Financial Ratio Report Using data from the Finkler Nursing Home (pages 136 to 138), students will be randomly assigned to small groups to assess and report on the financial status of Finkler Nursing Home. Helpful Hints: You are being asked to create a financial report that summarizes the state of the organization and draw some conclusions about the results that you calculated. Keep in mind that you are asked to provide a SUMMARY of the overall financial status based on the ratios. The details of the ratios should be presented in Appendix A (see example below). In other words, you should present a SUMMARY of the ratios, then refer the reader to a table that provides the details. For example:

Using data from Finkler Nursing Home (pages 136 to 138), students will be randomly assigned to work in small groups to assess and report on the financial status of Finkler Nursing Home. Please carefully review the grading rubric to ensure that all sections are covered. Please follow the instructions below.

You are being asked to create a financial report that summarizes the state of the organization and draw some conclusions about the results that you calculated. Keep in mind that you are asked to provide a SUMMARY of the overall financial status based on the ratios. The details of the ratios should be presented in the Appendix section. In other words, you should present a SUMMARY of the ratios, then refer the reader to a table that provides the details.

Grading Rubric
Criteria	Maximum Points	Page Count
Title Page: Follow all APA 7 guidelines. Ensure your title has Benefit Cost Analysis in it.	5	1
Introduction to the organization: The goal is to summarize the organization in a manner so that all readers, regardless of their knowledge or expertise, can understand the information.	5	0.5
Summary of overall financial status of the organization In this section you will clearly summarize the financial status of the organization referencing the Table you will include in the Appendix. The narrative is support with relevant references.	20	3

Using data from the Finkler Nursing Home (pages 136 to 138), students will be randomly assigned to small groups to assess and report on the financial status of Finkler Nursing Home. Helpful Hints: You are being asked to create a financial report that summarizes the state of the organization and draw some conclusions about the results that you calculated. Keep in mind that you are asked to provide a SUMMARY of the overall financial status based on the ratios. The details of the ratios should be presented in Appendix A (see example below). In other words, you should present a SUMMARY of the ratios, then refer the reader to a table that provides the details. For example: Appendix A: Ratio Table In Chapters 6 and 7 , sample financial statements are provided for a not-for-profit organization, ABC Health Care. These examples show the general form of statements for health care organizations (HCOs). In this appendix, sample financial statements are provided for a for-profit long-term care (LTC) facility, a not-for-profit home health agency, and a not-for-profit ambulatory clinic. Tables 7A.1 through 7A.3 provide sample statements for the Finkler Nursing Home, a for-profit LTC facility. How do these statements differ from those presented in Tables 7.1 through 7.4? Look first at the statement of financial position (balance sheet, Table 7A.1). The asset side of the balance sheet is largely the same for for-profit and for not-for-profit organizations, regardless of the type of organization. There are a few items in the asset section we did not see in Table 7.2. One of these is assets limited as to use. There are a variety of reasons why an organization might have assets that are limited. For a LTC facility, it is common for there to be money that the residents have given the facility to hold. Those amounts can be used to pay for the personal needs of the resident (e.g., for a haircut, clothing purchase, gift shop, caf, or newspaper). The resident just charges the purchase of such items, and they are paid for by the LTC facility from the resident's account. Even though the LTC facility holds the money, it cannot use that money as it sees fit, so it segregates the funds on the balance sheet. A liability will also appear, showing that the facility owes that money to the residents. Another asset on Table 7A.1 that we did not see earlier is Estimated third-party payer settlements. Many third-party payers-Medicare and Medicaid in particular-audit health care providers to see if the charges are correct. The result of these audits is often an adjustment requiring the provider to return some money to the payer (in which case the provider shows a liability on its balance sheet until it makes the payment), or the payer to pay additional amounts to the provider (in which case there is an asset on the balance sheet until that amount is received). Because these audits are so prevalent, providers are required to make an estimate of the amount that eventually will be received or paid and to show it on their balance sheet even if the audit has not yet taken place. The Finkler Nursing Home in Table 7A.1 also shows a Deferred tax asset. Although we often joke about unethical businesses having "two sets of books," that is in fact commonly the case for for-profit organizations. They will have a set of books, or accounting records, that