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Discussion 6.1: Sample Balance Sheet

ECO 605 Discussion 6.1: Sample Balance Sheet

Discussion 6.1: Sample Balance Sheet

The underlying reasons that drive the increase are the change in current assets, fixed assets, and the current liabilities and long-term liabilities. Net worth is total assets minus liabilities (Waxman, 2018) and in the latter year, the net worth of the company increased 3%.

The gross assets of the company increased 29% and the net assets increased 94%. In 2016, the company had less current assets and more bad debt. The amount of bad debt from 2016 to 2017 decreased 26%. Bad debt is when a receivable is no longer able to be collected because a customer is not able to pay (Waxman, 2018). In 2017, the company had more current assets and less bad debt. The amount of cash/investments the company had increased 40% from the previous year. The patient revenue (accounts receivable) increased 26% ($101,880) which means that more money was owed to the company from the patients and/or insurers (Waxman, 2018). The charitable allowance did not have a significant change between the two years.

Regarding fixed assets such as land, buildings, equipment, and construction, there were no major changes and depreciation did not play an impactful role in the balance sheet. The total fixed assets change in one year was 0.2% and the less accumulated depreciation decreased 9%. The 9% depreciation accounts for the value lost on the original purchase price of the company’s fixed assets (Waxman, 2018).

The current liabilities had a decrease of 22% from 2016 to 2017. The accounts payable salaries, supplies, and pharm liabilities increased the most, 32%. The accrued compensation and benefits, accrued liabilities, and current portion of long-term debt had little effect.

The long-term liabilities of the company include bonds payable and mortgage payable. The bonds payable increased $1000 and the mortgage payable increased $200. These increases did not drastically affect the net worth of the company.

The total liabilities were less than the total assets in both years however, the difference in 2017 was greater which means that 2017 had a higher net worth for the company.

Reference

Waxman, K.T. (2018). Financial and Business Management for the Doctor of Nursing Practice. Springer Publishing Company.

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The snapshot provided by a balance sheet can inform leadership on the financial health of their institution. There are several reasons why a hospital would have an increase in assets from one year to the next. One reason is the addition of cash or investments. From table 7.1, there was a 40% increase in cash and investments from 2016 to 2017. This could be from a new investor or additional funding received by the hospital. Maybe a direct contribution from a donor or funds received for a clinical trial. Another reason a hospital would see an increase in assets would be an increase in patient revenue. This is also up 26% in 2017 over 2016 in table 7.1. Maybe the payor mix shifted towards commercially insured patients or more services were offered, and payments were received. An increase in patients that are served by the hospital alone does not mean an increase in revenue will be seen. Uninsured, or patients who cannot afford out-of-pocket expenses can contribute to bad debt.  A reduction in bad debt as seen in table 7.1 of 26% can also account for the increase in assets. Perhaps outstanding bills were paid by patients who owed money over the past year. Maybe more of this patient population became insured and there were reimbursements for services rendered.  There was also an 11% reduction in fixed assets from a decrease in equipment use. This could be due to a reduction in the use of rented equipment, a change in practice eliminating the need for additional equipment, or because procedures utilizing equipment are no longer performed at this facility. These factors driving an increase in assets ensure the hospital is operating at a position where assets are higher than liabilities.

Waxman, K.T. (2018). Financial and business management for the Doctor of Nursing practice (2nd ed.). Springer Publishing Company. ISBN 13: 9780826122063

  • What are the underlying reasons driving this increase?
  • Address three to four reasons and make sure to explain the causes of these driving forces.

One of the reasons driving the increase in assets is charitable allowance. Charitable allowance is free or donated care, whereas bad debt is the result of an unpaid bill (Waxman). In 3/31/2016, the charitable allowance was $13,680 whereas in 3/31/2017, the charitable allowance was $14,100. There was a 3% increase which means that there was a slight increase in assets. Another reason driving the increase in assets is bad debt which represents payment for care that, although expected to be paid, is not in fact paid (Waxman). In 3/31/2016, the bad debt was $77,250 whereas in 3/31/2017, the bad debt was $57,200. Since there was a decrease of 26% that means that there was an increase in assets because care was paid for and the company earned their money back. The last reason driving the increase in assets is contractual allowance. Contractual allowance reflects discount to charges accorded to third-party payers by the hospital (Waxman). In 3/31/2016, the contractual allowance was $233,750 whereas in 3/31/2017, the contractual allowance was $269,300. Since there was a 15% increase, that means that there was an increase in assets due to changes made by third-party payers. Due to the reasons above, the assets increased from year to year substantially.

References:

Waxman, K. T. (2018). Financial and business management for the Doctor of Nursing Practice, Second edition. Springer Publishing Company.

The balance sheet (Waxman, 2018) shows an increase in assets on March 31, 2017 in comparison to March 31, 2016. The probable reason behind this is the increase in total assets. Total assets are the sum of current and fixed assets. The balance sheet also shows a 29% increase in the current assets. The increase can also be due to the purchase of fixed assets. There is 94% increase in net assets stated on the balance sheet.

