Operating (income) , of cash flow and balance sheet - Personal Statement Example

Operating (income) ment, ment of cash flow and balance sheet MEMORANDUM Lawrence Higgins, President of the Board of Trustees RE: Course of Action for Van Buren Community HospitalDATE:I have seen the auditors’ report and accompanying financial statements for the hospital. In anticipation of the April meeting of the board, I would like to bring to your attention the following three concerns:1. (Regarding the hospitals revenues and expenses):The hospitals revenues are not enough to meet the expenses and therefore it is incurring losses of $(411,522) in 2004 and $(630,399) in 2003.

The efficiency ratio calculated comes to 1.29 in 2004 and 1.65 in 2003. The efficiency ratio measures efficiency of a company in generating revenues. The ratio should be in the range of 0 to 1. It should be as low as possible. A ratio of more than 1 indicates that the firm is not efficient in generating revenues. 2. (Regarding the hospital’s working capital position):The working capital position of the hospital is not good. The current ratio is 0.21 in 2004 and 0.32 in 2003. The ideal current ratio is 2:1.

The current ratio of the hospital signifies that it will not be able to pay off its obligations at this point of time. The company’s financial health is not at all good and is heading towards bankruptcy. If the hospital is unable to meet its current obligations then the operations will come to a standstill or halt (Troy, 2008, p xviii).3. (Regarding your biggest concern about the opinion letter):The biggest concern is the hospital’s ability to continue as a going concern. There are no adjustments made to the financial statements which could reflect the possible recovery or revival of the hospital.

The working capital deficiency and recurring operating losses has created doubts on the existence of the entity. In its present form the hospital requires additional financing to meet its working capital requirements but it will take them into more of a debt trap if they take loans for that additional financing. Sustainable profits are dependent on the increase in the utilization of Hospital’s services for which the hospital has to increase awareness among consumers and this will again call for incurring cost on advertisements and promotion of their services.

The working capital position of the hospital is such due to the uncollectible accounts and the unwanted loan burden. The recurring losses can be reduced by taking some strict cost cutting measures. Based on the above, I would like to recommend the following single strategy to you:I would recommend you to reduce contractual allowances, take some measures to curb uncollectible accounts and free care, and reduce unwanted expenses which would enhance the profitability of the hospital. If uncollectible accounts are collected and the loans are curbed then the working capital position will improve and therefore will lead to revival of the hospital.

ReferenceTroy, L. (2008). Business and Industrial Financial Ratios. Chicago: CCH.