Ratio Analysis and Break-Even Points

Ratio Analysis and Break-Even Points
Although decision making in a health care organization is influenced by many factors, decisions involving spending are ultimately informed by the analysis of financial data. Whether the decision at hand involves borrowing, purchasing, leasing, investing, building, pricing, expanding, or managing debt structure, accurate analysis of the numbers provides administrators the breadth of information needed to properly assess the financial impact of their decisions.
Last week, you developed key financial statements and examined their importance to organizational managers. This week, you analyze these statements and interpret the numbers using ratio analysis and break-even points.
Learning Objectives
Students will:
• Analyze financial statements using ratio analysis
• Evaluate financial data to calculate break-even point formulas for health care organizations
Photo Credit: [Sylvain Sonnet]/[Photographer's Choice RF]/Getty Images
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Learning Resources
Note: To access this week’s required library resources, please click on the link to the Course Readings List, found in the Course Materials section of your Syllabus.
Required Readings
Zelman, W. N., McCue, M. J., Glick, N. D., & Thomas, M. S. (2014).Financial management of health care organizations: An introduction to fundamental tools, concepts and applications (4th ed.). San Francisco, CA: Jossey-Bass.
• Chapter 3, “Principles and Practices of Health Care Accounting” (pp. 103–126)
• Chapter 4, “Financial Statement Analysis” (pp. 137–183)
• Chapter 9, “Using Cost Information to Make Special Decisions” (pp. 409–432 only)

Gallo, A. (2014). A quick guide to breakeven analysis. Retrieved from https://hbr.org/2014/07/a-quick-guide-to-breakeven-analysis

Khurshid, R., Tabish, S. A., Hakim, A., Khan, A., & Singh, Y. (2014). Break-even analysis of MRI facility at a large tertiary care teaching hospital of north India. International Journal of Medicine and Allied Health Sciences, 2(2). Retrieved from http://www.academia.edu/7689703/Break-Even_Analysis_of_MRI_Facility_at_a_Large_Tertiary_care_Teaching_Hospital_of_North_India

Microsoft, Inc. (2016). Excel Training. Retrieved from https://support.office.com/en-us/article/Excel-training-9bc05390-e94c-46af-a5b3-d7c22f6990bb?ui=en-US&rs=en-US&ad=US

Microsoft, Inc. (2015b). Excel 2010 videos and tutorials. Retrieved from https://support.office.com/en-US/article/Excel-2010-training-courses-videos-and-tutorials-807211fe-ee81-4887-b48a-68a94e1e912f

Microsoft, Inc. (2015c). Excel 2013 videos and tutorials. Retrieved from https://support.office.com/en-us/article/Excel-2013-training-courses-videos-and-tutorials-aaae974d-3f47-41d9-895e-97a71c2e8a4a?ui=en-US&rs=en-US&ad=US

Excel Easy. (2016, March 8). Financial Functions. Retrieved from http://www.excel-easy.com/functions/financial-functions.html

Document: Week 8 Assignment 1 Ratio Excel Template (Excel spreadsheet)

Note: You will use this document to complete this week’s Assignment 1.

Document: Week 8 Assignment 2 Break Even Excel Template (Excel spreadsheet)

Breakeven Excel Tutorial: https://mym.cdn.laureate-media.com/2dett4d/Walden/MMHA/6400/CH/mm/excel_tutorials/be.html

Note: You will use these document to complete the assignments for this week.

Optional Resources

Excel Finance Class 01: Intro To Excel 2007 & 2010 [Video file]. Retrieved March 8, 2016, from https://www.youtube.com/watch?v=qeWOy4Q-1n8&noredirect=1
Provides a tutorial of Excel, basic math functions, and about how to perform calculations. There are videos in a series and the link will take you to the first in the series which is "The Basics".

