Analysis of the financial data is important because it helps provide the judgment of the business performance. Financial analysis highly depends on accurate data that has been collected from the health care organization. In most cases, this information is complex, making it hard for it to be useful. For this reason, it is organized into financial statements, which are simpler forms of all the financial data collected. Financial statements include a statement of changes in net assets, balance sheets, cash flows statement, and operations statement. Statement of operations is an important aspect of financial statements because it is used to evaluate the general organization’s performance. These statements comprise all the incomes and expenses of the health care organization. Financial analysis is highly dependent on financial statements, and it is used in the formulation of financial strategies.
Operational, Strategic, and Corporate Planning Process
The planning process entails three major parts, which are operational, strategic, and corporate planning processes. Strategic planning provides an establishment of the long-term vision, strategies, and objectives required to achieve the goals of a health care organization (Bolland, 2020). The operational process is mainly the execution phase because it provides an outline of the framework used to implement the strategies and achieve the set objectives (Dennis, 2019). Corporate planning is the process applied by businesses in mapping out a course of action to grow, gain exposure, increase profits, and strengthen brand identity. Health care organizations use corporate planning to leverage their resources efficiently (Marciano et al., 2020). Corporate planning is important because it helps monitor liabilities and finances, identify opportunities, and control the internal structures and systems.
Four Major Parts of Corporate Planning
There are four major parts of the corporate planning process. The first part is establishing a corporate mission, goals, and objectives (Naamati, 2020). In this part, the top management has the role of preparing the mission statements, goals, and objectives that have the role of a framework through which business units and divisions prepare their plan (Bryson et al., 2017). Top management officials guide the organization by expressing the driving forces of the health care organization and the set goals that it aims to achieve after a certain period. The mission statement projects the main reason for the existence of the health care organization (Dennis, 2019). A good mission statement provides the right sense of direction for the healthcare organization. After all the top management officials agree with the set mission, they go ahead and establish objectives and goals for the healthcare organization (Landreth, 2021). Objectives and goals help the organization in moving towards the right direction that the mission statements have set.
After the healthcare organization has set the mission, goals, and objectives, the next step is providing a framework that determines the kind of business model and organizational structure that are the best pick and fit for the healthcare organization (Bolland, 2020). The second part is the establishment of the strategic business units within the organization. Most health care organizations prefer using strategic business units (SBUs) to determine the organizational structure which is the best fit (Bryson et al., 2017). Strategic business units are a subsidiary of the main health care organization, and they help in catering to the needs of all the departments in the organization.
The third part is the assignment of the resources to each of the established strategic business units. Each of the SBUs requires its own resources to perform effectively and help achieve the set goals and objectives (Naamati, 2020). Understanding each of the SBUs is a key part of corporate planning. Financial analysis is important in this part because it helps in tracking the performance of each of the strategic business units.
Lastly is the evaluation of the other three parts: the formulation of the mission statement, goals and objectives, and establishment of the SBUs. At this point, the management evaluates whether the SBUs have been able to achieve the set mission and goals that have already been set (Bolland, 2020). The management also uses financial analysis to track whether the funds allocated to the different units have been utilized effectively (Naamati, 2020). This part also allows for the revision of the set goals, if need be, to ensure that the organization achieves the overall mission.
Plan Incorporating the Four Major Parts of Corporate Planning
A good business plan should entail all four parts of corporate planning. A business plan should also consider the operational and strategic planning processes (Bryson et al., 2017). Operational planning is important because it lays a foundation for the corporate planning process. It provides an outline of the framework used to implement strategies and achieve the set goals and objectives (Naamati, 2020). Operational planning should kick start the process of formulating the business plan because it also helps the organization set rules and regulations on what the company needs to do to achieve its goals (Dennis, 2019). Bobcat organization already has ongoing operations that are aimed at helping it achieve its set goals. These include set rules and benchmarking of other health care institutions.
A strategic plan is another key feature in the business plan because it provides an establishment of the organization’s long-term vision, objectives, and goals. This business plan section explains what the organization will do to achieve its mission (Morciano et al., 2020). Ethical values and decision-making processes also fall under this category. The section also offers solutions on how to deal with unexpected events, manmade or natural calamities.
A business plan should entail an executive summary that provides an outline of what the organization does, its vision and mission statements, management, and leadership. The plan should also entail the services provided by the health facility and the prices of each service (Landreth, 2021). Another feature that the business plan should have is a marketing plan and the SBUs fall in this section. The plan will highlight how the SBUs will be helpful in marketing the services of the healthcare organization and perform better than the competing facilities (Naamati, 2020). The last section is financial information. Bobcat is an already functioning business, and so its financial information will entail its financial analysis for the period that it has been in operation.
Four Major Health Care Financial Analysis Ratios
The four key financial analysis ratios that health care institutions should consider are cash flow coverage ratio, debt-to-capitalization ratio, operating margin, and capital spending. The cash flow coverage ratio is a liquidity ratio used to measure a company’s ability to cater to its liabilities with the available cash flows (Dennis, 2019). This evaluation metric is important for businesses such as health care organizations. Health care facilities normally wait a certain period for finances from government agencies or insurance companies, and this causes them to have less cash flow (Naamati, 2020). The ratio is gotten by dividing the operating cash flow by the total debt obligations, and this reveals the organization’s ability to meet its pending financial obligations. A ratio of 1 is acceptable, but that above 1 is more favorable for the organization.
Debt-to-capitalization ratio is a tool used to measure the total outstanding debt of an organization as a percentage of the company’s total capitalization. The ratio indicates an organization’s leverage, and this is the debt used in purchasing its assets (Morciano et al., 2020). This ratio is important because it helps evaluate the company’s capital expenditures and hence its long-term debts. The ratio is calculated by dividing the long-term debt by the total available capital of the organization (Linares-Mustaors et al., 2018). The result is a variation of the (D/E) debt-to-equity ratio, and it is useful in indicating the leverage level of a company in relation to its financial assets. A ratio of less than one indicates low financial risk for the company.
Operating margin is the measure of how much profit a company makes after paying for the costs of production. This margin is calculated before deducting the costs of taxes and interests. For a healthcare company, its operating profit is the profit made from selling its products or services after deducting the operating and production expenses (Linares-Mustaros et al., 2018). Lastly, capital spending entails the payment for services or goods capitalized or recorded on the balance sheets and not on the income statement (Linares-Mustaros et al., 2018). This ratio measures the organization’s capital expenditures level expressed as a percentage of the annual depreciation expense.
In conclusion, financial analysis is crucial in health care organizations because it helps in tracking their performance. Additionally, it helps in evaluating whether the organization has the necessary resources to achieve its set goals and objectives. Most healthcare facilities implement corporate planning because it makes it easier for them to stay on track by following their objectives to achieve the general mission. All healthcare facilities should employ the four main financial analysis ratios because they help determine their level of financial stability, helping them make better decisions for the future.
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