Recommendations for organizational decisions based on analyses of financial data

Recommendations for organizational decisions based on analyses of financial data: In this Assessment, you will use information from several case studies and other documents to demonstrate your ability to make recommendations for organizational decisions based on analyses of financial data…

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Recommendations for organizational decisions based on analyses of financial data

Paper details

In this Assessment, you will use information from several case studies and other documents to demonstrate your ability to make recommendations for organizational decisions based on analyses of financial data.

Professional Skills: Written Communication, Technology, and Critical Thinking and Problem Solving are assessed in this Competency.

Access the following to complete this Assessment:

• Jiranna Finances
• Capital Project Case Study, Part 1
• Capital Project Case Study, Part 2
• Variance Analysis Case Study
• Academic Writing Expectations Checklist
• Download the Academic Writing Expectations Checklist to use as a guide when completing your Assessment. Responses that do not meet the expectations of scholarly writing will be returned without scoring. Properly formatted APA citations and references must be provided, where appropriate.
• Be sure to use scholarly academic resources as specified in the rubric. This means using Walden Library databases to obtain peer reviewed articles. Additionally, .gov (government expert sources) are a quality resource option. Note:  Internet and .com sources do not meet this requirement. Contact your coach or SME for guidance on using Library Databases.
• Carefully review the rubric for the Assessment as part of your preparation to complete your Assessment work.

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This Assessment requires submission of two (2) files. Save your files as follows:

• Save the written sections of Parts I, II, and III as FM007_firstinitial_lastname (for example, FM007_J_Smith).
• Save the spreadsheet for Part II as FM007_spreadsheet_firstinitial_lastname.

When you are ready to upload your completed Assessment, use the Assessment tab on the top navigation menu.

Instructions

Before submitting your Assessment, carefully review the rubric. This is the same rubric the assessor will use to evaluate your submission and it provides detailed criteria describing how to achieve or master the Competency. Many students find that understanding the requirements of the Assessment and the rubric criteria help them direct their focus and use their time most productively.

Rubric

This assessment has three-parts.  Click each of the items below to complete this assessment.

Part I: Analyze Organizational Financial Data

You are an administrator at Arizona Health Services (AHS), a large hospital system. You have been asked to assist in evaluating the financial feasibility of purchasing Jiranna Healthcare, a managed care organization in the San Jose area. For this part of the Performance Task, you will conduct a 5-year analysis of Jiranna Healthcare’s operational and financial data in order to determine whether or not it is an attractive acquisition. Refer to “Jiranna Finances” for financial statements to analyze.

Prepare a 2- to 3-page financial analysis. The focus must be on the content and the depth of your analysis. Unless otherwise indicated, a 5-year trend analysis—including the most recent year of available data—is expected.

Complete your analysis as follows:

• Calculate the 5-year net sales, operating expenses, operating income, and net income of Jiranna Healthcare. Once calculations are complete, interpret the resulting data and explain the significance of the trend results.
• Calculate the 5-year total profit margin, asset turnover, return on assets, and return on net worth. Once calculations are complete, interpret the resulting data and determine the company’s profitability.
• Calculate the 5-year current ratio, day’s cash on hand, and working capital. Once calculations are complete, interpret the resulting data and assess the company’s liquidity.
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• Calculate the 5-year debt ratio and times interest earned ratio. Once calculations are complete, interpret the resulting data and explain the company’s long term solvency.
• Complete a DuPont analysis for each of the five most recent years. Once calculations are complete, interpret the resulting data and determine the company’s individual DuPont characteristics (e.g., total margin, total asset turnover & equity multiplier) and trends across the analysis period.
• Ultimately a decision has to be made. Would you recommend purchasing Jiranna Healthcare? Why?

Part II: Case Study #2

For the next part of this Performance Task, you are expected to complete a number of calculations, and then interpret the numbers to provide recommendations based on these analyses. It is essential both to show your work and calculations, and to demonstrate how these calculations support your conclusions. Be sure to explain your reasoning. You will be assessed on the accuracy of your quantitative analyses and the quality of the evidence you use to support your conclusions.