are prepared according to generally accepted accounting principles (GAAP) and another set that follows tax regulations. For instance, the depreciation approach used for reporting to stockholders is different from that required for tax purposes. The result is that an organization may wind up paying taxes sooner or later than would be expected under GAAP. If the organization defers paying taxes until the future, a deferred tax liability should be recorded. If the organization winds up paying taxes sooner than GAAP would expect, a deferred tax asset should be recorded. In the owners' equity section of the balance sheet, we see the major difference from a not-for-profit organization. Here we see that instead of Net Assets broken down into unrestricted, temporarily restricted, and permanently restricted net assets, we have Stockholders' Equity divided into common stock and retained earnings. In this case the amounts paid for common stock at par and additional paid-in capital are not broken out on separate lines, although sufficient information is provided to segregate those amounts if desired. See Chapter 6 for a discussion of common stock at par and additional paidin capital. In Table 7A.2, the operating statement and the statement reflecting changes in equity have been combined into one statement of operations and retained earnings. Also of note in this sample statement: Information has been subtotaled to yield EBITDA (earnings before interest, taxes, depreciation, and amortization) information. This is not a required presentation. Generally, for financial statements prepared for external use, the user would have to make some calculations to arrive at the EBITDA amount because at least depreciation and amortization, and more generally interest and taxes as well, are treated as operating expenses and are subtracted to arrive at operating income. Notice that if the net income from this year is combined with the beginning balance for retained earnings, we arrive at the year-end balance for retained earnings. Contrast Table 7.1 with Table 7 A.3. Table 7.1 is a simplified cash flow statement. Table 7A.3 is more typical of how cash flow information is presented in accordance with GAAP. In the two tables, the second and third sections, Cash Flows from Investing Activities and Cash Flows from Financing Activities, are similar. However, the Cash Flows from Operating Activities is much more complex in Table 7A.3. This is called the indirect method, and it requires the statement to start with the organization's net income or increase in net assets and to reconcile changes in various operating accounts to determine the cash flows from operations. This is a very technical process and is generally relevant only to financial managers. Nonfinancial managers, however, should be aware that the Net Cash Provided by (or Used for) Operating Activities is a key number on the financials, and they should not let the Analysis of Financial Statement Information CHAPTER 7 137 TABLE 7A.1 Finkler Nursing Home See the notes that accompany the financial statements. from questioning the adequacy of the Net Cash Provided by Operating Activities. Tables 7A.4 through 7A.6 provide sample statements for a not-for-profit ambulatory clinic. Table 7A.4 provides a balance sheet for the Kovner Ambulatory Clinic. This statement is not substantively different from the balance sheet shown in Table 7.2. Note, however, that from the presentation we must presume that the clinic has no net assets that are either temporarily or permanently restricted. Table 7A.5 presents the statement of operations and changes in net assets for the clinic. This is a very similar presentation to that in Table 7A.2, the Finkler Nursing Home statement of operations and retained earnings. Table 7A.6 shows an alternative form for the cash flow statement. This statement is a mix of Tables 7.1 and 7A.3. This is an acceptable presentation in accordance with GAAP. It starts out with the approach taken in Table 7.1. Then, at the bottom of the statement, a reconciliation provides the required information that had been presented in the top section of Table 7A.3. Although many people believe the approach used in Tables 7.1 and 7A.6 is easier to understand, Table 7A.3 is the format that is most commonly used by Finkler Nursing Home Statements of Operations and Retained Earnings See the notes that accompany the financial statements. HCOs, regardless of whether they are for-profit or not-forprofit organizations. Tables 7A.7 through 7A.10 provide sample statements for a not-for-profit home health agency. Notice that each type of provider organization will have items on the financial statements that are relevant to their industry. For example, note that on Table 7A.7, the balance sheet for the Jones Home Health Agency, one of the assets it lists separately is vehicles. If staff members are traveling a lot in company cars, this item may be significant enough in amount to warrant its own asset line on the balance sheet. Another asset on this balance sheet that we have not seen before is Deferred financing charges. When long-term debt is issued, substantial accounting, legal, and underwriting fees are often related to the issuance. We might be tempted to treat the fees as an expense in the year they are incurred. However, from the perspective of accrual accounting, we will have the benefit of the long-term loan