Download introduction to financial statements

Diane Maheux, FHFMA, FACHE
INTRODUCTION TO FINANCIAL
STATEMENTS
FINANCIAL STATEMENTS
Balance Sheet
 Income Statement (aka Statement of
Operations, aka Statement of Revenues &
Expenses)
 Statement of Cash Flows
 Financial Statement Notes

BALANCE SHEET

The balance sheet is presented from a specific
point of time – typically the last day of the
month or the last day of the fiscal year.

Assets = Liabilities + Equity
 Equity
in for-profit entities
 Equity in Non Profits is called “Net Assets”
20x2
20x1
Assets
Current Assets
Cash & Cash Equivalents
5,877
Marketable Securities
15,836
Accounts Receivable, Net
Total Current Assets
Current Portion of LT Debt
1,470
1,750
10,740
Accounts Payable & Accrued Expenses
5,818
5,382
15,100
14,194
Estimated Third Party Settlements
2,143
1,942
2,670
2,586
Other Current Liabilities
1,969
2,114
38,364
33,397
11,400
11,188
23,144
24,014
3,953
3,166
38,497
38,368
70,526
65,418
Temporarily Restricted
2,115
2,470
Permanently Restricted
3,588
3,533
76,229
71,421
Assets Limited to Use
Internally designated for capital use
Held by Trustee
Long term investments
Property & Equipment, net
Other Assets
Total Current Liabilities
Long term Debt, net of current portion
12,000
12,500
6,949
7,341
18,949
19,841
4,680
4,680
51,038
50,492
1,695
1,379
Other Liabilities
Total Liabilities
Net Assets
Unrestricted
Total Net Assets
Total Assets
20x1
Liabilities
Current Liabilities
4,758
Other Current Assets
20x2
114,726 109,789
Total Liabilities & Net Assets
114,726 109,789
ASSETS – WHAT ARE THEY
M. Nowicki defines assets “as economic
resources that provide or are expected to
provide benefit to the organization”
 Hmm… does that really help you?




Assets include tangible items: cash, investments, accounts
receivable, plant, property, equipment, and inventory
As well as include intangible: goodwill
Nowicki, M. (2004). The Financial management of hospitals and healthcare organizations. Health
Administration Press: Chicago, Illinois.
CURRENT VS. NONCURRENT

Current Assets – have an economic life of less
than 1 year; those items that can be quickly
turned into cash


Cash, Cash equivalents (ex. CD’s, t-bills) short term
investments, assets set limited to use; patient
receivables, Other current Assets
Long Term Assets – have an economic life of
greater than 1 year

Assets limited to use (money set aside for specific
purpose); Long term investments; Property &
Equipment (net value); & other assets
HOW IS THE BALANCE SHEET ORGANIZED?

Ordered by Liquidity –
 Current
Assets are listed first
 Long Term assets are listed afterwards
Assets
Current Assets
Cash & Cash Equivalents
Marketable Securities
Accounts Receivable, Net
Other Current Assets
Total Current Assets
Assets Limited to Use
Internally designated for capital use
Held by Trustee
Long term investments
Property & Equipment, net
Other Assets
Total Assets
20x2
20x1
4,758
15,836
15,100
2,670
38,364
5,877
10,740
14,194
2,586
33,397
12,000
6,949
18,949
4,680
51,038
12,500
7,341
19,841
4,680
50,492
1,695
114,726
1,379
109,789
LIABILITIES
Liabilities are debts of the organization
 Current Liabilities – are debts (payments) that
are due in less than 1 year

 Salaries
Payable, Accounts Payable, Taxes Payable,
Current Portion of Long Term Debts (Bonds or
Mortgages)

Long Term liabilities – are the debts are due
greater than 1 year
 Other
Liabilities, Bonds Payable, Mortgage Payable
SAMPLE LIABILITIES…
20x2
20x1
Liabilities
Current Liabilities
Current Portion of LT Debt
1,470
1,750
Accounts Payable & Accrued Expenses
5,818
5,382
Estimated Third Party Settlements
2,143
1,942
Other Current Liabilities
1,969
2,114
11,400
11,188
23,144
24,014
3,953
3,166
38,497
38,368
Total Current Liabilities
Long term Debt, net of current portion
Other Liabilities
Total Liabilities
EQUITY (NET ASSETS)

