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HS440 Unit 4 Discussion
Please describe three financial reports and their uses in healthcare (200 words minimum). On two different give your personal opinion to Kent Acheson and Jacob Grimes with a total of two pages
The Hottest Metric in Finance
Return on Invested Capital (ROIC) is a metric companies are using to placate the demands of activist investors. ROIC is a quantitative measure of how companies allocate capital. ROIC is a measure “to show how much new cash is generated from capital investments” (Benoit, 2016, para. 6). ROIC= EBIT x (1-tax rate)(Debts+Equity)-(Cash+Cash Equivalents)
ROIC is not perfect, in fact, “there are other efficiency metrics, such as return on equity, that are better for certain industries” (Benoit, 2016, para. 9). Some people believe ROIC is untrustworthy. There is not agreement even on how to calculate it. Aswath Damodaran, a finance professor for New York University, says ROIC is a “lazy shortcut for executives” and detailed cash flow from individual projects is needed (para. 11).
ROIC is not the end all, be all of metrics; but, only one of many that could be used to evaluate a company’s value. Thank you, Dr Acheson.
Benoit, D. (2016). The Hottest Metric in Finance: ROIC General Motors placated activist investors with help of return on invested capital. The Wall Street Journal. Retrieved from http://www.wsj.com/articles/the-hottest-metric-in-finance-roic-1462267809?mod=djem10point#:Rz4MBQDQhdGx-A
There are a few different financial reports and they have many good uses in healthcare. The first report I will discuss is the balance sheet. Balance sheet present a snapshot of the financial position of an organization at a given point in time. The balance sheet is also known as the statement of financial position. Since the balance sheet changes everyday as a business increases or decreases its assets or changes its composition of tis financing. For business that have heavy seasonal demand can have balance sheets that look drastically different from month to month. The balance sheet lists, as of the end of the reporting period, the re-sources of an organization and the claims against those resources.
The next report is the statement of cash flow. This report that has only been required since 1989 for for-profit businesses and 1995 for not for-profit businesses. The report was created to have better information about a companies cash inflows and outflows. It also details why the account is larger or smaller than that of the previous year in addition to providing detailed information on cashflows.
The third report is the income statement and it summarizes the operations of an organization with a focus on its revenues, expenses, and profitability. The income statement is also known as the statement of operations or statement of activities. The income statement reports its operational data over a set period of time.
Gapenski, L. C. (2012). Healthcare Finance : An Introduction to Accounting and Financial Management (Vol. 5th ed). Chicago, Ill: Health Administration Press.
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