Question

Cash Flows Statement for King Hospital is included below: After reviewing the statement, address the following issues in your analysis discussion. You do not have to use APA format. Be sure you cover each discussion point in your answer. You may do that in paragraph form or by using a bulleted list of discussion points (1-5).  

Discussion point 5: As a Manager, what should I focus on moving forward to help improve King Hospital's Cash Position? (3 points)

King Hospital Statement of Cash Flows for Fiscal Years Ending June 30, 2019 and 2018 (000s omitted)

Cash Flow from Operating Activities                                      2019                            2018

Collections from patients and third-party payers              $17,825                         $16,232

Collections from other operating activities                           1, 919                          1,432

Payments to suppliers                                                               (2,122)                        (1,876)

Interest payments                                                                     (2,333)                         (2,290)

Payments to employees                                                           (14,228)                      (12,055)

Net cash from operating activities                                            $ 1,061                        $1,443

Cash Flows from Investing Activities

Earnings from restricted investments                                         $   350                            $350

Increase in sinking fund                                                                   (300)                           (280)

Net cash from investing activities                                                   $50                                $70                                                     

Cash Flows from Financing Activities

Payments of mortgage principal                                                       $(2,000)                 $(1,800)

Borrowing from bank                                                                                    500                                0

Net cash used for financing activities                                             $(1,500)                $(1,800)

Net Increase/(Decrease) in Cash                                                       $ (389)                   $ (287)

Cash, Beginning of Year                                                                                539                          826

Cash, End of Year                                                                                        $    150                      $ 539

(Note that parentheses on a financial statement indicate a subtraction or negative number.)

Answer 1

Based on the information provided in the cash flow statement, it can be concluded that the company's cash flow position has deteriorated. The major contributor to decline in cash flows is the "Cash Flow from Operating Activities" which has decreased from $1,443,000 in 2018 to $ 1,061,000 in 2019. A decline in cash flow from operating activities may be on account of inefficient management of business operations.

As a manager, I will focus on the factors that have contributed to increase in operating costs/expenses or decline in revenues (if any). It is evident from the information in the cash flow statements that the cash inflows from operating activities have improved in 2019 (because of increase in collections). However, the manager should correlate the increase in collections with the sales revenue for the year. Further, based on the details in the cash flow statements, the focus should be on identifying the reasons for increase in operating costs/expenses. For Instance, the manager should try to find the reason for increase in payments to employees from $12,055,000 in 2018 to $14,228,000 in 2019. The focus should also be on identifying non-value adding activities which may have contributed to increase in operating costs/expenses.