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Financial Terminologies in Healthcare

Updated on August 15, 2017

Introduction

Financial management is critical to health care sector. It is, therefore, imperative that healthcare professionals Aquent themselves with elementary information concerning finance. Because decisions taken by these experts in regards to financing would have severe implications.

Balance sheet

Wolper (2004), argues that it is a financial statement shows the summary of assets, liabilities, and shareholder’s equity of the firm then. These three sections of the balance sheet give out a brief to the investors on the financial performance of the company. Moreover, it gives a clear picture of the situation as it is in the company in regards to what is owed, and owned along with the financial investment of the shareholders. The formula of arriving at the formula of the balance sheet is as follows:

Shareholders’ Equity = Assets – Liabilities

The total assets of the company, less the total business liabilities, on the other hand, define the shareholder’s equity. It highlights the amount financed by the company through common shares. Moreover, it is the net worth of the company or shares capital. The following formula is used to calculate shareholder’s equity.

Shareholder’s Equity = Assets – Liabilities

EBITDA

Gapenski (2008), state that EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is a measure of a company’s operating performance. It is a way to evaluate the organization’s performance without having to factor in financing decisions, tax environments, or accounting decisions. It is calculated using the following formula:

EBITDA = EBIT + Depreciation + Amortization

Where EBIT is the Earnings Before Interest and Taxes and adding the depression non-cash and all the remuneration to the company’s operating income. The EBIT is arrived at using the company’s total revenues. It is obtained using other line items that must be included on a revenue collected statement. EBITDA lets analysts concentrate their attention on the result of working decisions while eliminating the effects of non-working decisions such as interest expenses, tax rates, or large non-cash items such as amortization and depreciation. Moreover, it gives stockholders time to focus on working profitability as the only measure of performance through the elimination or minimizing the non-operating effects that are distinct to a specific company. This kind of analysis is especially essential when a comparison of similar organizations in a given industry or those operating in different tax brackets.

EBITDAM

EBITDAM (Earnings Before Interest, Taxes, Depreciation, Amortization, and Management excesses) is a supplemental measure of finance of a company used to evaluate its operational performances. Its emphasis is on management

Financial Ethics

Baker, & Baker (2009), argue that financial ethics consists of an objective evaluation of the impacts of trust on efficiency, self-interest on altruism, and honesty on valuation. It forms the basis to which all moral and ethical issues and principles in a financial environment. That includes stock market, accounting, banking, tax ethics, and investment ethics and so forth

Financial Benchmarking

Benchmarking is the process of making a comparison between the business practices and company’s performance standards with other industry players. Under this, quality, time and cost are some the areas that the comparison is made. As a result, the company gets a good analysis of its competitiveness, productivity, and efficiency (Groppelli & Nikbakht, 2006).

Financial Trends Analysis

Trend anaysis is the process of evaluating a company’s financial statements for any progress and project that is ongoing. The analysis is made to assess what progress the company has made, the speed of the progress and whether there are enough resources to accomplish the proposed project.

Ratio Analysis

The analysis tool is used to establish and analyze the quantitatively the information on the financial statements of the company. These proportions are obtained from current year numbers. They are compared to the previous year’s financial numbers, economy, industry, and other corporations to gauge the true picture of performance.

Application

The financial terms are applicable in the healthcare segment to establish the fiscal progress, milestones among others in the healthcare sector. For instance, financial proportions come to play when the analyst wish to evaluate the financial strength, profitability, and effectiveness, not forgetting the growth, valuation of a given healthcare organization which is important. The balance sheet helps to determine the Book Value of the company during assessment. Moreover, it also helps determine the price per unit sales the market is willing to pay for the corporation, also determine the Net Work Cap and free cash flow per share. Under profitability and effectiveness, the company will be in a position to determine the EBITDA Margin, the Return on Equity, Net Income per Employee, and Return on Capital. The financial strength is used to measure the organization’s ability to generate free cash flows, measure efficient use of long-term debt on changes in shareholder’s equity, and measure the effective use of total debt on changes in the stakeholders’ equity (Gul, Sajid & Razzaq, 2012).

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