Health Services Finance class
Utilize references in APA format
- Discuss the budgetary issue causes the most strife in all areas of a health care
organization? - Discuss and list the three discounted cash flow methods.
- What are four general phases of the working capital cycle?
Solution
- Discuss the budgetary issue causes the most strife in all areas of a health care organization
Several budgetary issues cause strife in healthcare organizations. Firstly, hospital environments are usually capital-constrained in that they are allocated minimal capital and expected to deliver improved outcomes. The cost-cutting also affects the adequacy of staff and thus, it is not uncommon to find understaffed hospitals with a high patient population. This, in turn, makes it difficult to improve the health of patients and eventually causes strife within the organization. Secondly, cost-cutting has also barred several healthcare facilities from acquiring new medical technology due to its high costs. The technology has a high potential for improving patient outcomes (White, 2016). However, the restriction on the budget of these institutions hardly allows them to make a purchase. As such, the staff is often overworked and underpaid, which often results in conflicts within the organization.
Also, enforcement and compliance are vital issues in the healthcare system. Hospital regulations are critical especially most of them revolve around patient care and failure to meet compliance puts their lives at risk. Meeting compliance guidelines requires funding because of the extensiveness of the process. Due to the financial constraints that healthcare organizations face, they sometimes opt for shortcuts. When discovered, this conflict can cause conflicts within the organization in question. Finally, healthcare organizations are quite involved in the corporate market just like other profit-seeking organizations. One of the reasons behind these is that a huge portion of their funding comes from outside and the investors are often seeking mergers. To keep investors interested, hospitals are forced to put their finances in order and ensure they recruit top-tier medical experts. Additionally, they have to maintain these skilled personnel and this causes them to overspend on certain areas more than others, resulting in disputes.
- Discuss and list the three discounted cash flow methods.
Discounted cash flow (DCF) involves the calculation of future cash flows of business after which they are discounted to obtain its present value. Its main aim is to approximate an investor’s returns from the investment. A higher value translates to higher returns and this means that the investment is worth pursuing. The net present value (NPV), profitability index and equivalent annual cost. The NPV is an alternative to capital financing. It is obtained by subtracting the discounted cash outflows from the discounted cash inflows (Chen, 2019). On the other hand, the profitability index refers to capital spending that guarantees financial benefits. This method of discounted cash flows helps to estimate returns from a particular investment or savings that could be made by investing. Finally, the equivalent annual cost is the opposite of a profitability index. It refers to capital spending that does not guarantee financial benefits. Its main goal is to help an organization learn the total capital requirements for a project or investment.
3. What are the four general phases of the working capital cycle?
The term working capital refers to the available assets and liabilities of a firm at a given time. Its main purpose is to balance an organizations’ cash inflows and outflows and ensure good timing of the cash flows (EduPristine, 2018). The importance of this is that it minimizes the possibility of getting into debt especially when payments are due before cash has been obtained. The working capital cycle has four general phases. They include acquiring cash, translating cash into resources and making payments, utilizing resources to offer services and billing clients for the services offered. For instance, a manufacturing company’s cycle begins with the acquisition of raw materials, which is paid for in cash or on credit. Obtaining cash and purchasing raw materials translates into the first two phases of the cycle – acquiring cash, and turning cash into resources and making payments. After obtaining the raw materials, the company begins the process of manufacturing. Once the finished product is complete, the organization sells it to consumers and obtains money and the cycle continues. These processes constitute the two final phases, which are, using the resources to offer services and billing the clients.
According to EduPristine (2018), the nature of a business influences the length of a working capital cycle. For instance, some businesses use raw materials that are not readily available. For that reason, they are forced to acquire raw materials in bulk and store them to avoid delays in the future. Also, some raw materials go through multiple processes before the finished product is obtained, increasing the duration of the working capital cycle. Additionally, the demand for the product can affect the cycle. When the demand is low, using the resources to provide services and billing customers takes longer. Finally, some organizations obtain raw materials on credit and may at times experience delays, which affects the length of the cycle. However, it is possible to adjust the duration for the cycle and the finance manager usually takes responsibility for this.
References
Chen, J. (2019). Discounted Cash Flow (DCF). Investopedia. Retrieved from https://www.investopedia.com/terms/d/dcf.asp
EduPristine. (2018). Working Capital Management. EduPristine. Retrieved from https://www.edupristine.com/blog/working-capital-management
White, J. (2016). Top financial challenges in healthcare. Healthcare Business & Technology. Retrieved from http://www.healthcarebusinesstech.com/financial-challenges/
