Financial Statement Analysis

Financial Statement Analysis

October 17, 2011

Financial Statement Analysis

According to Finkler and Ward (2006), “financial statements are used to present the organizations financial position and results of operations to interested users of financial information (p. 47).” It is imperative that organizations analyze statements to ensure that financial stability is maintained. The four documents that companies study are the operating budget, cash flow statement, balance sheet, and retained earnings statement. All financial statements correlate with one another, requiring a financial user to understand the relationship between the statements.

This paper will explore the financial statements and the relationships between the statements using the organizations Humana and Happy Hospital. In addition to analyzing financial statements, the concepts of cash basis, accrual basis, financial ratios, and the affects of different measurement conventions on presentation will be discussed.

Background

Happy Hospital is an medium sized community hospital, with loose affiliations with six hospitals and two long term care facilities ( Finkler & Ward, 2006). This corporation falls under the classification of a not-for-profit organization. Humana is a large corporation that markets and administers health insurance. Humana offers its health insurance services to all fifty states. This corporation falls under the category of a for-profit organization. It must be noted that the different classifications of for profit and non-for-profit results in variances on financial statements. These variances will be identified and discuss throughout the paper.

Cash Basis Accounting vs. Accrual Basis

Traditionally, the public sector conducts cash-based accounting to document the financial transactions reflected on the financial statements (Tickell, 2010). Contrary, the private sector uses accrual-based accounting to illustrate the financial information to stakeholders...