ECO 605 Discussion 6.1: Sample Balance Sheet
ECO 605 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.
Hello Gavin,
You’re discussion post was very informative. An additional reason for the increase in assets is due to contactual allowance which increase by 15% in a year. on 3/16/2106, the contractual allowance was $233,750 whereas in 3/31/2017, the contractual allowance was $269,300. Contractual allowances show that the hospital had received better rates with third party payers for certain services. Another reason for the increase in assets is due to charitable allowance. Even though, this was just a 3% increase, charitable care is free or donated, unlike pad debt which is due to unpaid bills. You had a great post again!
Reference:
Waxman, K. T. (2018). Financial and business management for the Doctor of Nursing Practice, Second edition. Springer Publishing Company.
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You state bad debt decreased by 26%, cash/investments increased by 40% and patient revenue increased by 26% well, and with explanations that are easy to follow.
Another reason for the increase in assets from year 2016 to 2017 is from the increase in contractual allowance stated as 15% which is one part of the payer mix that hospitals depend upon and part of the revenue estimation.
Contractual allowances are negotiated discounts with third-party payers for what will be paid for and in this instance the discount increased which allows for the increase in assets. The underlying reason for this is that it relates to the hospital reimbursement cycle and improved payer mix. Every service provided to patients by the hospital is accompanied by a charge and is paid for by the patient, an insurance company, or a governmental entity – usually a combination of all. Medicare and Medicaid are examples of government and managed care would be insurance companies, such as BC/BS, Aetna, and United Health as examples.
Combined with the decrease in bad debt noted as down 26%, the payer mix improved resulting in a positive asset increase in the balance sheet for the point of time provided.
A fifth reason is the increase in construction in progress with a 32% increase from the year prior.
Construction in progress is a current asset and considered materials that are partially finished.
From a balance sheet perspective, the expectation is that the construction in progress are materials and partially finished goods that will become items that can be converted into cash within the short time frame of one year.
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.
Hi Gavin,
Two other contributions are the increase in patient revenue, and inventory which were the main things that I touched on in my own post. Patient revenue increased by an astounding 26% and although the inventory did not have as large of an increase it still contributed with going up 8%. You already touched on the fixed assets for the company being very positive and adding to the overall growth in the company but these other two assets also will increase the quick and current ratio of the company as well and add to further investment into the company in the future.
great post!
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
Hello Lauren,
Great discussion! An additional reason for the increase in assets is due to contactual allowance which increase by 15% in a year. Contactual allowances show that the hospital had received better rates with third party payers for certain services. On 3/16/2106, the contractual allowance was $233,750 whereas in 3/31/2017, the contractual allowance was $269,300. Even though this may seem like a little increase, it still helped increase assets. The next reason for the increase in assets is due to charitable allowance. Charitable allowance is known as free or donated care whereas bad debt includes services which were provided and not fully paid for. Charitable allowance increased by 3% and bad debt decreased by 26%. This increased assets because money was given back to the company from debts and charity was also given to the company. Overall, you had a great discussion and I agree with your reasons for the increase in assets.
References:
Waxman, K. T. (2018). Financial and business management for the Doctor of Nursing Practice, Second edition. Springer Publishing Company.
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