for many years, so we should spread out Analysis of Financia/ Statement information CHAPTER 7 141 ta TALE 7A.7 Jones Home Health Arrenry the cost of issuing the debt, just as we would depreciate a piece of equipment over the years we use it. The costs involved in issuing the debt are said to be amortized, or allocated to each of the years when the debt will be outstanding. The portion that has not yet been amortized will be treated as an asset, just as equipment is an asset until it is used up. There is nothing particularly noteworthy about the Jones statement of operations in Table 7A.8. The Jones Home Health Agency has a separate statement of changes in net assets, shown in Table 7A.9. Notice that separate information is provided for unrestricted, temporarily restricted, and permanently restricted net assets. The amounts for the three categories are then summed to find the overall impact of changes on total net assets. The Table 7A.10 statement of cash flows provides the reconciliation approach discussed earlier. Using data from the Finkler Nursing Home (pages 136 to 138), students will be randomly assigned to small groups to assess and report on the financial status of Finkler Nursing Home. Helpful Hints: You are being asked to create a financial report that summarizes the state of the organization and draw some conclusions about the results that you calculated. Keep in mind that you are asked to provide a SUMMARY of the overall financial status based on the ratios. The details of the ratios should be presented in Appendix A (see example below). In other words, you should present a SUMMARY of the ratios, then refer the reader to a table that provides the details. For example: Appendix A: Ratio Table In Chapters 6 and 7 , sample financial statements are provided for a not-for-profit organization, ABC Health Care. These examples show the general form of statements for health care organizations (HCOs). In this appendix, sample financial statements are provided for a for-profit long-term care (LTC) facility, a not-for-profit home health agency, and a not-for-profit ambulatory clinic. Tables 7A.1 through 7A.3 provide sample statements for the Finkler Nursing Home, a for-profit LTC facility. How do these statements differ from those presented in Tables 7.1 through 7.4? Look first at the statement of financial position (balance sheet, Table 7A.1). The asset side of the balance sheet is largely the same for for-profit and for not-for-profit organizations, regardless of the type of organization. There are a few items in the asset section we did not see in Table 7.2. One of these is assets limited as to use. There are a variety of reasons why an organization might have assets that are limited. For a LTC facility, it is common for there to be money that the residents have given the facility to hold. Those amounts can be used to pay for the personal needs of the resident (e.g., for a haircut, clothing purchase, gift shop, caf, or newspaper). The resident just charges the purchase of such items, and they are paid for by the LTC facility from the resident's account. Even though the LTC facility holds the money, it cannot use that money as it sees fit, so it segregates the funds on the balance sheet. A liability will also appear, showing that the facility owes that money to the residents. Another asset on Table 7A.1 that we did not see earlier is Estimated third-party payer settlements. Many third-party payers-Medicare and Medicaid in particular-audit health care providers to see if the charges are correct. The result of these audits is often an adjustment requiring the provider to return some money to the payer (in which case the provider shows a liability on its balance sheet until it makes the payment), or the payer to pay additional amounts to the provider (in which case there is an asset on the balance sheet until that amount is received). Because these audits are so prevalent, providers are required to make an estimate of the amount that eventually will be received or paid and to show it on their balance sheet even if the audit has not yet taken place. The Finkler Nursing Home in Table 7A.1 also shows a Deferred tax asset. Although we often joke about unethical businesses having "two sets of books," that is in fact commonly the case for for-profit organizations. They will have a set of books, or accounting records, that are prepared according to generally accepted accounting principles (GAAP) and another set that follows tax regulations. For instance, the depreciation approach used for reporting to stockholders is different from that required for tax purposes. The result is that an organization may wind up paying taxes sooner or later than would be expected under GAAP. If the organization defers paying taxes until the future, a deferred tax liability should be recorded. If the organization winds up paying taxes sooner than GAAP would expect, a deferred tax asset should be recorded. In the owners' equity section of the balance sheet, we see the major difference from a not-for-profit organization. Here we see that instead of Net Assets broken down into unrestricted, temporarily restricted, and permanently restricted net assets, we have Stockholders' Equity divided into common stock and retained earnings. In this case the amounts paid for common stock at par and additional paid-in capital are not broken out on separate lines, although