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Management of accounting and finance are important parts of a health care business as this sector has been changing in a vast way as well as different technologies are undertaken by this sector such as coding systems for billing, recording medical information electronically. Based on this discussion, it can be stated that both accounting and financial management plays an important role in this industry which are stated below:
Achieving financial goals
Strategies for business and management of finance are related to each other. The hospitals become a system of regional hospitals as they are buying up physician practises, doctors become employees of the hospital who sold their practises. Due to this reason, such healthcare sectors make an attempt to build a payment stream in terms of large and steady (Smallbusiness.chron.com, 2022). In this way, such a sector gets money from different spectrums of healthcare. Therefore, it can be stated that management of finance is an important aspect for a healthcare business for achieving financial goals.
Risk management
Healthcare sectors can get advantages regarding analysis of overall costs which are related to the outcomes of patients as well as practice owners can track such outcomes effectively in case this sector invests funds in medical research and specialised equipment with the help of companies associated with financial management. Therefore, it can be stated that accounting and financial management are important for this sector to enhance its healthcare facilities.
The research paper of Vysochan et al. (2021) stated that there is different accounting software which is available in the market that can be used for the purpose of identifying the most effective programs to meet the accounting service's needs of both small and medium-sized companies. Through the discussion of this paper, it is identified that accounting software is used for different purposes in accounting organisational functions. In addition to this, organisations use accounting software for other purposes as well which are presented below:
Improvement of accounting accuracy
Accounting accuracy can be obtained by the implementation and use of effective accounting software. This is because accounting software helps to reduce human error from the calculation. It is identified that the manual process of bookkeeping includes a lot of mistakes in mathematical calculations (Smallbusiness.chron.com, 2022). Such incorrect interpretation can have a negative impact on the end balance of a financial statement. In this situation, accounting software can be helpful to evaluate calculations correctly.
Completion speed
Accounting software helps to improve the speed of calculation as well as increase the speed of manual processing. Through the use of computers, a company becomes able to process figures faster than human brains. Moreover, an organisation can increase efficiency by the use of accounting software as it allows the use of automation.
Organisations use financial ratios for the purpose of identifying the current financial position of this company in a financial year. Due to this reason, this paper conducts a few financial ratios to present the use of different ratios for different purposes.
Profitability Ratio
The profitability ratio helps to identify the ability of a company for generating profit as well as it represents the impact of asset and debt management of Return of Equity (Handayani et al. 2021). This ratio includes a margin of net profit and operating profit which helps to identify whether Anchor has a significant ability to generate profit or not. As both the ratios decrease in the year 2021 therefore, it can be stated that the ability to generate a profit of the chosen healthcare decreases as well. [Refer to Appendix 1]
Efficiency Ratio
The efficiency ratio measures the ability of a company to employ resources like assets and capital for the purpose of producing income in an effective way (Corporatefinanceinstitute.com, 2022). With the help of turnover regarding account receivable and average inventory, it can be identified whether Anchor is an efficient healthcare service or not. Turnover of account receivable decreases which represent efficiency while turnover of average inventory increases which also represents increased efficiency. Therefore, it can be stated that Anchor has the efficiency to use resources for producing income. [Refer to Appendix 2]
Liquidity Ratio
The liquidity ratio shows the ability of a company to pay short-term obligations within a specific time (Ardiansyah et al. 2020). Through both current and acid-test ratios, it can be identified whether Anchor is in a liquid position or not. Both the current and liquid ratios decrease in the year 2021 which helps to identify that Anchor is not in a liquid position. [Refer to Appendix 3]
Long term financial needs of healthcare services refer to the form of institutional care along with an increase in a community environment. This type of need includes a combination of services in terms of medical, society, and nursing (Who.int, 2022). In addition to this, long-term financial needs include financial instruments along with maturity which will exceed years such as a loan from a bank, debt finance, leasing, and bonds.
On the other hand, short-term financial needs refer to the financing required for a short period generally less than one year. In recent years, health care companies face issues regarding cash flow, medicare reimbursement. In this situation, health care businesses require short-term financial needs to mitigate such issues.
