-5 page summary

Part II: Financial Analysis

Balance Sheet, Trend analysis, Common-size statements

Income Statement, Trend analysis, Common-size statements

Statement of Cash Flows, Pattern analysis


Ratio computation

2-5 page analysis

Part III: Recommendation

Conclusion supported by sound reasoning

Comprehensive


At least 2 pages

Other

Minimum 6 pages, not including attachments


Good writing style, good grammar


Effective use of Excel formulas and Cell References

12-point, Times New Roman font, double-spaced, 1” margins

Well-organized, professional, and creative

Effective use of graphs and charts

APA style and references

1 Cell Reference

A cell reference refers to a cell or a range of cells on a worksheet and can be used in a formula so that

Excel can find the values or data that you want that formula to calculate. In one or several formulas, you can use a cell reference to refer to:

  • Data from one or more contiguous cells on the worksheet. 

  • Data contained in different areas of a worksheet. 

  • Data on other worksheets in the same workbook. 
As we move through the course two of the more common cell references we will use are: 

This formula: Refers to: And Returns:
=C2 Cell C2 The value in cell C2.
=Sheet2!B2 Cell B2 on Sheet2   The value in cell B2 on Sheet2.  

In the first example you place your cursor in the “destination” cell (i.e., the cell you want the result to be located), enter an equal sign (=), click on the cell your want to carry information over from, and then hit enter.

In the second example you are doing the exact same, with the exception of accessing a number from a different sheet in your Excel file.

 
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