If a nurse manager wants to become a significant part of the decision-making process in their organization, it is important to learn the financial status and other financial aspects of the work. A nurse manager has to investigate the key financial statements, interpretive techniques, ratio analysis, management reports, and possible implications. Each of these points will be discussed in the paper.
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Key Financial Statements in Healthcare
Financial statements are the main components of a financial situation in any organization, and the appropriate usage of these statements promotes a successful development of business and services (Worrell, 2014). Nurse managers have to provide their creditors, investors, and other governmental or community agencies with the necessary information about the financial performance of their healthcare organization in order to make a correct decision about possible money lending or the choice or other operations (Zelman, McCue, Glick, & Thomas, 2013).
Financial statements that have to be mentioned include the balance sheet, the operation statement (for not-for-profit entities) or the income statement (for investor-owned entities), the statement of changes in net access (for not-for-profit entities) or the statement of shareholders’ equity (for investor-owned entities), and the cash flow statement. The balance sheet contains the information that is necessary to promote an accounting equation that exists between shareholders’ equity, net assets, and liabilities. Income or operations statements introduce the primary measure of business performance, revenues, gains, and expenses. The cash flow statement is cash that can be found within a healthcare organization. It depicts a number of activities and the price of all contributions made. Statements of net assets’ changes or shareholders’ equity show cash reinvested in the organization to solve problems, deal with debts, and choose a new direction.
Interpretation and Analysis of Financial Statements
Each financial statement has to be properly interpreted and analyzed in order to promote the financial success of any healthcare organization. A manager has to choose an appropriate technique and follow a number of steps precisely. For example, a cash flow statement indicates the flows of cash that occur in an organization. Its analysis is the projection of all future deposits that are also known as a cash flow budget and the timing of flows. The development of working capital is another technique with the help of which it is possible to define an amount of money that can be used to facilitate all business operations.
Still, managers have to understand that the forecasts obtained through cash flow analyses are not always definite, and much time and effort are required to achieve the necessary success (Fleisher & Bensoussan, 2015). The analysis of statements of changes in net assets is developed in the following way: net assets are calculated when the sum of current liabilities is subtracted from the sum of assets. Common ratios and ratio analysis are the techniques that help to understand the nature of steps that should be taken by any nurse manager.
It includes the development of standardized financial information that has to be compared, the evaluation of all operations done in the organization, and the comparison of performance at different periods (Needles, Powers, & Crosson, 2013). It is also necessary to underline the role of notes in any type of financial statement. These footnotes contain information with some details or additional explanations of all financial statements used in a report. Such information helps to clarify the point or underline the importance of the further investigation. The reader can use such footnotes to comprehend value or a reason for changes.
Ratio Analyses of Financial Statements
Ratio analysis is the technique that helps to develop meaningful and important relationships that may exist between different individual items on a balance sheet. Such activity is integral for internal and external shareholders of a healthcare organization. It aims at highlighting such factors as liquidity, profitability, and solvency. The examples of ratio analysis are liquidity ratios (the ability to pay off the current and past liabilities), solvency ratios (the measurement of the company’s ability to control operations and compare debt levels), and profitability ratios (the comparison of income statements and the company’s abilities to generate profits) (Needles et al., 2013).
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Nurse managers, as well as all financial managers, have to learn how to produce management reports and recognize the required type of work to be done. For example, there are profit and loss reports in terms of which managers investigate income statements, sales patterns, and other budget points. There are also labor reports where managers identify recent labor expenses and compare their achievements, benefits, and salaries during different periods. There can also be client reports where the results of surveys are mentioned to discuss the quality of services offered to people.
Implications of Financial Statement Analysis for Nurse Managers
Nurse managers have to understand how crucial their role for other medical staff is. Therefore, one of their tasks is to control information and be aware of all revenues, transactions, operations, and expenses in their organizations. The recognition of financial statements is a crucial step in solving organizational problems and making the work of nurses efficient. Finally, the management of financial resources is the control of knowledge and the choice of activities that are not harmful to all employees. Such implications cannot be neglected.
Fleisher, C.S., & Bensoussan, B.E. (2015). Business and competitive analysis: Effective application of new and classic methods (2nd ed). Upper Saddle River, NJ: FT Press.
Needles, B.E., Powers, M., & Crosson, S.V. (2013). Financial and managerial accounting. Mason, OH: Cengage Learning.
Worrell, D. (2014). The entrepreneur’s guide to financial statements. Santa Barbara, CA: ABC-CLIO.
Zelman, N., McCue, M.J., Glick, N.D., & Thomas, M.S. (2013). Financial management of health care organizations: An introduction to fundamental tools, concepts and applications. Hoboken, NJ: John Wiley & Sons.