There are different sources of financing available to a company such as Owners capital, Retained profits, bank loan, overdraft, business angles, government grants and many others. Both advantages and disadvantages of a few of these financing sources are discussed below:
Owners’ capital
The advantages of Owners capital represents that it is a quick and convenient source, it does not require borrowing money as well as there is no requirement of interest payment (Bbc.co.uk, 2022). Therefore, it can be stated that an organisation can get benefits by collecting funds from this source however, they have to face a few issues as this source of financing includes a few limitations. Such limitations show that there are no chances to get return money and owners might not have enough savings to lend money.
Retained profits
According to the research paper of Yemi and Seriki (2018), retained earning refers to a financial value that is considered an important aspect for an investor of a company. This is because with the help of retained earnings investors can pay attention to the reported profit of a company. However, a company might not be able to access returns in any unforeseen problems in the future.
Bank loan
The advantages of bank loans represent that such sources of financing are easy and quick to access as well as a company can get a significant amount of money at a time. The primary disadvantage of bank loans is that small-sized businesses, as well as new businesses, cannot access bank loans (Allen et al. 2019).
Budgetary control refers to a process of planning and implementation of a budget that is generally designed for assuring that resources are allocated in an efficient and transparent way. Budgetary processes undertaken by health and social care services include assessment, development of planning, implementation, and evaluation. Traditional budgeting processes in healthcare services include budgeting software along with historical data, assumptions, and inputs (Syntellis.com, 2022). The leadership of healthcare reviews the relevant data in the computers from all the services and departments of healthcare organisations. The process is stated below:
There are three different rules for different accounts Personal Accounts, Real Accounts, and Nominal Accounts. Such rules are stated below:
Such rules are used in maintaining financial records in which such a method records transactions in two accounts namely credit and debit. The amount recorded on the debit side of the transaction has to be equal to the amount recorded on the credit side. The primary purpose of this method is to assure that the account of an organisation remains balanced which can be used for the depiction of an accurate image of the current financial position of an organisation to both external stakeholders as well as the management (Corporatefinanceinstitute.com, 2022).
According to the annual report of Anchor Trust, the both operational and long-term plans of this organisation are supported by the financial budgets and forecasts (Anchor.org.uk, 2021, 2021). It is identified that the requirements of cash flow are mentioned by the process of rolling forecasts. There is no mention of the organisational budget in the annual report of this organisation in a clear way. There are two different statements available in the annual report of this organisation. Due to this reason, this paper considers only one of the statements of comprehensive income, balance sheet, and the statement of cash flow as a budget which will help to identify the financial condition of this organisation. Such financial statements are presented below:
Statement of comprehensive income
Statements of comprehensive income include turnover, operating costs, surplus or deficit on disposal of fixed assets, operating profit, profit before tax, and profit or loss after tax. This statement represents that the turnover will stand for £528222000 in 2021 and £522215000 in 2020. Based on this data, it can be stated that this company will be able to generate more revenue through their sales. However, as operating costs increase at a high range, therefore, this company will not be able to generate more operating profit before exceptional items although it has increased surplus on disposal of fixed assets. Operating profit of this organisation shows that this company will generate £59265000 in 2020 and £46305000 in 2021 (Anchor.org.uk, 2021). Therefore, it can be stated that this company will generate less operating profit than its previous year's operating profit which represents decreased operational efficiency. This company will bear interest payable and financing costs at a high range which will stand for £66219000 and due to this reason, it is estimated that this company will generate loss in the year 2021 including tax and it will stand for -£11973. After including remeasurement and movement in fair value, it is identified that the total comprehensive expenditure will be generated by this organisation which will stand for -£13332. Through this discussion, it can be stated that the profitability of this organisation will be reduced in the year 2021.
