Omega_Health_Foundation_Paper

Omega Health Foundation Financial Position The way to determine if a health care organization is operating in a successful and proficient manner is through the use of financial statements. The review of the balance sheet, statement of revenues and expenses, statement of cash flows, and the statement of changes in fund balances is a vital task to analyze the financial performance of any health care organization. Many people rely on an use the organization’s financial statement to make critical decisions including management, board of directors, creditors, investors, government bodies, grant-making agencies, and the public (Financial Performance Indicators, 2004). Omega Health Foundation is a complex business with two hospitals plus a number of related medical-service providers (Cleverly & Cameron, 2007). All of the related entities are nonprofit with the exception of Omega Medical Management, Inc (OMMI). The financial statement of Omega Health Foundation will be reviewed and recommendations will be made to strengthen its financial situation. To fully examine the current financial situation, principles of finance and how they relate to Omega Health Foundation’s financial position must be assessed. In addition, net income and cash flows will be compared, as well as market value and book value of the assets. Weaknesses and strengths of the organization will be examined and recommendations will be stated. Principles of Finance The rapid growth of health care systems in recent years has increased substantially the numbers of decision makers who need to be familiar with financial information. Effective decision making depends on an accurate interpretation of financial information. Uses of financial information that are important in decision-making include evaluating the financial condition of an entity, evaluating stewardship within an entity, assessing the efficiency of operations, assessing the effectiveness of operations and determining the compliance of operations with directives (Cleverly & Cameron, 2007). Net Income and Cash Flows The statement of cash flows is designed to give additional information of the flow of funds within an entity (Cleverly & Cameron, 2007). Generally, there are three activities that generate or use cash flows for an organization: operating activities, investing activities, and financing activities. OHF derived $23,878,000 of cash flow from operating activities during 2009. It then spent $22,305,000 on investments, primarily property, equipment, and funded depreciation. It also spent $1,473,000 for financing activities during 2009 (Cleverly & Cameron, 2007). In contrast, net income is the statement of revenues and expenses and has become increasingly important in both the proprietary and nonproprietary sectors. Net income is one of the most frequently tracked metrics because it is an important indicator of how well a company is doing during a particular period. Total revenue for OHF is $170,324,000 in 2009 with total expenses or income from operations at a loss of $492,000. Excess of revenues over expenses was reported as a loss of $5,706,000 in 2008 and $904,000 in 2009. Market Value and Book Value Market value is defined as the current price at which the company can sell an asset. This makes it somewhat of a variable number. Book value, on the other hand, is the price paid for a particular asset. Book value is based on the cost principle and reflects the cost of a transaction that has occurred or is reasonably certain to occur. Strengths and Weaknesses When reviewing OHF’s financial statements, many strengths are seen. This company has a substantial amount of cash and cash equivalents. OHF invests in property, plants, equipment, and has a diversified portfolio of investments. The increase in the funded depreciation demonstrates an increased awareness for the need of capital assets. The company also seems to be addressing efficiency and profitability issues by restructuring the company. There are also a few weaknesses that must be addressed. One weakness is cost containment of supplies and not capturing more of the accounts receivables from all uncollected accounts in a timely manner. There is also a substantial decrease in the partnership equity and their profitability. This may is due to their current restructuring costs in order to make the company more efficient. With this new structure, the company will need to keep abreast of the financial statements to see if the restructuring is improving their situation. Recommendations To deal with cost containment of supplies, a lean/six sigma team should be brought together to reorganize materials management to improve their ordering systems and help to decrease supply costs. Accounts receivables must be evaluated and a more efficient way to capture these costs must be adopted. With restructuring the company, a close watch on financial reports will be important to evaluate the success of the restructured organization overall. Further Information Needed To evaluate OHF and their current financial position, further information will be needed. Current systems in place for collecting accounts receivable and supply and inventory need to be accessed and evaluated. New systems may need to be put in place to make OHF more profitable in the future. Best practice and benchmarking of other institutions of OHF’s size would be helpful in determining the best way in make an immediate impact in these areas. Conclusion Reviewing OHF’s financial statements is helpful in determining their overall financial health and where they need to make improvements. By analyzing the balance sheet, statement of revenues and expenses, statement of cash flows, and the statement of changes in fund balances, recommendations can be made to increase the financial stability of OHF. By evaluating the financial statement, OHF will be able to successfully use the principles of finance to help them with successful decision by their administrative team, and ultimately creating a healthier financial environment for this company. References Cleverly. O., Cameron, E. (2007). Essentials of health care finance (6th ed.). Sudbury MA: Jones and Bartlett. Financial Performance Indicators (FPIS). (2004). In Encyclopedia of Health Care Management, Sage. Retrieved from http://www.credoreference.com/entry/sageeohcm/financial_performance_indicators_fpis