Basic Financial Calculations
Before you learned algebra, you first had to learn basic addition, subtraction, multiplication, and division. Similarly, before you can fully understand the finances of a health care organization, you first need to be able to apply basic financial calculations used in almost all domains of accounting. A firm grasp of these accounting concepts will better enable you to confidently make budgetary and resource decisions. In this Assignment, you complete calculations that will familiarize you with some of the necessary basic accounting concepts. Based on the information and financial statements below, calculate the following financial ratios in an Excel Spreadsheet: •Current Ratio = Total Current Assets / Total Current Liabilities •Days of Cash on Hand = Cash / (Total Operating Expense / 365 days) •Age of Accounts Receivable = Accounts Receivable / (Net Patient Service Revenue / 365) •Age of Physical Plant = Accumulated Depreciation / Depreciation Expense •Debt to Equity Ratio = [Long Term] Debt / Net Assets •Debt to Assets Ratio = [Long Term] Debt / Total Assets •Collection Rate = Net Patient Service Revenue / Gross Patient Service Revenue •Operating Margin Ratio = Gain or (Loss) from Operations / Net Patient Service Revenue Note: For those Assignments in this course that require you to perform calculations you must: •Use the ‘Week 3 Application Assignment Template’ from your Learning Resources •Show all your calculations and formulas in the spreadsheet A title and reference page are NOT needed in this assignment. Put your name and assignment at the top of the Excel spreadsheet. For those not comfortable with the use of Microsoft Excel, this week’s Optional Resources suggest several tutorials. To prepare: •Review the information in this week’s Learning Resources dealing with ratios and how they are calculated. •View the Week 3 Application Assignment Tutorial: Ratio Calculations, (video) provided in this week’s Learning Resources. •Use the Week 3 Application (Scenario) Assignment Template, provided in this week’s Learning Resources, to complete this assignment. •Review the Statement of Revenues and Expenses in the Week 3 application (scenario) assignment template. With the information, calculate the financial ratios.
Required Readings Baker, J. J., Baker, R. W., & Dworkin, N. R. (2018). Health care finance: Basic tools for nonfinancial managers (5th ed.). Burlington, MA: Jones and Bartlett Learning. •Chapter 4, “Assets, Liabilities, and Net Worth” (pp. 33-36) In this chapter, you are introduced to the meaning of assets, liabilities, and net worth. You explore the relationship between the three and how they must be balanced if an organization is to be successful. •Chapter 6, “Expenses (Outflows)” (pp. 47-54) The focus of this chapter is expenses and how they differ from costs. It highlights how costs should be reported and how expenses can be grouped for more effective planning and control. •Chapter 9, “Understanding Inventory and Depreciation Concepts” (pp. 81-93) This chapter examines the relationship between inventory and the cost of goods. It demonstrates how to calculate inventory turnover and product depreciation. •Chapter 11, “Reporting as a Tool” (pp. 119-125) This chapter describes the basic financial reports and how they are used in financial decision making. The four key financial statements are the balance sheet, the statement of revenue, and expense, the statement of fund balance or net worth, and the statement of cash flows. Zelman, W., McCue, M., & Glick, N. (2009). Financial management of health care organizations: An introduction to fundamental tools, concepts, and applications (3rd ed.). Hoboken, NJ: Jossey-Bass. Retrieved from the Walden Library databases. •Chapter 2, “Health Care Financial Statements” (pp. 25–86) This chapter describes the shared four basic financial statements of all organizations. The authors relate the basics to business-oriented and non-for-profit health organizations. •Chapter 3, “Principles and Practices of Health Care Accounting” (pp. 87–120) This chapter explores the accounting practices and principles of health care. The authors detail the rules for recording transactions and the process of recording and developing financial statements. •Chapter 4, “Financial Statement Analysis” (pp. 121–186) This chapter goes into detail about the three types of analysis used in financial statements of health care organizations: horizontal analysis, vertical (common-size) analysis, and ratio analysis. This chapter also explains the categories of ratios and how to apply them.