Imagine that you are an administrator at Jiranna Healthcare who has been asked to analyze cash-flow data to determine the costs and benefits of implementing a new capital project. For background, read “Capital Project Case Study, Part 1.” Then, complete the “Capital Project Case Study, Part 2” spreadsheet, which provides cash-flow data (costs and benefits) for the proposal. Download and save the Excel spreadsheet, and use the information provided to complete the following:

• Calculate the cash inflows and outflows for each year.
• Calculate the following metrics:
  • Net present value (NPV)
  • Internal rate of return (IRR)
  • Modified internal rate of return (MIRR)
  • Payback period
  • Discounted payback period
• In a 1- to 2-page report, provide your recommendation with rationale, as to whether the project is acceptable, assuming Jiranna has a corporate policy of not accepting projects that take more than 3.5 years to pay for themselves, and assuming an 11% cost of capital

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Part III: Conduct a Budgeting Evaluation

You are an administrator at Jiranna Healthcare. You have been asked to conduct a budget variance analysis: analyzing performance by comparing budgeted workload, revenue, and expenses for a range of different service lines, with actual workload, revenue, and expenses for those service lines.

Open the document “Variance Analysis Case Study,” where you will find data on the expenses, revenue, and inpatient product lines at Jiranna Healthcare.

Analyze the data and prepare a 3- to 4-page report. In your report, address each of the five following questions. In each case, show the calculations that you conducted to answer the question. Then, explain your conclusion and how your calculations support your reasoning.

• What was the hospital’s original profit forecast (assume away any issues with depreciation, taxes, etc.)? Halfway through the fiscal year, what is the hospital’s revised projection for FY11 profits?
• Which inpatient service lines are over budget? Which inpatient service lines are over budget after accounting for workload increases?
• What two actions would you recommend be taken at the mid-year point if you oversaw a fee-for-service hospital? In other words, where are the problem areas on which you would focus your attention, and who might provide ideas for “best practices” based on their performance?
• What two actions would you recommend be taken at the mid-year point if you oversaw a capitated hospital? In this case, the revenue spreadsheet would be replaced with an overall budget of $50 million with which to operate (rather than being able to bill for each episode of patient care). Federal, state, county, and city hospitals normally operate under a capped budget. Additionally, many HMOs also operate under a fixed per member, per month (PMPM) capitated process.

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Solution

Part I: Analyze Organizational Financial Data

Available on request.

Part II: Recommendations on Jiranna

The calculations indicate that the company has a Net Present Value (NPV) of $38,469. Since this is a positive NPV, implementing the new project is acceptable. When the NPV is positive, the investment is expected to be profitable and should be considered. However, NPV calculations rely on assumptions and estimates; thus, they can be affected by errors. Other methods of determining the viability of the project include finding the Internal Rate of Return (IRR) and calculating the payback period.

The calculations indicate that the company has an Internal Rate of Return (IRR) of 14%. Since the IRR at 14% is greater than the cost of capital, which is at 11%, we accept the implementation of the project. Through IRR, we can estimate the project’s annual budget. Ideally, the higher the IRR, the more viable the investment. However, IRR assumes that all positive cash flows will be reinvested at the same rate as the project. This limits IRR’s accuracy in reflecting the profitability and costs of the project (Marchioni & Magni, 2018).

In addition to the IRR, the MIRR also projects the viability of the investment project. Hence when the MIRR is higher than the expected return, the investment would be considered attractive. In this case, considering the MIRR, the investment is viable. The current Modified Internal Rate of Return (MIRR) is 13%, which is higher than the required rate of return. Hence per the MIRR, the investment is viable.

Alternatively, the payback method also estimates how long it would take for the original investment to be repaid. The payback approach estimates how long it would take to reach the break-even point (Arjunan & Kannapiran, 2017). It is imperative to note that shorter paybacks equate better profitability. Besides, the approach helps the company’s set policies that help in decision making.

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According to the company’s policy, it accepts projects with a payback period of fewer than 3.5 years. With this project having a payback period of greater than 3.5 at 3.6 years, we reject the implementation of the project based on its payback period. It would be against the company’s policy to facilitate the project. Despite accepting the project’s financial projections as shown by the NPV, IRR, and MIRR, I recommend not implementing the project, based on the fact its payback period exceeds the company’s set duration.

