Please provide your insights on the following questions:
- Financial and Operational Analysis
- What is the primary difference between financial statement analysis and operational analysis?
- Why are both types of analyses useful to healthcare managers and investors?
- Respond: Chapter 13 is all about assessing financial condition. I think this is important to know the condition of an organizations finances before making any sort of financial decisions. The primary difference between financial statement analysis and operational analysis is that, “financial statement uses data found in a business’s financial statements to assess financial condition” while, operational analysis, which uses data typically not found in financial statements, provides insights into why a firm is in a given financial condition”(Reiter and Song, 2018, p. 409). The financial statement is also a good indicator of an organization’s financial future. “Managers use financial statement analysis not only to assess current conditions but also to plan” (Reiter and Song, 2018, p.384).
- Respond: The primary difference between financial statement analysis and operational analysis is the data used in these analyses. In a financial statement analysis the data comes from financial statements, while operational analysis uses data from operations like occupancy rate and patient length of stay (Reiter & Song, 2018). Financial statement analysis can be incredibly useful, and can help healthcare managers and investors see how past decisions have affected their current financial statements as well as projected data to see how their current decisions may affect their future (Reiter & Song, 2018). However, financial statement analysis fail to account for the “why” of things, in that the reason behind pros and cons within the financial statements is not clear, and therefore financial statement analyses are often complemented by an operation analysis (Reiter & Song, 2018). Operational measures include many different activity measures that can be useful for healthcare managers to explain why certain things may be the way they are on a financial statement analysis, and help them to better understand what needs to be changed or what needs to remain the same in order to ensure their organization’s profitability. Although both of these analyses are useful in their own right, they are significantly more useful when used in conjunction with one another.