Managing Financial Resources in Health and Social Care - Essay Example

Managing financial resources in health and social care Contents Task 4 1 4 2 4 3 5 4 6 Task 2 6 2 6 2.2 7 2.3 8 2.4 8 Task 3 9 3 9 3.2 10 3.3 11 Task 4 11 4.1 11 4.2 12 4.3 13 4.4 13 References 15 Task 1 1.1 There are different financial costing principals that are to be followed by CareTech holding plc, will be discussed in this section of the report. The organization has to follow one thing i.e. every costs has its own reasons. The company has to analyze and allocate all its costs on the basis of specific reasons. The company must not include abnormal costs with its production costs. Abnormal costs are damages by fire, theft and riots. These costs don’t have any relation with production. If these costs are added in the production cost then it will give wrong information to the management of CareTech holding Plc. One more key principal that the company may follow is that past costs should not be taken into the consideration for the future. The company should meet its all costs related with business control within stipulated time frame. If costs of earlier period are recovered in future period then it will be a wrong step from the organization. The organization can go for activity based costing. It will help the organization to measure each and every step of different activities. In this way the company can keep firm controls on its different activities. 1.2 The organization needs information related with the different financial indicators of the company. Different information is EBITDA, revenue, earning per shares, profit before tax, dividend distribution, cash inflows of the company and different acquisition costs. All these information were very important for CareTech holding to manage their financial resources. EBITDA helps the organization to measure it operating profitability. This information is very important for the company to manage their operating expenses. It helps the organization to measure its core profitability. Revenue informs the organization about the amount of money that, the company earns from its different activities. Earnings per shares talks about the profitability of the company. The company’s profit related to each outstanding share can be measured with the help this indicator. PBT helps the organization to understand all its profit before paying tax. It gives significant importance to the organization. Cash inflows related information helps the company to understand and measure different cash inflows within a fixed time period. The Company can get significant information from their acquisition related costs. It will help the organization to understand different costs related with their recent acquisitions. Dividend distribution is also a very important aspect as far as the stakeholders are concerned. 1.3 It is very important to maintain different financial regulatory requirements to manage and satisfy financial resources of CareTech holding. The organization needs to satisfied different financial regulatory norms of IFRS8. With the help of this regulatory system the organization has to showcase all its details related with different products and services of the company. It has to mention different geographical areas of the company. According to IFRS 8 operating segments of the organization and its major customers has to be mentioned clearly. It is a standard accounting regulation that CareTech holding has to apply for managing their financial resources. It is a guiding set of rules for the company to furnish their different information in annual financial statement. In CareTech holding Chief Operating Decision Maker (CODM) looks after the whole matter. Maintaining regulatory norms is very much essential for the organization for managing financial resources. There are four operating segments for the company. Those are Adult Learning Disabilities, Young People Residential Services, Foster Care and Mental Health. With the help of IFRS 8 the organization can satisfy different needs and requirements of financial resources for different segments of operations. It is very important for the organization to allocate its resources in proper way. The company can easily achieve this with the help of IFRS 8. 1.4 Resources allocation is very important part for any company. Suitable resource allocation is the most important thing for earning profits. It is very important for each and every company to allocate right quantity of resources for proper operating segment. CareTech holding has managed their financial resources very professionally. It has implemented IFRS 8 which is a very modern and well equipped financial regulation for resource allocation. Different financial indicators related with all four segments of the company in the annual report are clearly showing that the organization has allocated their financial resources with great expertise. Total revenue of the company increased in 2013 in comparison to 2012. ALD and FC segments have recorded lower revenue in 2013 in comparison 2012 but those lowering trends were managed in other two segments of MH and YPR. But EBITDA has increased in all four segments in 2013. It shows that organization’s resource allocation was pretty good and logical. It also clarifies that revenue of some segments may reduced but bottom line which is EBITDA has increased in every segment. It is a sign of proper resource allocation from the side of the company. Task 2 2.1 Sources of income are very important and primary aspect of any organization. Diverse sources of incomes are very suitable for any organization. It provides more than one options to any organization. It lowers dependency of company on any particular source. Here in this study the organization has very well diverse sources of incomes. The company has four different sources of income. Those sources are Adult Learning Disabilities in short (ALD), Mental Health (MH), Young people residential services (YPR) and Foster Care (FC). It is being noticed that in 2013 revenues from ALD and FC have been decreased. But revenues from MH and YPR have increased. And total revenue is almost same as it was in 2012. It is clearly showing that CareTech holding has very well diversified sources of income. The company do not over dependent on any single segment of their operations. It helps the organization to recover from different business uncertainties. Single segment dependency would have very negative effect on the company. The diverse sources of income have made the organization very safe and secure. Four diverse sources of incomes are managing company’s bottom line very well. It is a good sign for the organization. 