The Science Journal of the American Association for Respiratory Care

1997 OPEN FORUM Abstracts

Financial Analysis of Home Care Business Operations

Patrick J. Dunne, MEd, RRT, Sunday, December 7, 1997.

Monthly financial statements are prepared by a business for several reasons. Perhaps the single most frequent use is to provide management with a series of reports which can be used to monitor the financial performance of operations. Financial statements are also used to provide lending institutions with an overview of the credit worthiness of a company, and to prepare annual federal and state income tax returns. Financial statements also represent one of the primary tools used to determine the value of a company.

Financial statements actually consist of three, interrelated, but separate documents: the balance sheet, the income and expense statement (often referred to as the profit and loss statement or "P & L"), and the general ledger detail report. Accountancy firms follow pre-established guidelines when preparing financial statements, commonly referred to as generally accepted accounting principles, or GAAP. However, some companies may elect to have financial statements prepared according to federal income tax guidelines. The guidelines used are identified in the Accountant's Report, which is typically attached as the cover sheet to the finalized document.

The balance sheet is a report which compares a company's assets with its' liabilities. As such, the balance sheet reflects the net worth or shareholder value of the company. Balance sheets are cumulative, and reflect the impact of operations since the company's inception.

Income and expense statements are likewise cumulative, on a year-to-date basis, and provide a summary of the prior months financial performance. Revenues from operations are listed and compared to all expenses incurred. The difference between the two represent the profit or loss for the month. Information from the income and expense statement is in turn used to make relevant adjustments to the balance sheet.

The general ledger detail report is a precise listing, on an account by account basis, of all transactions for the month. Information from the general ledger constitutes the basis for the preparation of the income and expense statement.

AARC 50th Anniversary, December 6 - 9, 1997, New Orleans, Louisiana.

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