HCM5001 Fundamentals of Health & Care Finance Assessment Answer

Introduction

The given study reflects about ROE analysis and financial analysis of the organization BUPA Group. The DuPont analysis is based on the presumption that discrete analysis can be risky because the individual components of the return on equity (ROE) hold more significance than the ROE number when it is considered in isolation. 

Task 2-Review the financial statement for BUPA Group and determine the profitability of the business.

Calculate and analyse the Return on Equity (ROE) (Du Pont Analysis)

Answer 1

The ROE calculation through Dupont analysis of the organization BUPA Group is as follows:-

Table 1: Calculation of Dupont Analysis of BUPA Group

(Source: As Created by Author)

The above table reflects that the return on equity of the firm BUPA Group has increased from 3 percent to 5 percent in 2021 in comparison to 2020. The asset turnover has also increased from 0.5 to 0.6, which can be considered as a very good sign. The leverage of the organization is also on the lower side. This can also be considered as a good sign as the risk of the firm is on the lower side.

Answer 2

Explain how Du Pont Analysis could be used in decisionmaking. Is this business viable business in this case?

The Return on Equity (ROE) is the primary measure that is utilized in the Du Pont analysis, which is used to determine the attractiveness of a particular business. The rate of return on investment that a company provides for its stockholders is the most important consideration from the point of view of a shareholder in the company. As a consequence of this, a greater return on equity indicates that the company is performing at a level that is superior, whereas a lower ROE indicates that the company is in a state that is less desirable (Shahnia and Endri 2020).

The direction in which Return on Equity (ROE) is moving is of far greater importance than the ROE number taken by it. One can make the argument that a return on equity of 20% is desirable, whereas a ROE of 10% is relatively unattractive in comparison. When performing an analysis of ROE, it is necessary to take into account the existence of two prevalent patterns. To begin, what has been the general pattern of the return on equity for the business over the course of its existence? A stable to increasing return on equity is generally considered a more robust metric for assessing a company's financial health (Timothy 2022).

The subsequent comparative analysis focuses on determining the extent to which the Return on Equity (ROE) of the company meets the standard for the business. Return on equity percentages in businesses like Fast-Moving Consumer Goods (FMCG) and Information Technology (IT), which function with a bare minimum of assets, are more enticing. Concurrently, many businesses, including those in the power and telecommunications sectors, have a typically decreasing return on equity.

BUPA has two possible mutually exclusive service offerings. The Finance Manager projected the following investment information. The company's cost of capital is %10. Evaluate these investment options with Net Present Value (NPV) and Internal Rate of Return (IRR) techniques. Explain what each of these values mean and make a recommendation on which option the company should invest in, justifying this decision.

Answer B

The formula of IRR is as follows:-

IRR = R1 + ( (NPV1 * (R2 - R1)) / (NPV1 - NPV2) )

The investment analysis is as follows:-

Table 2: Investment analysis of the projects

(Source: As Created by Author)

The term net present value refers to the numerical disparity between the present values of cash inflows and cash outflows over a given time period. However, the internal rate of return (IRR) is a method used to predict how profitable a venture will be in the future.

The above table reflects that the NPV of basic cash flows is on the higher side in comparison to the premium cash flows. However, it can be also said that IRR of both the projects are same which is 11 percent. The overall analysis of NPV and IRR also has a link with ROE. A more in-depth comprehension can be attained by following the progression of the Return on Equity over a number of years and comparing it to the benchmarks established for the industry. On the other hand, the degree of detail presented here is insufficient for developing an analytical perspective. The feasibility of such an endeavor is dependent on the deconstruction of the Return on Equity pattern in order to identify the underlying variables that precipitated the change in ROE. This is necessary in order to determine whether or not such an endeavor is even possible (Panigrahi and Vachhani 2021).

Task 3

Assuming the role of a financial advisor, write a briefing report to the board of directors of the BUPA Group to cover the following:

Explain the Process to Prepare Financial Statement.

Answer A

Before the start of a new period, the last step in the accounting cycle is to make a financial statement. After the appropriate changes have been made and the closing entries have been made, the financial statements are made. Financial statements are put together in a reasonable order because each one depends on and builds on the one before it. Putting together a trial balance is the first step in the process.

These statements are the result of the accounting process's summarization, making them the informational foundation from which judgments about a company's profitability and financial standing are made. Therefore, they must be set up properly with appropriate information so that shareholders and other users of financial statements can readily comprehend them and use them to make informed financial decisions. Most small businesses produce a balance sheet and an income statement as their financial statements (Brigham and Houston 2021).

The financial statements for a given time period are dependent on the events that occurred during that time and their monetary values. These financial statements detail the status of the business as of a specific date and the results of the business operations during that time period (Madura 2020).

Financial statements are prepared using specific bookkeeping conventions. Inventory is valued according to the custom of cost or market price, whichever is lesser. For balance sheet purposes, the asset valuation at cost less depreciation concept is applied. Despite the fact that they are assets in nature, these items are treated as expenses in the year in which they are bought. Instead of using the concept of cost or market price, whichever is lower, the stationery is valued at cost. The use of accounting standards results in comparable, straightforward, and realistic financial statements (Finkler,Calabrese and Smith 2022).

The balance sheet and the statement of profit and loss, which are necessary for both external reporting and internal management requirements like planning, decision-making, and control, are typically included in the financial statements. In addition to these, it is important to be aware of money transfers and alterations to the company's financial situation. A financial flow statement is created for this reason.

Determine the Debt Ratio and include a statement on the solvency position of the company.