Balance sheet
Balance sheet of this organisation represents fixed assets, current assets, current liabilities, net assets, and reserves. It is identified that fixed assets include tangible fixed assets in terms of Housing, Tangible other fixed assets, and investments which will stands for £1201278000, £26126000, and £2629000 respectively in the year 2021 while on the other hand, total fixed assets will stands at £1252291000 in 2020. This data represents that the decreased amount of fixed assets will be included in the balance sheet of this organisation. It is estimated that the current assets of this organisation will decrease in the year 2021 as compared to the previous year 2020 because of an increase in the amounts of creditors that are falling due. This data represents that this company is in a decreased liquidity position. Based on this discussion, it will be identified by this company that they will be able to generate £542025000 as total net assets in the year 2021 (Anchor.org.uk, 2021). In addition to this, Anchor Trust includes Income and expenditure reserve, restricted and designated reserve, and cash flow hedge reserve in their reserve which stands at £504855000, £51491000, and -£642000 in the year 2021. On the other hand, it decreases in the year 2020 as well. However, it can be identified that this company will be able to manage their asserts, reserves, and liabilities in a significant way which represents efficiency of this organisation.
Statement of cash flow
Statements of cash flow include three different activities of generating cash such as operating activities, investing activities, and financing activities. It is estimated that cash flow generated from operating activities will stand for £101846000 in the year 2020 while it will decrease in the year 2021 and stands at £96084000. This data represents that this company will not be able to generate cash inflow in 2021 more than its previous year 2020. Similarly, cash flow generated through investing activities stand for £78112000 in 2020 and £43337 in 2021. Cash flow from financing activities stands at £32667000 and £46432000 in the year 2021 and 2020 respectively. Therefore, it can be stated that the net change in cash and cash equivalent will be £20070000 in 2021 while for the year 2020 it was -£22698 (Anchor.org.uk, 2021). Based on opening cas equivalent, it is estimated that his company will be able to generate more cash inflow in the year 2021 as compared to its previous year 2020. Through this discussion, it can be stated that this company has increased efficiency in managing flow of cash.
Capital expenditure is considered as a fund that is used for the purpose of purchasing, improving, and maintaining long-term assets for the improvement of capacity of an organisation (Corporatefinanceinstitute.com, 2022). Such long-term assets include fixed assets such as equipment, property, and infrastructure. On the basis of this discussion, this paper evaluates the capital expenditure of the given organisation. Capital expenditure of Anchor Trust includes expenditure on new properties, existing properties, offices and equipment, total capital expenditure on new properties stands at £8.3 million in 2021 and £11.9 million in 2020. Moreover, capital expenditure on existing properties stands for £63.8 million in 2020 which decreases in 2021 and stands at £38.1 million (Anchor.org.uk, 2021). Similarly, capital expenditure on offices and equipment decreases in the year 2021 as it stands for £2.7 million and in 2020, it stands for £5.2 million. Total capital expenditure of this company stands for £80.9 million and £49.1 million for the year 2020 and 2021 respectively.
Different techniques of investment appraisals help to identify whether an organisation will be able to generate profit or not. Due to this reason, this paper undertakes two different appraisal techniques of investment in terms of Net Present Value and Payback Period. It is identified that a positive net present value shows that the investment will create value. On the other hand, negative net present value shows decreased rate of return obtained by the investors as compared to the rate of return (Setiawan and Yuliania, 2018). It is identified from Table 5 that this organisation will be able to generate a positive return from their investment as the value of NPV is positive regarding their investment. In addition to this, the payback period represents the time of recovering the initial cost of an investment (Zativita and Chumaidiyah, 2019). In this regard, this paper evaluates the payback period for Anchor Trust regarding their investment. This table represents that the payback period of this investment will be 2.017 years. Based on this evaluation, it can be stated that this company will take less than 3 years to recover the initial amount of their investment. This data represents the profitability of this organisation through their investment.
Reference list
Journals
Allen, F., Qian, M. and Xie, J., 2019. Understanding informal financing. Journal of Financial Intermediation, 39, pp.19-33.