2.2 It is very important to analyze different factors which may influence availability of financial resources in the organization. Here in this portion of the study all those factors will be discussed. Tax and interest payments are very important factors which can influence financial resources of CareTech PLC. From the annual report it is very clear that amount of interest paid in 2013 was less than the amount of 2012. It is a positive sign for the organization as far as financial resources are concerned. On the other hand taxes were higher in 2013 in comparison to 2012. Acquisitions and capital expenditures are very serious factors for the company as far as their financial resources are concerned. In 2013 the organization has invested more money in compare to 2012. In 2013 the amount was £44.5m. In 2012 it was £10.3m. It means CareTech has spent more than three times higher money in 2013. In this period of time the organization has acquired two different businesses which suits company’s business portfolio. The company has very good banking relationship with Royal Bank of Scotland. The organization has redesigned its financing strategy which is also very critical for the organization in terms of financial resources. In 2013 the company had £178m banking facilities. 2.3 Budget expenditure is also a very important factor for the company. Budgeting is an essential business activity which estimates all revenues coming into the company and also estimates out going expenses over a fixed period of time (Hofstede, 2012). It helps the organization to channelize its money into different paths. It is a guideline fixed by the organization to carry out different business related expenditures. It is the upper limit up to which the company can spend their money for fixed period of time. Administrative expenses of CareTech reduced in 2013. It decreased by £1.2m. Administrative expenses became 16.8% of group’s total revenue. It was 17.9% in 2012. It means administrative expenses decreased by 1.1% in respect of total revenue. The company has reduced their number of staffs. They lowered it by 54 people. Lowered number of staffs has reduced the expenditures related with payroll. Underlying financial expenses increased in 2013. It became £5.7m. In 2012 it was £5.0m. Total liability of the company has increased and become £ 214,278. Depreciation expenditure also increased in 2013. It became £ 3,174m. In 2012 it was £ 3,079m. Amortisation lowered in 2013 in compare to 2012. It was £ 4,327 in 2012 and it became £ 3,721 in 2013. Overall budget expenditure is very suitable with the nature of the organization. 2.4 Expenditure means involvement of huge money. CareTech must be very conscious about their expenditures. The organization always should look for highest possible returns out of their expenditures. The company has to identify its performing and non performing business segments. After the identification CareTech must allocate their budget according to the performance of different segments. If any segment is not performing for the long time then organization should not spend much money in to that business. On the other hand the company must concentrate towards the profit making business segment. In this way the organization can manage their financial resources in a great way. Their decision about different expenditures must be done on the basis past performances and at the same time on the basis of future business estimations. It is a very complex process and CareTech has to do this very precisely. Decisions about expenditure can be made on the basis of current financial scenarios of the organization. It can be on the basis of liquidity situation or profitability scenario of the company. If company’s liquidity situation and profitability is in good shape then the company can go for higher expenditures on the other hand if financial health of the company in terms of profitability and liquidity is not good then it should restrain itself from large expenditures. Task 3 3.1 Financial shortfalls are the greatest barriers of business advancement. It is a very possible and probable factor for any business organization. Like other business organizations CareTech also must be prepared for this situation. If financial performances of the company were not up to the mark then the organization should not go for large capital investments. It should go for cost reduction from every possible angle of their business operation. It should not acquire or buy any new organization. It should try to reduce its operating expenses. The company must reduce its overhead costs. CareTech should stop giving dividend to its share holders. The company can divest its long term nonperforming business centres. It can reduce its numbers of employee strengths. It should try to increase productivity of their employees. The organization should try to increase its volume of sales to increase revenue. These are the ways through which CareTech can manage their possible financial short falls (Bruner, 2004). The company has to be very much proactive and must monitor each and every business related developments to mange such kind of situations more convincingly. It may have registered good financial performances in 2013 but it should not be complacent at all. Business situations can change at moment. 3.2 Financial frauds are very common in modern businesses. It is often being noticed that accountant and other financial officers of different organizations often follow mal practices for personal profitability (Stonehouse and Houston, 2012). These fraudulent activities are very detrimental for organization’s financial health. I will apply most simple but effective way of accounting in my organization. Strict instructions will be given by me to follow those instructions. If any doubts related with financial frauds are come in to my mind, I will first cross check all original financial documents with the help of any other independent audit farm. It will help me to understand the root cause of the fraudulent activity. It will help me to locate the main source of mal practice. With this effort I will be able to know the actual financial situation of my organization (Ulijn, Duysters and Meijer, 2010). It will inform me about the level of losses my organization has already incurred. The external auditing farm will help me in two ways. First of all I will be able to locate the problem and secondly I can find some future courses of actions to resolve the issues. I can take the help of different modern accounting technologies also. It will prevent all the attempts of financial frauds in my organization. 