Healthcare Finance Essay Conclusion
Running Head: HEALTHCARE FINANCE 0
Healthcare Finance Milestone 4
Diana Berrios
HCM 400
II. Financial and Budgetary considerations
A. Financial Statements
The statement of comprehensive income, the statement of financial position and the cash flow statement will be used in making a proposal. The cash flow statement will be used to determine how the company is utilizing its cash in its three main activities which include operating activities, investing activities and financing activities. Additionally, the statement of financial position will be used to determine the financial stability of the company which will mainly be about determining how the company is financing its assets using equities and liabilities (Deegan, 2013). Moreover, this financial statement will also determine whether the company has a healthy balance between assets on one side and a combination of liabilities and equities on the other. The statement of comprehensive income will also be utilized in determining the relationships between the costs of the company and the revenue that it generates from different sources. This information will be used to strategies profit making for the Cryo Cell International Inc.
B. Proposal Impact
The proposal was to amend the budgetary policies to focus on three key areas which have a great influence on Cryo Cell’s financial statements with the main objective being the standardization of operating costs. The company needs to invest in research and development so as to develop new technologies which are crucial in increasing efficiency in the company. The increased efficiency will contribute to a rapid reduction in the operating costs of the company which will, in turn, increase the operating margins of the company (Arora and Gambardella, 2010). An increasing in the operating, margins will have a positive impact on the net income indicated in the consolidated income statement. Furthermore, increased investment in new technologies will reduce the cost of services of the company’s clients. Consequently, the sales volume is expected to rise and also positively impact on the total operating revenue that the company earns. Furthermore, more budgetary allocations towards investments will increase the incense and royalty income that the company earns its patents. Thus the increased profitability due to changes in the budgetary policies to focus more on investments will result in higher profitability. Furthermore, the reduced cost of health care services due to more affordable technology will increase service delivery in the United States because of the affordability factor and the improved quality of services attributed to advanced technology. Thus proposed changes in the budgetary process will result in a positive change in all the financial statement as the company will be more profitable, healthier and more stable financially and more efficient in its utilization of cash.
C. Flexed Versus Fixed
The flexed budget will be utilized in financial planning as opposed to the fixed budget. This is because the flexible budget varies depending on the level of activity which will facilitate an effective control of the costs incurred (Noreen, Brewer and Garrison, 2011). If the fixed budget is used, it will make it difficult to accurately forecast the cost of the next budget period. Thus the Fixed budget will not be a useful tool for implementing the budgetary proposals primarily because adjustments are needed after each budget period to ensure the company meets its short-term goals and its long-term goal.
III. Proposal Justification
A. Ratio Selection
It would be important to use profitability ratios because they are an indicator of the degree to which Cryo-Cell can control expenses and generate revenues from its operations and resources. Additionally, liquidity ratios will also be used because they indicate the capacity of Cryo-Cell to meet its current obligations. This will determine whether the company can spare resources to other investments. Finally, leverage ratios will also be used as they will indicate the level of gearing of the company as well as its ability to raise new funds to be utilized in investments as per the budgetary proposals.
B. Ratio Results
1. Profitability ratios
i) Net profit margin = Net income/net sales = (1,320,800)/23,128,047=-5.7%
ii) Operating income margin= operating income/net sales = 433,594/23,128,047= 1.87%
iii) Return on investments= net income/ [long-term liabilities equity] = -1,320,800/[1,425,000+30,465,617]= -9.4%
iv) Gross profit margin= gross profit/net sales = [22121728-5774800]/23,128,047= 70.68%
The company had a net loss margin of 5.7% despite having a gross profit margin of 70.68%. This means that the expenses incurred during the year were substantially high. This is also supported by the fact that the company had an operating income margin of 1.87% (Cryo Cell International Inc. 2016). This implies that the company was barely able to cover its operating expenses during the period. The returns on investments indicate that the company is utilizing its long-term debts and equity inefficiently.
2. Liquidity ratios
i) Current Ratio=Current Assets/Current Liabilities= 9,011,923/13,111,684= 0.69
ii) Cash Ratio= (Cash and cash equivalents+ marketable securities)/ current liabilities= [3,499,881+624,223]/13,111,684=0.31
The liquidity ratios indicate that Cryo Cell is not liquid. The Current ratio for a liquid company is supposed to be an average of 2:1. However, this company has a current ratio of 0.69:1 (Cryo Cell International Inc., 2016). This means that the company is unable to meet its obligations as and when they fall due
3. Leverage ratios
i) Total Debts to total Assets = Total debts/total assets= 34,952,726/19,538,468= 1.7
ii) Capitalization ratio= long-term debts/[long term debt+ Owners Equity]= [7,819,750+1,425000]/[9,244,750+30,465,617]= 23.2%
iii) Debt to Owners Equity= Debt/Owners Equity= 7,819,750/30,465,617=25.7%
The leverage ratios indicate that the company is heavily leveraged and may not be able to easily raise new capital. The total debts to total assets should ideally be 1:1, but for Cryo-Cell it is 1:1.7 which means that all the assets of the company cannot cover the total liabilities in a scenario where the company is bankrupt. Additionally, the Capitalization ratio and the debt to owner’s equity ratios are both above 23% which indicates that the company is heavily leveraged.
The results of these financial ratios support the proposal planned for implementation in the budgetary process.
C. Short and long-term impact
The proposal would include a reduction in operating costs such as the cost of labor and the disposal of underutilized non-current assets. The proceeds would be utilized in reducing the debt of the company and also generate funds that will channel into research and development of advanced technologies. The new technologies will increases sales by reducing the selling price of services and products. Consequently, the gross profit margin and the operating profit margin will improve in the short term. The company would be profitable, liquid and more efficient in the long term. Furthermore, the company will be able to offer the highest quality of health care services at an affordable cost to patients and other clients.
References
Arora, A., & Gambardella, A. (2010). The market for technology. Handbook of the Economics of Innovation, 1, 641-678.
Cryo Cell International Inc. (2016). Cryo Cell International Inc. 10-K. U.S Securities and Exchange Commission. Retrieved 14 April 2017 from: https://www.sec.gov/cgi- bin/viewer?action=view&cik=862692&accession_number=0001193125-17- 062739&xbrl_type=v#
Deegan, C. (2013). Financial accounting theory. McGraw-Hill Education Australia.
Noreen, E., Brewer, P., & Garrison, H. (2011). Managerial accounting for managers. McGraw-Hill Irwin.
