Question

Financial considerations are critical to any successful strategic plan, and healthcare plans are no different. It is recommended that all organizations include a financial analysis in their strategic plan. A number of financial tools are available to assist in this analysis.

Select one that you learned about and post a brief description of it. Include your analysis of why it would be helpful in conducting a financial analysis for a strategic plan.

Answer 1

Financial analysis: It is a process of evaluating business, projects, budgets and all other finance related datas in order to determine their performance and suitability. It is generally done in order to understand whether the firm is stable,solvent,liquid and profitable enough to justify a monetary investment.

Technique used for Financial analysis :

Ratios analysis are the traditional technique to analyze financial statements. It examines four aspects of company's financial performance based on profit, liquidity, financial leverage and efficiency. Ratios are calculated for a series of reporting periods to identify positive or negative trends over time

Types of financial analysis tools :

1. Profit: Every company wants to earn more and more profits. So profit margins are very important tool.

2. Net profit margin: The most common measure of profitability is the net profit margin. This is the amount left over after paying all expenses, including overhead, interest and taxes. It is calculated by dividing the amount of profit by the total sales

3. Gross profit margin: It measures the production efficiency of a company's products or services. It is calculated by subtracting the direct cost of production from total sales.

4, Operating profit margin: It measure a firm's efficiency of operations. This is a calculation of profit before deductions for interest and taxes.

5. Liquidity: Liquidity and cash is required mostly to pay bills.

6. Current ratio: Ratio of current asset over current liabilities. The most comfortable liquidity ratio is 2:1.

7. Working capital: Obtained by subtracting current liabilities from current assets.

8. Inventory turnover: The number of times inventory is sold and replaced during a year. Here higher ratios are better than the lower ones.

The actual purpose of strategic planning is to set overall goals for your business and to develop a plan to achieve them. Conducting financial analysis for strategic plan would be beneficial for a company in order to implement strategies and track their success accordingly.