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Assignment 1: Ratio Analysis
Note: The Instructor will post the document for this Assignment by Day 1 of Week 8.
It is important to understand that when interpreting financial statements, the numbers alone may not provide the whole financial picture of an organization. Instead, you must analyze the statements using ratios, which are then compared to benchmarks across the health care industry. For this Assignment, examine the financial health of a community hospital.
To prepare for this Assignment:
Review the Week 8 Assignment 1 document provided to you by the Instructor. Examine the financial statements from the community hospital. Reflect on how you will use this financial data to calculate and analyze the organization’s financial ratios. Refer to Chapter 4 of Financial Management of Health Care Organizations: An Introduction to Fundamental Tools, Concepts and Applications for additional guidance.
The Assignment:
Using the statement of operations and balance sheet for the community hospital, complete the “Week 8 Ratio Excel Template”.

By Day 7
Submit your Assignment.
Submission and Grading Information
To submit your completed Assignment for review and grading, do the following:
• Please save your Assignment using the naming convention “WK8Assgn1+last name+first initial.(extension)” as the name.
• Click the Week 8 Assignment 1 Rubric to review the Grading Criteria for the Assignment.
• Click the Week 8 Assignment 1 link. You will also be able to “View Rubric” for grading criteria from this area.
• Next, from the Attach File area, click on the Browse My Computer button. Find the document you saved as “WK8Assgn1+last name+first initial.(extension)” and click Open.
• If applicable: From the Plagiarism Tools area, click the checkbox for I agree to submit my paper(s) to the Global Reference Database.
• Click on the Submit button to complete your submission.
Grading Criteria

To access your rubric:
Week 8 Assignment 1 Rubric

Check Your Assignment Draft for Authenticity

To check your Assignment draft for authenticity:
Submit your Week 8 Assignment draft and review the originality report.

Submit Your Assignment by Day 7

To submit your Assignment:
Week 8 Assignment 1

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Assignment 2: Break-Even Point Formulas
Note: The Instructor will post the document for this Assignment by Day 1 of Week 8.
Before making hiring or purchasing decisions, health care organizations must consider whether the decision is financially profitable. By calculating break-even points, organizations are able to examine actual costs and make more sound financial decisions. For this Assignment, you use data from an imaging center and calculate break-even points.
To prepare for this Assignment:
Review the Week 8 Assignment 2 document provided to you by the Instructor. Examine the imaging center scenario. Reflect on how you will use the provided financial data to calculate break-even points. Refer to Chapter 9 of Financial Management of Health Care Organizations: An Introduction to Fundamental Tools, Concepts and Applications for additional guidance.
The Assignment:
Given the imaging center scenario and financial data, complete the “Week 8 Assignment 2 Break Even Excel Template”.
To assist with your work related to Week 8 and Assignment #2 specifically, an Excel Tutorial has been provided which is intended to help you navigate the important skill (please check your volume settings). Breakeven Excel Tutorial:
https://mym.cdn.laureate-media.com/2dett4d/Walden/MMHA/6400/CH/mm/excel_tutorials/be.html
By Day 7
Submit your Assignment.
Submission and Grading Information
To submit your completed Assignment for review and grading, do the following:
• Please save your Assignment using the naming convention “WK8Assgn2+last name+first initial.(extension)” as the name.
• Click the Week 8 Assignment 2 Rubric to review the Grading Criteria for the Assignment.
• Click the Week 8 Assignment 2 link. You will also be able to “View Rubric” for grading criteria from this area.
• Next, from the Attach File area, click on the Browse My Computer button. Find the document you saved as “WK8Assgn2+last name+first initial.(extension)” and click Open.
• If applicable: From the Plagiarism Tools area, click the checkbox for I agree to submit my paper(s) to the Global Reference Database.
• Click on the Submit button to complete your submission.
Grading Criteria

To access your rubric:
Week 8 Assignment 2 Rubric

Check Your Assignment Draft for Authenticity

To check your Assignment draft for authenticity:
Submit your Week 8 Assignment draft and review the originality report.

Submit Your Assignment by Day 7

To submit your Assignment:
Week 8 Assignment 2

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Week in Review
This week you explored how analyzing financial data impacts the decision-making of health care organizations. Specifically, you analyzed the statements you created last week using ratio analysis and break-even points.
Next week you will examine how to create budgeting plans and execute them effectively.
Next Week

To go to the next week:
Week 9