sufficient information is provided to segregate those amounts if desired. See Chapter 6 for a discussion of common stock at par and additional paidin capital. In Table 7A.2, the operating statement and the statement reflecting changes in equity have been combined into one statement of operations and retained earnings. Also of note in this sample statement: Information has been subtotaled to yield EBITDA (earnings before interest, taxes, depreciation, and amortization) information. This is not a required presentation. Generally, for financial statements prepared for external use, the user would have to make some calculations to arrive at the EBITDA amount because at least depreciation and amortization, and more generally interest and taxes as well, are treated as operating expenses and are subtracted to arrive at operating income. Notice that if the net income from this year is combined with the beginning balance for retained earnings, we arrive at the year-end balance for retained earnings. Contrast Table 7.1 with Table 7 A.3. Table 7.1 is a simplified cash flow statement. Table 7A.3 is more typical of how cash flow information is presented in accordance with GAAP. In the two tables, the second and third sections, Cash Flows from Investing Activities and Cash Flows from Financing Activities, are similar. However, the Cash Flows from Operating Activities is much more complex in Table 7A.3. This is called the indirect method, and it requires the statement to start with the organization's net income or increase in net assets and to reconcile changes in various operating accounts to determine the cash flows from operations. This is a very technical process and is generally relevant only to financial managers. Nonfinancial managers, however, should be aware that the Net Cash Provided by (or Used for) Operating Activities is a key number on the financials, and they should not let the Analysis of Financial Statement Information CHAPTER 7 137 TABLE 7A.1 Finkler Nursing Home See the notes that accompany the financial statements. from questioning the adequacy of the Net Cash Provided by Operating Activities. Tables 7A.4 through 7A.6 provide sample statements for a not-for-profit ambulatory clinic. Table 7A.4 provides a balance sheet for the Kovner Ambulatory Clinic. This statement is not substantively different from the balance sheet shown in Table 7.2. Note, however, that from the presentation we must presume that the clinic has no net assets that are either temporarily or permanently restricted. Table 7A.5 presents the statement of operations and changes in net assets for the clinic. This is a very similar presentation to that in Table 7A.2, the Finkler Nursing Home statement of operations and retained earnings. Table 7A.6 shows an alternative form for the cash flow statement. This statement is a mix of Tables 7.1 and 7A.3. This is an acceptable presentation in accordance with GAAP. It starts out with the approach taken in Table 7.1. Then, at the bottom of the statement, a reconciliation provides the required information that had been presented in the top section of Table 7A.3. Although many people believe the approach used in Tables 7.1 and 7A.6 is easier to understand, Table 7A.3 is the format that is most commonly used by Finkler Nursing Home Statements of Operations and Retained Earnings See the notes that accompany the financial statements. HCOs, regardless of whether they are for-profit or not-forprofit organizations. Tables 7A.7 through 7A.10 provide sample statements for a not-for-profit home health agency. Notice that each type of provider organization will have items on the financial statements that are relevant to their industry. For example, note that on Table 7A.7, the balance sheet for the Jones Home Health Agency, one of the assets it lists separately is vehicles. If staff members are traveling a lot in company cars, this item may be significant enough in amount to warrant its own asset line on the balance sheet. Another asset on this balance sheet that we have not seen before is Deferred financing charges. When long-term debt is issued, substantial accounting, legal, and underwriting fees are often related to the issuance. We might be tempted to treat the fees as an expense in the year they are incurred. However, from the perspective of accrual accounting, we will have the benefit of the long-term loan for many years, so we should spread out Analysis of Financia/ Statement information CHAPTER 7 141 ta TALE 7A.7 Jones Home Health Arrenry the cost of issuing the debt, just as we would depreciate a piece of equipment over the years we use it. The costs involved in issuing the debt are said to be amortized, or allocated to each of the years when the debt will be outstanding. The portion that has not yet been amortized will be treated as an asset, just as equipment is an asset until it is used up. There is nothing particularly noteworthy about the Jones statement of operations in Table 7A.8. The Jones Home Health Agency has a separate statement of changes in net assets, shown in Table 7A.9. Notice that separate information is provided for unrestricted, temporarily restricted, and permanently restricted net assets. The amounts for the three categories are then summed to find the overall impact of changes on total net assets. The Table 7A.10 statement of cash flows provides the reconciliation approach discussed earlier