April 19, 2010
The Happy Hospital Scenario
Mr. Harm O. Knee is the CEO of Happy Hospital. There has been a great need to automate some of medical files and invest in advance technology such as moving forward to an electronic medical record. In 2006 and 2007, the numbers provided showed that the hospital had two very difficult years and was not sure what to do with the money. Also as a result, the Hospital did not have any debt coming into 2008. They did take on some long-term debt that year. Because the hospital lost money, they have negative interest and debt service coverage ratios. All of the profitability ratios are negative as Happy Hospital had both operating and total losses for the year. There is an indication of financial stress, and in order to turn the numbers to positive, we have our work cut out to turn the 2 years of operating losses.
To decide what is best to implement, Mr. Knee has decided to use the budget and performance to assist with the decision-making process. Mr. Knee realizes now that budgets and performance reports are vital tools for business planning and decision-making. The overall business performance must report the following; cost, cash flow, financial position such as that of assets, capital and liabilities and net presentation of calculations. By indulging in the budgetary process, Happy Hospital would be able to identify key factors of excessive spending in all areas and allow them to start budgeting accordingly. This would also allow the hospital to identify any cash, working capital, or long-term fiancé shortages, which would enable Mr. Knee to arrange and avoid any future disasters.
Mr. Knee has now realized that accounting is the subject that reports on the monetary concept and is very important in the production of numbers and the overall financial statement for the hospital. Most importantly it can tell the total assets and current liabilities... [continues]
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