Question

One of the most important characteristics of a business is its financial performance. Financial performance has many dimensions, but to health services managers the most relevant feature of performance is the business’s financial condition. A business will sometimes ask itself, does it have the financial capacity to perform its mission? Some methods of assessing a healthcare systems capacity to perform its mission are financial statement and operating analysis. Based on what you have read and what was discussed in class what are the functional definitions of financial statement and operating analysis and give a brief description of the major aspects of each.

Answer 1

Financial statement analysis is the method or process of analyzing a company’s financial statements for the purpose of decision making on one hand and for the purpose of analyzing the health of the organization on the other hand. We know that financial statements record financial data related to the organization for a given period and this data can be analyzed and interpreted to determine the financial health of the organization. Through financial statement analysis we can determine an organization’s liquidity position, solvency position, ability to service the interests on debt, efficiency with which it uses its assets etc.

Operating analysis involves an analysis of the company’s organizational effectiveness and the manner in which it conducts its operations. Operating analysis helps in determining those areas of an organization that are working well and those areas that are not working that well and hence need further improvement. In simple words operating analysis is a comprehensive analysis of an organization’s operational systems so that opportunities for improvement can be identified in a systematic manner.