Introduction
The purpose of financial statements and reports is to communicate to users of accounting information the effect of activities on an accounting entity during a specified period and its financial position at the end of a given period (Graham and Meredith, 1998). According to Ittelson (2009), financial statements provide information about the performance, financial position, and financial adaptability of an enterprise. An income statement is one of the financial statements and it shows the results of operations of a business entity during an accounting period. This is reflected where revenues earned are matched with the expenses incurred to generate them (Fridson and Alvarez, 2002).
Income Statement for Franklin Healthcare
Workings
In 2011, revenue from patients (25% x $1,250,000,000) = $312,500,000, revenue from third party (50% x $1,250,000,000) = ($625,000,000), revenue from grants and investments (25% x $1,250,000,000) = $312,500,000, marketing expenses = $25,000, and operating and depreciation expenses = ($500,000 – $200,000) = $300,000. In 2010, revenue from patients (25% x $1,500,000,000) = $375,000,000, revenue from third party (50% x $1,500,000,000) = $750,000,000, revenue from grants and investments (25% x $1,500,000,000) = $375,000,000, marketing expenses = $25,000, and operating and depreciation expenses = $500,000.
Interpretation and suggestions to William Foundation
Based on the calculations, the total revenue generated by the firm decreased from $1,500 in 2010 to $1,250 million in 2011, which is about a 16.67% decrease. In particular, the revenue generated from third-party, grants and investments decreased from $1,125 in 2010 to $937.5 million in 2011, which is about -16.67%. As a result, the net income for the company in 2011 decreased from $1,499,475,000 in 2010 to $1,249,675,000 in 2011, which is about -16.7%. On the other hand, the operating and depreciation expenses of the firm have decreased to $325,000 in 2011 from $525,000 thousand in 2010, which is a 38.10% decrease. This shows that expenses have been kept under strict control. Although there is a decline in earnings, the company is financially healthy since the declines in net income are a result of decreases in revenues from third parties and grants, which are beyond the firms’ control. Therefore, William foundations should not reconsider their grant since this is what makes the company profitable. Equally, the firm has anticipated little growth inpatient population in the coming year.
References
Fridson, M., & Alvarez, F. (2002). Financial statement analysis: A practitioner’s guide (3rd ed.). New York, USA: John Wiley & Sons, Inc.
Graham, B., & Meredith, S. (1998). The Interpretation of financial statements. New York, USA: HarperCollins Publishers, Inc.
Ittelson, T. (2009). Financial statements: A step-by-step guide to understanding and creating financial reports. Canada, USA: Career Press, Inc.