River Community Hospital Case Study And Analysis Help With Solution
1.Cash flow analysis
Cash flow from operating activities shows cash inflows from business operations. For long-term sustainability of any business cash flow from operating activities should be positive irrespective of free cash flow to the firm. Cash flow from operating activities to River Community Hospital has been positive and improving year to year. Cash flow from operating activities has been $3.302 million to $3.357 from 2012 to 2013 respectively. It shows the company has positive growth trend on the operations side.
Cash flow from investment activities is expected to be negative for growing companies as companies regularly invest for long-term sustainable growth. It’s also referred to as the capital expenditure. Capital expenditure has been minus $7.686 to minus $4.328 as compare to 2012 to 2013. Around 80% of investment is done in plant and equipment which will help to expand the business capacity and assets.
Cash flow from financing activities is the result of financing firm’s operation and capital expenditure activities. Cash flow from financing activities is expected to be positive or negative as the company may raise or repay long-term debt, short-term debt and interest obligation on regular basis. But in case of River Community Hospital cash flow from financing activities has been shows negative trend as compare to last year data i.e. from 2012 to 2013 due to long-term debt repayment in 2013. Also, the hospital raised long-term debt much lower than long-term debt repayment.
Riverview Community Hospital gets fulfilment in safeguarding of high quality of patient care as well as level of client satisfaction. It gives wide range of indoor and outdoor patient services that give revenue to cover its all expenses. In addition hospital is covered by Medicare, Medicaid and other government programs or various private plans like contractual plans which provide huge revenue to hospital. The authorization of RCH by the joint commission enables them to get government reimbursement from Medicare and Medicaid. This constitutes a majority of its payer mix. Riverview Community Hospital has a contributory pension plan that covers all its employees in this each participant can contribute up to 20 percent of its earning, its helps the hospital to distribute pension to its retired employees. This could be attributed to effective use of property and consumption of clinical management. Since the average duration of stay for patients is less it is beneficial for both the patient and hospital because it is less costly and risk free for the hospital. It also helps the hospital resources to be utilized in other resources.
In agreement to high equity financial ratio, RCH is in an appropriate position of borrowing money if requisite. The cost of capital is generally 10 percent that indicates that RCH may borrow funds at a 10% interest rate. RCH is having higher financial ratios that indicate that the hospital is not highly leveraged.
On the other side of financials, there are various types of financial strengths that can be determined by an analysis of operating ratios. These include performance of high quality strengths. RCH has a relatively low average length of stay and constantly below the average length of stay for patients. Short length of stay is a good indicator for clinical financial ratios or clinical management for the predictive patient risk. In addition, it has been noted that RCH has been passed with the latest Joint commission survey with “flying colors,” receiving the gold seal approval from accrediting body, hence its maintains a high patient satisfaction.
1. Sound financial analysis involves more than just calculating numbers. The American Association of Individual Investors suggests that investors consider the qualitative factors below when evaluating a company. Answer the questions for River Community Hospital. When there is insufficient information in the case to answer a question, briefly speculate about why the question might be relevant to the hospital.
– Are the company’s revenues tied to one key customer?
– To what extent are the company’s revenues tied to one key product?
– To what extent does the company rely on a single supplier? (Hint: Physicians and nurses are key suppliers of labor to a hospital.)
– What about the competition?
– What are the company’s future prospects?
– How does the legal and regulatory environment affect the company?
2. Based on the limited amount of information provided in the case, what are your top three or four recommendations to the board?
3. In your opinion, what are three key learning points from this case?
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