For Profit Entities:
 Owner’s
Equity/Stockholder’s Equity/Partnership
Equity
 Retained earnings

Not for profit entities = Net Assets
 Unrestricted
Net assets
 Temporarily Restricted Net Assets
 Permanently Restricted Net Assets
NET ASSETS REPORTED
Net Assets
Unrestricted
70,526
65,418
Temporarily Restricted
2,115
2,470
Permanently Restricted
3,588
3,533
76,229
71,421
Total Net Assets
Total Liabilities & Net Assets
114,726 109,789
STATEMENT OF OPERATIONS
Statement of Operations is a.k.a. Income
Statement
 Net Patient Revenues
 + Other Operating Revenue
 - Operating Expenses
 = Net Operating Income
 +(-) Non Operating Revenues & Expenses
 = Increase(Decrease) in Net Assets/Equity

NET PATIENT REVENUES
Gross Patient Revenue for the period*
 - Estimated Contractual Adjustments
 - Estimated Bad Debt
 - Estimated Charity Care
 = Net Patient Service Revenue


*Does NOT include Premium Revenue from
Capitated contracts
WHAT ARE OTHER OPERATING REVENUES?
Cafeteria sales
 Interest
 Contributions/Donations
 Parking receipts
 Rental Receipts
 Gift Shop (possibly)
 Other miscellaneous revenues
 Premium Revenue (though may be separated from
Other Op revenue in its own category)

OPERATING EXPENSES
Salaries
 Professional Salaries
 Benefits
 Supplies (Drugs may/may not be inc)
 Depreciation
 Interest
 Utilities
 Other expenses

NON OPERATING EXPENSES/INCOME
Considered “below the line”
 Change in Unrealized gains/losses
 Net assets released from restrictions for the
purchase of property & equipment
 Can include transfers to a parent/holding
company

SAMPLE STATEMENT OF OPERATIONS
External Income Statement
2x12
Net Patient service Revenue
Premium Revenue
Other Revenue
Total Operating Revenues
74,299
2,601
76,900
Expenses
Salaries
45,132
Benefits
9,132
Supplies
9,035
Depreciation
3,567
Interest
2,200
Other
4,576
Total Expenses
Operating Income (Loss)
Changes in net unrealized Gains/Losses
Increases to unrestricted net assets
73,642
3,258
300
3,558
INTERNAL VS. EXTERNAL STATEMENT OF
OPERATIONS

External Financial Statements –
Balance Sheet – reported in net
 Revenue is reported in Net
 Expense categories are broken down as extensively,
very high level


Internal Financial Statement
Balance Sheet broken down more
 Revenue – reported in gross with contractual detail
(sometimes)
 Expense Categories may be further broken down

STATEMENT OF CASH FLOWS

Statement of Cash Flows aka Sources and Uses
of Cash

Broken down into 3 Categories:
 Cash
flows from Operating Activities
 Cash flows from Investing Activities
 Cash flows from Financing Activities
STATEMENT OF CASH FLOWS
Cash flows from operating activities:
Change in net assets
3,558
Provision for bad debts
1,000
Increase in patient accounts receivable
(906)
Increase in other current assets
(84)
Increase in Accounts payable
436
Increase in third party settlements
201
Decrease in other current liabilities
(145)
Increase in Other liabilities
Net Cash flow provided by Operating Activities
787
4,847
Cash flows from investing activities:
Increase in marketable securities
(5,096)
Net cash flows provided by Investing Activities
(5,096)
Cash flows Financing Activities
Decrease in LT Debt
(870)
Net cash flows provided by Financing Activities
(870)
Net increase (decrease) in cash
(1,119)
Cash beginning of the year
5,877
Cash end of the year
4,758
WHY IS STATEMENT OF CASH FLOWS
IMPORTANT?

Cash is king – so how are we functioning as an
organization?
 Is
the cash coming from revenues?
 Are we borrowing to stay afloat?
 Are we financing to keep the operations going?
DON’T FORGET THE NOTES TO THE FINANCIAL
STATEMENTS
Provides information in better detail
 What is really going on? Changes in payer mix,
changes in liabilities… any lawsuits pending?
 Provides explanations to changes that may be
occurring that the organization is responding to

FURTHER CONTACT INFORMATION
Diane Maheux, FACHE, FHFMA
 Controller, Memorial Hospital
 [email protected]


Put in “HFMA Financial Statements” in the
Subject Line