Question

for a clearer understanding can someone please answer this questions.

1. How should the economic concept of Opportunity Costs be utilized in the financial analysis of HCO’s? can someone What is the meaning of Sunk Costs and how does that concept impact the financial analysis of the HCO’s proposed projects?

2. describe the key concepts and characteristics of the following financial statements: balance sheet, statement of net income or profit and loss and the statement of cash flows. how do these financial statements interrelate? why are they important?

Answer 1

1. Opportunity cost refers to the amount of contribution lost if resources utilized in it's next best alternative use.In case of health care organizations the resources are utilised in providing health care facility to its patients and thus generating revenue from it otherwise it can be utilized in purchasing new equipment and health care programmes which will also generate revenue.

Sunk cost refers to the cost which had been already incurred in the past and which does not affect our decision making because this is not considered as an additional cost.In financial analysis of HCO's proposed projects do not consider sunk cost while making decision because it has already been incurred.So it has no relevence with the proposed project.

2. Balance sheet : It reflects the position of the assets and liabilities of the company as on date when it is prepared.

Statement of P&L :- It shows the income and expenses for the given period which can be reflected in the form of profit or loss.

Statement of cash flow :- It shows the position of cash inflows and outflows in operating, financing and investing activity.

All these statements are related to financial statements together they shows the current financial position of the company and profit/loss of the company earned during the period also transferred to balance sheet of the company and statement of cash flow reflects the position of cash balance of the company.They are important because they acts as a source of information for other stakeholders and checking of finacial position of company can also be done only through this statement.