3.3 Budget monitoring arrangement is a very important part of any organization. It helps organizations to monitor their expenses in different segments. This arrangement always keeps track about the usage of budget and out standings of budget usage. Here in this study budget monitoring arrangement of the organization is very impressive. Here the organization has monitored its internal budget very carefully and closely. The organization has always controlled their expenditures according to their budget. Expenditures always fell in line with their budget. In 2013 CareTech registered good financial performances in comparison to 2012. It shows that in every point of their business operation the organization has monitored their budget very well. At no point of time the company has undergone through any financial shortfalls. It signifies that CareTech has never exceeded their allocated budget (Gaughan, 2007). Good financial results are the best indicators for the company’s budget monitoring arrangements. Good budget monitoring arrangements have enabled the organization to take bank loan in a very calculated manner. Budget monitoring arrangements of the organization are very effective and proper. Task 4 4.1 Financial decisions are the most important decisions related with any organization. These financial decisions are taken on the basis of certain information. Here in this paper, financial decision of CareTech must be taken on the basis of certain information. Here in this section of the study all related information will discuss. EBITDA of the organization is significant information on the basis of which financial decisions related with the company can be taken (Sudhindra, 2008). It shows about the profitability of the company. Profitability is very important for CareTech. Any decision related with profitability can be taken on the basis of this information. Operating profit is also very important information for CareTech to take any financial decision. It helps the organization to measure their profitability from their core business related operations. Here in 2013 the company has registered good EBITDA and operating profit margin. It helps the organization in a positive way to take any future financial decision. Diluted earnings per share are also very important information for CareTech to take any financial decision (Angwin, 2007). It talks about the earning quality of the company from each and every share. It is also increased in 2013. Cash inflows are one of the most important information on the basis of which the company takes its all financial decisions. 4.2 Each and every service has close and inseparable relationship with costs and expenditures. Here in this case CareTech is a service based company (Pandey, 2009). There are four kinds of care services are there with the organization. All four care services have very close and deep rooted relationship with different costs and expenditures. Every care services are different than each other. Numbers of customers are also different. To offer services to customers, the company needs manpower. Giving salary to workforces is account for some expenditure. Here is a very direct relationship between care services and expenditures. The company needs to build community based hospitals, residential care homes, children residential care home etc. All these establishments need lots of funding from the organization. To build and maintain those establishments it requires high investments from the side of CareTech (Quaddus and Muhammed, 2011). It is also indicating a direct relationship between care services and cost. There are lots of day to day activities which are being done by the organization. All these day to day activities are responsible for significant expenditures. For providing services to customers proper employee trainings are needed. Training for employees is a reason of expenditure. It is also an example of direct relationship between care services and costs. 4.3 Financial considerations have very solid impacts on service users of the company. Financial considerations are the decisive and most important factor as far as service providing is concerned (CareTech Holdings PLC, 2013). If financial resources are being used suitably by the company then service users of the company will get direct benefit in terms good services and facilities. Money is very important to offer any service. Here in this case when the organization has acquired two different companies it invested lots of money (Crosson and Needles, 2010). The main reasons for acquiring those companies were to increase company’s profitability by providing quality of services to customers. If the financial health of the organization is good then service users will be benefited with good quality of services. On the other hand poor financial situations will negatively affect service users. Financial considerations are inseparable part of service quality. So it is very clean and clear that financial considerations have great impacts on service users. Level of services is directly proportional with financial considerations of the company (Chandra and Prasanna, 2011). 4.4 No financial system is perfect. Every financial system has some scope of improvements. Here in this study CareTech also has some scope of improvements in their financial systems and processes. The organization is doing business in mass scale. So it should try to increase its underlying EBIDTA. It should go for more underlying cash inflows. The company has a tendency of buying and acquiring other organizations. It is a very sensitive and delicate factor for the company. CareTech should acquisition decisions very carefully. In 2013 some of its service segments gave lesser revenues in comparison to 2012. The organization has to focus on those service segments. It is very important for the organization to reduce its operating costs. The organization may evaluate their costing on the basis of each and every individual activity. Activity based costing can help the organization in a significant manner. References Angwin, D. 2007. Mergers and Acquisitions. New York: Wiley. Bruner, R. F. 2004. Applied Mergers and Acquisitions, University Edition. London: Wiley. CareTech Holdings PLC. 2013. Annual report. [PDF]. Available at: http://www.CareTech-uk.com/~/media/Files/C/CareTech-UK/press-release/pr-2013/2013-preliminary-results.pdf. [Acssed on 28.6.14]. Chandra, P. and Prasanna. 2011. Financial Management. New Delhi:Tata McGraw-Hill Education. Crosson, S, V. and Needles, B. E. 2010. Managerial Accounting. London: Cengage Learning. Gaughan, P. A. 2007. Mergers, Acquisitions, and Corporate Restructurings. New York: John Wiley & Sons. Hofstede, G. H. 2012. The Game of Budget Control. London: Routledge. Pandey, I.M. 2009. Financial Management. New Delhi: Vikas Publishing House Pvt Ltd. Quaddus, M. A. and Muhammed A. B. S. 2011. Handbook of Corporate Sustainability: Frameworks, Strategies and Tools. London: Edward Elgar Publishing. Stonehouse, G. and Houston, B. 2012. Business Strategy. London: Routledge. Sudhindra, B. 2008. Financial Management. New Delhi: Excel Books India. Ulijn, J. M., Duysters, G. and Meijer, E. 2010. Strategic Alliances, Mergers and Acquisitions: The Influence of Culture on Successful Cooperation. London: Edward Elgar Publishing. Read More