Assignment: W10/11A6 Final Healthcare Budget Request
A healthcare budget request has one primary purpose; to convince leadership to dedicate necessary resources to a project. But there are multiple challenges that must be met along the path toward achieving that goal. Those behind the budget request must demonstrate sensitivity toward budget concerns across the organization while also trying to sell their own initiative.
Understanding the financial health of the organization can provide helpful insight that may in turn help better develop the business case for a proposal. Among the ways to do this is by reviewing and analyzing an organization’s annual financial statements. These “organizational selfies” provide a financial snapshot of the organization, with the organization’s income, liabilities, equity, cash flows and more serving as the backdrop to give readers a view into the status of the organization.
What are Financial Statements?
There are three financial statements used for reporting an organization’s financial performance over time; the income statement, the balance sheet, and the cash flow statement. These three statements comprise the statement of financial performance, an accounting summary that details a business organization’s revenues, expenses and net income.
Of these three statements, the income statement is most closely aligned with performance. The income statement measures an organization’s performance over a given period by presenting the organization’s revenues and expenses, with the difference being the organization’s income. The basic equation on which an income statement is based is:
Because of this, the income statement shows the organization’s “bottom line”, revealing how profitable the organization is over a certain period of time. The income statement takes into account sales revenue, cost of goods sold and other operating expenses and income.
The income statement is also known as a profit and loss (P&L) statement, statement of earnings, statement of operations or statement of income.
These statements are prepared monthly, quarterly or annually, and give businesses a big picture of where they stand financially. A corporation’s accounting department may prepare a statement of financial performance at any given point in time or throughout the year, depending on business requirements.
Typical Income Statement
The information contained in the income statement is critically important to the organization, investors, and other stakeholders. An organization’s ability to generate earnings over the long term is the key driver of stock prices. Net income is also the source of compensation to shareholders (owners of the company), and if a company cannot generate enough profit to compensate owners for the risks they’ve taken, spending and budgets are likely to decrease. Conversely, if a company is healthy and growing, higher stock prices will reflect the increased availability of profits. The information in the income statement also can help determine if an organization will be able to pay its debt obligations.
Another important financial statement is the balance sheet. Balance sheets reflect where the organization stands financially at a certain point in time. This statement of financial performance presents assets, liabilities and shareholder equity to make sure assets are equal to the other two factors. The balance sheet incorporates the net income determined on your income statement.
The basic equation on which a balance sheet is based is: Assets = Liabilities + Shareholder’s Equity.
Balance sheets provide a snapshot of what a company owns (assets) and owes (liabilities), as well as the amount invested by shareholders (shareholders’ equity). Like income statements, balance sheets are prepared monthly, quarterly and/or annually.
Typical Balance Sheet
Several ratios can be derived from the balance sheet that help investors get a sense of how healthy a company is. They do not give a sense of the trends that are playing out over a longer period and therefore should be compared with those of previous periods.
The third primary financial statement is the cash flow statement. Cash flow statements look at how money moves through the organization. This statement shows increases and decreases in cash from operations, investing and financing over a period of time. In particular it takes the net income from the income statement and adjusts it for any non-cash expenses. Then, using changes in the balance sheet, it shows the net change in cash balance. Cash flow statements contain three sections: cash from operations, cash used in investing, and cash from financing.
Typical Cash Flow Statement
Financial Statement Analysis
Note that the income statement terms “earnings”, “net income”, and “net profit” are not the same as the statement of cash flow terms “cash” or “cash flow”. It is possible for an organization to be profitable on the income statement, but not be generating cash flow, and vice versa. For this reason and others, to see the most informative picture of the organization’s financial status it is necessary to consider all three financial statements.
There are several methods used to analyze financial statements. One of the most common is to conduct a horizontal analysis, which is basically a comparison of various values over 2 or more years. For example, a 2016-1018 horizontal analysis of ABC Corporation’s Net Revenue would yield a result of (131,345 – 102,007) = $29,338.00. As this is a positive number, net revenue has increased over this time which might suggest that the organization is growing.
Another valuable analysis tool is the Return on Assets ratio or ROA. Return on assets is an indicator of how profitable the organization is relative to its assets. ROA suggests how efficient a company’s management is at using its assets to generate earnings. Return on assets is displayed as a percentage, and is calculated as:
For example, ABC Corporation’s 2016 ROA would be calculated as 2,474 / 226,376 = .011, or 1.1%. This means that every dollar that ABC Corp. invests in assets generates $1.10 of net income.
Note: Horizontal analysis and ROA analysis are important for projects as the one you are proposing because financially healthy organizations (such as those with growing income statement “bottom lines” and those with higher ROA values) are more likely to seek investment opportunities, while those less financially healthy may need to see the value beyond the expense.
Assignment 6: Final Healthcare Budget Request
Recall that the budget request is a formal document that you’ll need when seeking funding for your project or initiative. You should write your budget request clearly and concisely, with the goal of earning a place in the organizational budget for your proposal.
In this Assignment you will practice completing some analysis that you might consider for your project. To do this, complete the following:
Part 1: Financial Statement Analysis
For Part 1 of this Assignment, you will practice completing additional analyses that help gain insight into how feasible a proposal is in light of the current financial health of the organization. To do this:
- Open the Excel Assignment Workbook.xlxs file you last named xlsx.
- Open the W10-11A6 HealthWays Financials tab.
- Using formulas, conduct a horizontal analysis by calculating changes over the periods of time for which you have statements (FY 2018 and FY 2017). Conduct your analysis for the following over the 2 years for which you have statements:
- Changes in Revenue including percentage change
- Changes in Total Operating Expenses including percentage change
- Changes in Net Earnings (Income) including percentage change
- Calculate the organization’s Return on Assets (ROA) for both years
- Copy and paste your work into the Healthcare Budget Request template above part 2.
Save the file as W11A6_lastname_firstname.xlsx
Part 2: Summary of Analyses and Interpretation of Results
In the Healthcare Budget Request template you previously saved as W6A4, under the W10/11 Organizational Statement Analyses section, create a brief (1- to 2-page) description of your analyses. Be sure to address the following in your summary:
Describe the results of each statement analysis. What do the results of each analysis mean? What does the complete financial statement analysis suggest about the financial health of the organization?
What assumptions have you made in your analyses?
What implications do these analyses have for your proposed healthcare product or service?
Part 3: Summary of Work and Final Healthcare Budget Request
Compile and summarize your work from the previous assignments. Add any analysis that you feel strengthens your work (optional). Place your final work in the Healthcare Budget Request template under the section titled W10/11A6 Summary/Elevator Speech (PPT slides) . Your final Healthcare Budget Request should include:
- A final version of your Executive Summary
- A final version of your projected expenses and revenues
- A final version of the product/service budget for the launch and the first 5 years
- A final version of the organizational statement analyses.
- A 3- to 5-slide PowerPoint presentation containing an “elevator speech” highlighting the value of your proposal, incorporating selling points from your analyses that you believe make the business case for nurse entrepreneurship and leadership’s commitment to your proposed healthcare product or service.
Save the file as W11A6_lastname_firstname.docx. Submit both files to the course assignment link.
Note: You have completed Assignment 10/11.
With this work submitted, you have completed the final course assignment. Congratulations!
Assignment: W8A5 Healthcare Budget Request – Ratio Analysis