Part III: Budgeting Evaluation

The calculations indicate that the hospital’s original profit forecast can he highlighted as follow:

Profit forecast = Forecasted revenue – Forecasted expenses

50,155,710 – 48,069,860 = 2,085,850

Halfway through the fiscal year, the revised projection for FY11 profits can be analyzed as follows.

Half-year profit achievement = Revenue – Expenses

24,220,949 – 25,256,062 = -1,035,113

The hospital has a loss of 1,035,113 half the year, translating to an estimated projection of 2,070,226 loss if the same trend continues. The revised projections are a loss and would continue as the year progresses.

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Secondly, the inpatient service line over budget is diseases and disorders of the circulatory system, diseases and disorders of the digestive system, diseases and disorders of the ear, nose, mouth, and throat and diseases and disorders of the female reproductive system. This is after considering their budgeted expenses with the actual expenses incurred at the half of the year. However, when we factor in the workload increases, we find that no inpatient service has an over-budget accounting for increased workload expenses.

At mid-year, adopting a fee-for-service hospital model would require that the hospital focus on high revenue-generating services maximize the income generated. This will increase the level of total revenue collected from the services rendered. Diseases with many patients should be prioritized under this case. Simultaneously, the hospital should reduce its focus on highly expensive services that deprive the hospital of its earned income while minimizing the low client numbered diseases. This will maximize the net gains of the hospital.

The problem areas on which to focus attention on, based on their performance and best practices, would necessitate the focus on newborns and other neonates with conditions originating in the perinatal period, which is a high-income area that can maximize the net gains and human immunodeficiency virus infections which is has a high number of patients receiving treatment at the hospital. On the other hand, the hospital should reduce its focus on diseases and disorders of the nervous system since, with its equivalent expenses, it attracts a low number of patients seeking its treatment.

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In a capitated hospital set up, I would recommend its payment structure adjustment, with services with many patients receiving a lower amount of payment and the services with a low number of patients receiving the largest amount. This will have a higher attraction and retention of the patients by the doctors while maintaining the costs attached at a minimal and manageable level. Pregnancy, childbirth, and the puerperium inpatient service should be assigned the least payment with the highest pay for diseases and disorders of the ear, nose, mouth, and throat.

The hospital should also endeavor to focus on inpatient services that have a lower number of clients. This will be a way of ensuring that the expenses remain low and at the minimal point. Diseases and disorders of the ear, nose, mouth, and throat are critical services that should be highly embarked on in the facility. By optimizing services and the quality of care in these areas, the facility will attract many patients with these complications. Besides, efforts should be taken to improve the corporation and engagement of the facility with its community. This will help improve the community’s understanding of the facility’s core services. Offering occasional clinics in partnerships with local partners could improve awareness and facilitate an increase in patients in these specific areas.

Working with a capped budget would also mandate modern medical tools that improve clinical efficiency and performance. The capped budget should drive quality improvement efforts that focus on maintaining low costs and offering high-quality care. While finding the balance can be challenging, the facility can attain it by selecting areas that could benefit from hospital efficiency, such as reducing wait times in the ED. Besides improving patient satisfaction, the facility will deliver high-quality care at affordable costs to the patient.

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In conclusion, the calculations project a loss at midyear. The estimations factor in the workload increases and establish that there were no budgets. At mid-year, the focus should be on increasing the revenue by enabling high performing service areas. Increasing the operational efficiency in these areas to improve the facility’s financial performance would help increase revenue. Operational efficiency and patient satisfaction should be at the core of the facility’s operations under a capped budget. This will ensure a steady patient base while also facilitating quality improvement and optimized healthcare delivery.

References

• Arjunan, K. C., & Kannapiran, K. (2017). Cost‐benefit Analysis and the Controversial Reinvestment Assumption in IRR and NPV Estimates: Some New Evidence against Reinvestment Assumption. Economic Papers: A journal of applied economics and policy, 36(3), 351-363.
• Marchioni, A., & Magni, C. A. (2018). Investment decisions and sensitivity analysis: NPV-consistency of rates of return. European Journal of Operational Research, 268(1), 361-372.

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