Answer B

The debt-equity ratio of the company is as follows:-

Table 3: Debt Equity Ratio

(Source: As Created by Author)

The above table reflects that the debt is higher than equity. This can be considered as a negative sign for the organization. The process of combining accounting data into a standardized collection of financials is part of the process of creating financial statements. Management, lenders, creditors, and investors receive the finished financial statements and use them to assess a company's success, liquidity, and capital flows. There are many stages informed to identify the leverage of an organization (Oleghe 2020). One of the key important process is to evaluate debt-equity ratio. Since, the debt of the firm is on the higher side, it is also important for the firm to mitigate the risks.

Critically appraise the role of the traditional finance function for healthcare organisations - Answer C

Traditional finance's main role in healthcare organizations is to handle money and risk in a way that helps the organization reach its financial goals. When a healthcare company has strong and well-thought-out financial management plans, they can give all of their patients good care. The role of finances is significant in the decision-making process within the contemporary healthcare system. It is imperative for healthcare managers across all tiers to possess fundamental knowledge of finance and its application towards enhancing the financial state of the institution.

A fundamental component of financial management is the process of conducting an analysis of the effectiveness of the healthcare organization from both a financial and operational standpoint. The healthcare organization is able to plan effectively for its future undertakings as a result of this. The term "healthcare" refers to any medical treatment that is provided to a patient with the goal of improving their overall health. Commonly referred to as "healthcare financing," this concept refers to the process of allocating financial resources in order to pay for medical services and materials. This category of financing refers to individual payments made for personal medical services such as hospitalization, dental treatments, and consultations with physicians, pharmaceuticals, and other types of personal medical care. Patients who are unable to pay for their medical expenses up front may qualify for healthcare financing, which acts as a form of credit and makes it possible for these patients to receive medical treatment (Shim 2022).

The development of emergency funds, recruitment procedures including the hiring of medical receptionists, highly qualified doctors, and nurses, ensuring the availability of funds to support all costs, including citizenship, and contract negotiations with suppliers and vendors are the primary focuses of the planning of funding for the medical industry. Patients might benefit from healthcare organizations that have streamlined and secure methods of financial administration. The term "healthcare finance" refers to the many different methods that are utilized by society in order to pay for medical treatment. When viewed from the point of view of the sufferer, this represents a method by which one can acquire medical services. If funding for healthcare is increased, this may result in enhanced patient services, an expansion of the patient population, and increased revenue for healthcare institutions (Madura 2020).

Accounting and financial management are the foundational pillars of any healthcare organization's financial structure and are essential to providing quality treatment. Accounting is a foundational process that entails the systematic recording and analysis of financial, operational, and asset-related information from an economic perspective. This information is analyzed using the information in financial statements. The financial management focuses on the fundamental ideas and tactical maneuvers that are utilized to facilitate well-informed decision-making (Finkler,Calabrese and Smith 2022).

Funding for healthcare is dispersed by healthcare organizations in the interest of providing a financial cushion that promotes the general well-being of people who have a need for medical assistance. The decision-making process for financial planning, particular investment evaluations, financial performance reporting, data analysis, and managerial abilities in financial operations are all examples of activities that are part of the organizational landscape (Oleghe 2020).

Financial management is one of the many tasks that fall under the purview of health information administrators working in healthcare facilities and departments. Executives are responsible for the management of a significant amount of data, which they process and refine so that patients are relieved of the burden of managing their bills. This is done to ensure that patients are relieved of the burden of managing their bills. Technology-based systems are required for both individuals and organizations if they are to successfully handle and monitor the data they collect. Managers of health information are the individuals responsible for the management of records and the maintenance of platforms affiliated with those records. These types of healthcare professionals are absolutely necessary in order to understand the data and carry out the upcoming regulations. Even though healthcare administrators do not communicate directly with patients, the communication they have with nurses and doctors is an extremely important part of their jobs. In a nutshell, their job entails keeping an eye on everything that's going on behind the scenes while also being in charge of the department's policies and finances (Shim 2022).

Conclusion

The management of a company's finances in the healthcare industry is an essential step in the process of improving the health of the company's customers. Sharp information health managers and administrators are responsible for accounting, financial management, and a variety of other activities in order to provide patients and staff with assistance in any manner that is feasible. The utilization of healthcare financing is an essential component for health service companies to grow their customer base and earnings, respectively. This is due to the fact that finances play a significant part not only in the health and wellbeing of patients, but also in the retention and recruitment of talented individuals.

References

Brigham, E.F. and Houston, J.F., 2021. Fundamentals of financial management: Concise. Cengage Learning.

Finkler, S.A., Calabrese, T.D. and Smith, D.L., 2022. Financial management for public, health, and not-for-profit organizations. CQ Press.

Madura, J., 2020. International financial management. Cengage Learning.

Oleghe, O., 2020. System dynamics analysis of supply chain financial management during capacity expansion. Journal of modelling in management, 15(2), pp.623-645.

Panigrahi, C.M.A. and Vachhani, K., 2021. Financial analysis by return on equity (ROE) and return on asset (ROA)-A comparative study of HUL and ITC. Panigrahi AK, Vachhani K, Financial analysis by return on equity (ROE) and return on asset (ROA)-A comparative study of HUL and ITC. J Manag Res Anal, 8(3), pp.131-138.

Shahnia, C. and Endri, E., 2020. Dupont Analysis for the financial performance of trading, service & investment companies in Indonesia. International Journal of Innovative Science and Research Technology, 5(4), pp.193-211.

Shim, J.K., 2022. Financial management. Professor of Finance and Accounting Queens College City University of New York.

Timothy, A.S., 2022. A Study of Financial Performance Using DuPont Analysis in a Supply Chain. The International Journal of Business & Management, 10(11).

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