Ardiansyah, F., Sukoco, A. and Wulandari, A., 2020. The Effect of Capital Structure, Profitability Ratio, and Liquidity Ratio on Share Prices (Studies on Manufacturing Companies in Southeast Asia). Quantitative Economics and Management Studies, 1(5), pp.326-334.
Handayani, S., Perwitasari, E.P. and Hermawan, M.A., 2021. The Effect of Financial Ratio to Financial Distress Mediated by Profitability Ratio in PT Angkasa Pura II (Persero). JEJAK: Jurnal Ekonomi dan Kebijakan, 14(2), pp.398-414.
Kurdi, B., Alshurideh, M. and Alnaser, A., 2020. The impact of employee satisfaction on customer satisfaction: Theoretical and empirical underpinning. Management Science Letters, 10(15), pp.3561-3570.
Pan, Y., Torres, I.M. and Zúñiga, M.A., 2019. Social media communications and marketing strategy: A taxonomical review of potential explanatory approaches. Journal of Internet Commerce, 18(1), pp.73-90.
Rashid, C.A., 2018. Efficiency of financial ratios analysis for evaluating companies’ liquidity. International Journal of Social Sciences & Educational Studies, 4(4), p.110.
Setiawan, E.A. and Yuliania, F., 2018. Analysis of solar photovoltaic utilization in industrial sector for improving competitiveness in the smart grid. International Journal of Smart Grid and Clean Energy, 7(4), pp.276-285.
Vysochan, O., Yasinska, A. and Hyk, V., 2021. Selection of Accounting Software for Small and Medium Enterprises Using the Fuzzy Topsis Method. TEM Journal, 10(3), pp.1348-1356.
Yemi, A.E. and Seriki, A.I., 2018. Retained Earnings and Firms' Market Value: Nigeria Experience. The Business & Management Review, 9(3), pp.482-496.
Zativita, F.I. and Chumaidiyah, E., 2019, May. Feasibility analysis of Rumah Tempe Zanada establishment in Bandung using net present value, internal rate of return, and payback period. In IOP Conference Series: Materials Science and Engineering (Vol. 505, No. 1, p. 012007). IOP Publishing.
Websites
Anchor.org.uk, 2021. Annual report. Viewed on: 02/02/2022 from <https://www.anchor.org.uk/guides-and-support/annual-report>
Bbc.co.uk, 2022. Advantages and disadvantages of financing sources. Viewed on: 01/02/2022 from <https://www.bbc.co.uk/bitesize/guides/zj7yy9q/revision/2>
Corporatefinanceinstitute.com, 2022. Capital expenditure. Viewed on: 02/02/2022 from <https://corporatefinanceinstitute.com/resources/knowledge/accounting/capital-expenditures/>
Corporatefinanceinstitute.com, 2022. Efficiency ratio. Viewed on: 01/02/2022 from <https://corporatefinanceinstitute.com/resources/knowledge/finance/efficiency-ratios/>
Corporatefinanceinstitute.com, 2022. Use of double-entry book-keeping system. Viewed on: 01/02/2022 from <https://corporatefinanceinstitute.com/resources/knowledge/accounting/double-entry/>
Efinancemanagement.com, 2022. Rules for double-entry book-keeping. Viewed on: 01/02/2022 from <https://efinancemanagement.com/financial-accounting/double-entry-system-of-bookkeeping>
Smallbusiness.chron.com, 2022. Importance of accounting software. Viewed on: 01/02/2022 from <https://smallbusiness.chron.com/importance-accounting-software-71524.html>
Smallbusiness.chron.com, 2022. Importance of finance management. Viewed on: 01/02/2022 from <https://smallbusiness.chron.com/top-10-leadership-challenges-hospitals-30714.html>
Syntellis.com, 2022. Budgetary control process. Viewed on: 01/02/2022 from <https://www.syntellis.com/guide-to-healthcare-and-hospital-budgeting>
Who.int, 2022. Long-term finance needs. Viewed on: 01/02/2022 from <https://www.who.int/health_financing/documents/dp_e_07_6-longtermcare.pdf>
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