Recall that financial accounting focuses on communicating organizational-level data in the business’s financial statements aimed at external users, while managerial accounting focuses on creating comprehensive departmental plans and forecasts to be used internally by managers.
To perform a meaningful analysis of the three most common financial statements (income statements, balance sheets, and cash flow statements), health care managers must use financial ratios. Financial ratios are used to determine an organization’s profitability, asset management, and liquidity. They can also inform budgeting decisions and be used for comparative purposes (for example, to compare an organization’s current results to historical results or to the results of peer organizations).
For each scenario, consider how you would proceed if you were the healthcare manager of the organization. Be sure to include the following details to justify your thinking:
- Do you agree with reasoning and decisions made in each scenario? Why or why not?
- Are these scenarios in the realm of managerial accounting, financial accounting, or both? Why do think this?
- How would you proceed in each situation? What information would you want to have, and why?
Here are the three scenarios for your consideration:
- Abraham has just taken a new job as a health care manager at a large hospital. During the interview process, he was told that one of his responsibilities is to analyze the organization’s financial statements and determine the average collection period (ACP). He determines that the hospital’s ACP is 43 days. The industry average is 23 days. Abraham emails his superior asking if this is a cause for concern.
- Mimi is the healthcare manager at a physical rehabilitation facility that has recently expanded its facilities to accommodate more patients. At the annual budgeting meeting, Mimi suggests the organization continue using a fixed budgeting strategy for the year ahead.
- Makayla is told by the head of her department that their unit must increase its return on assets (ROA) ratio from 3% to 5% by next year. If they do not, they risk losing certain benefits. Makayla goes to her office and thinks about how she could do this. First, she thinks about ways to increase revenue. Then, she notices that there are several assets that produce very little revenue. She suggests selling these items to help the department achieve its target ROA.
Your paper should be two to three pages in length (not including the required title page and reference pages) and conform to APA standards. Include at least three scholarly references in addition to the course content.