There are various driving forces that caused this increase. One reason is the deduction in bad debt. In 2016, the amount of bad debt for the company was more and the amount of current assets less than that in 2017. In 2017, bad debt decreased by 26% and current assets increased. Another reason is the 26% increase in patient revenue and this includes the money that the patients and insurers owe to the company. There has been a 40% increase in cash and investments which could be done by new investors or additional funds received by the company from existing investors. This is the another driving force that will increase the net assets for the company.

Waxman KT DNP MBA RN CNL CENP, (2018). Financial and Business Management for the Doctor of Nursing Practice, 2nd edition. Springer Publishing Company, New York. Chapter 7, pages 183-199.

Table 7.1 (Sample Balance Sheet, p. 186) in your Waxman textbook shows a considerable increase in assets from year to year.

What are the underlying reasons driving this increase?

Underlying reasons for Hospital XYZ balance sheet showing a considerable increase in assets on March 31 2017 as compared to March 31 2016 were driven by the increase in total assets.  This includes a 29% increase in current assets with a 5% increase in short term debt and allowances for the same period. This combination resulted in a 94% increase in total current assets stated on the balance sheet.

Address three to four reasons and make sure to explain the causes of these driving forces.

Some reasons for a 94% increase in total current assets are seen as follows:

  1. a large increase in cash and investments on hand (+40%) which can happen if investment sales occurred, and/or short term certificates of deposits came due with the liquidity remaining on hand and available for reporting,
  2. a large increases in patient revenue (+26%), which can come from an increase of patients seasonally or from an anomaly event representing an increase in health care needs with an influx of patients to the hospital,
  3. a large decrease in short term bad debt (-26%) which represents expenses related to providing care to patients that cannot or will not pay their bill compared to the prior year date,
  4. large increase in the contractual allowance (+15%) which reflects where the hospital contracted rates with third party payers based on agreed percentages that reduce the gross charges for an episode of care resulted in a positive cost shift for the hospital.

 

Waxman KT DNP MBA RN CNL CENP, (2018). Financial and Business Management for the Doctor of Nursing Practice, 2nd edition. Springer Publishing Company, New York. Chapter 7, pages 183-199.

A business’s assets are its possessions. Most people understand that a company’s assets are rising as a sign of growth, but much more is happening than we can see on the surface. The objective is to determine how a company’s asset growth is financed.

Based on the balance sheet, the current assets turnover in one year is close to 100%, with cash and investments providing a significant contribution, followed by patient revenues. Contractual reimbursements and uncompensated care are considered patient revenues. Accordingly, the primary reason is an increase in investment in the company.

In the balance sheet of a company, revenue on the income statement becomes an asset for them. It often manifests itself in the form of cash or accounts receivable. As revenues increase, assets increase as well.

When the owners of a company invest additional cash in the business, the extra money will increase its current assets without increasing its liabilities. Consequently, working capital will increase.

If a company obtains a long-term loan to replace a current liability, the company’s current liabilities will decrease, but the existing assets will remain the same. This will increase working capital.

 

Reasons and causes of an increase in assets:

 

  1. Cash and investments generally consist of cash, savings, checking accounts, certificates of deposit, investment assets, and marketable securities. Having cash on hand is a highly significant financial ratio for the organization. An operating cash flow is essential in determining a bond’s rating. (Waxman, 2018). Which has increased by 40%.
  2. (Waxman, 2018) A patient’s revenue or accounts receivable is the amount owed to the organization by the patient or insurer. From the table presented, it has increased 26% from last year. 
  3. Keeping an inventory of patient care supplies and resources must be part of a hospital’s daily activities, which has increased by 8%.

Reference: 

Waxman, K.T. (2018). Financial and Business Management for the Doctor of Nursing Practice (2nd ed.) Springer Publishing Company.

There are many reasons for a considerable increase in assets from year to year in the balance sheet provided. One of the reasons is the increased sales or revenues; when a company experiences an increase in sales or revenue, this often results in an increase in the number of assets that the company has on its balance sheet. This is because the company will likely have more cash on hand as well as more goods or products that it can sell to customers. From the company under consideration, an increase in revenues could have resulted in an increase in a company’s assets from year to year (Zaman & Bhandari, 2021). An increase in revenues means that the company is making more money and thus has more resources at its disposal. A company’s assets include everything that the company owns and can use to generate revenue. Thus, an increase in revenue will lead to an increase in a company’s assets.

Another reason is the increased borrowing; when a company experiences an increase in debt, this often leads to an increase in the total amount of assets that the company has on its balance sheet (Zhang & Zhang, 2020). This is because the company will likely have more money available to invest in new products. Thirdly, a considerable increase in assets from year to year, as shown in the balance sheet, could have resulted from the increase in the company’s stocks or investments, leading to a subsequent increase in the total revenues of the assets. Finally, the considerable increase in year to year assets could have resulted from the disposal of assets that generated more revenues.

 

References

Zaman, M. S., & Bhandari, A. K. (2021). Stressed assets, off-balance sheet business activities and performance of Indian banking sector: a DEA double bootstrap approach. Studies in Economics and Finance. https://www.emerald.com/insight/content/doi/10.1108/SEF-09-2020-0369/full/html

Zhang, J., & Zhang, X. J. (2020). Off-Balance-Sheet Assets, Financial Leverage, and Stock Returns. Available at SSRN 3095078. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3095078