In: Finance
Module 6: Financial Statements
For your post this week, I want you to discuss the importance of financial statements to managers, and to outside parties. Also, I would like you to explain the difference if the hospital is a for-profit, or not-for-profit organization.
Financial statements are written records that reflect the business activities and the financial performance of a company. Financial statements are audited by government agencies, accountants, firms, etc. to ensure accuracy and for tax, financing, investing or corporate governance purposes. All publicly traded companies and large private entities prepare financial statements periodically. Financial statements include:
Importance of financial statements to managers
Importance of financial statements for outside parties
Credit Risk Management - Lenders providing loan or trade credit will analyze financial statements to determine the credit worthiness of the firm. Banks and financial institutions evaluate financial statements to approve loans. These loans may include ratio covenants based on annual statements as a condition to the loan agreement.
Shareholders use Financial Statements to assess the risk and return of their investment in the company and take investment decisions based on their analysis.
Prospective Investors need Financial Statements to assess the viability of investing in a company. Investors may predict future dividends based on the profits disclosed in the Financial Statements. Also, risks associated with the investment may be identified from the Financial Statements. For instance, fluctuating profits indicate higher risk.
Suppliers need Financial Statements to assess the credit worthiness of a business and ascertain whether to supply goods on credit and also to determine on the terms of credit.
Customers use Financial Statements to assess whether a supplier has the resources to ensure the steady supply of goods in the future. This is especially vital where a customer is dependant on a supplier for a specialized component.
Competitors compare their performance with rival companies to learn and develop strategies to improve their competitiveness.
Governments require Financial Statements to determine the correctness of tax declared in the tax returns. Government also keeps track of economic progress through analysis of Financial Statements of businesses from different sectors of the economy as well as govts. can see whether the cos. are adhering to corporate governance regulations.
General Public may be interested in the effects of a company on the economy, environment and the local community.
The difference if the hospital is a for-profit or not-for-profit organization
Although nonprofit and for-profit hospitals are fundamentally similar, there are significant cultural and operational differences, since, for-profit hospitals have to generate return for investors.
For-profit hospitals tend to serve lower-income populations, while Nonprofit hospitals tend to be located in communities with less poverty, higher incomes, and fewer uninsured patients.
One important difference in nonprofit and for-profit hospitals is that for-profits allocate more resources to advertising and marketing.
With positive financial performance among the primary goals of shareholders and the top executive leadership, operational discipline is one of the distinguishing characteristics of for-profit hospitals.
The executives of for profit hospitals are accountable for
financial performane of the hospital. For-profit hospitals
routinely utilize monetary incentives in the compensation packages
of the doctors.
In contrast to offering generous incentives that reward robust
financial performance, for-profits do not hesitate to cut costs in
lean times.
When healthcare providers negotiate managed care contracts, for-profits have a bargaining advantage over nonprofits. In managed care contracts, for profits look for leverage and nonprofits look for partnership opportunities. For profits can negotiate more efficiently.