Omega Health Foundation
Trinette M. Landry
October 11, 2010
Instructor: Moses Padilla
Omega Health Foundation
When doing a financial analysis of a business understanding the principles of finance and how, they relate to a certain company is important. Omega Health Foundation is a complex business with two hospitals, Omega and Able Memorial, plus a number of related medical service providers. All of the related entities are nonprofit with the exception of Omega Medical Management, INC (Cleverly & Cameron, 2007). Within this paper I will explain the principles of finance, compare and contrast net income and cash flow, compare and contrast market value and book value, ...view middle of the document...
Because it represents the wealth of the organization in its ability to pay for future and present debts. “To compute the operating profit, subtract from gross profit (1) the indirect costs associated with selling, general, and administrative expenses and (2) depreciation and amortization (which are noncash items) (Emery, Finnerty, Stowe, 2007).
Third, is the statement of cash flows that generates the following three activities: 1) operating, 2) investing and 3) financing. These explain source changes in the cash accounts because of such events as depreciation and provision for bad debts. Cash flow does not always mean purchasing supplies or services it also includes debt items such as depreciation that is usually the largest item. Because depreciated items are not cash flow items, they must be added back into net income before they can determine the correct cash flow.
Last, is the statement of changes in unrestricted net assets. These are situations, which there is a greater receipt of assets that outweigh OHF’s debts. In these situations the excess asset amount need to be identified as they are necessary to provide detailed accounting of where the funds are used because they are used outside normal debts.
“Omega Health Foundation (OHF) operates using the four basic principles of finance. The balance sheet consists of all of OHF’s current assets as of 2009 is $186,594. “The statement of revenues ($170,324) and expenses ($170,816) represent operations in a given period better than a balance sheet does because it provides information concerning how that wealth position was changed through operations” (p. 175).
Net Income and Cash Flow
The differences between cash flow and net income is “cash flow is the money that flows in and out of the firm from operations, financing activities, and investing activities; whereas profit is what remains from sales revenue after all the firm’s expenses are subtracted” (Peavler, About.com:Business Finance, para 1). Net income is when an organization receives revenue in order to achieve funds (Finkler, Ward and Baker, 2007). Net income creates the method of collecting money therefore cash flow shows where the funds are routed. In simple terms one designs how to obtain the funds while the other reports how the funds are then spent.
Market Value Verse Book Value
“The market value is the price for which something could be bought or sold in a reasonable length of time. A reasonable length of time is defined in terms of the asset’s liquidity. The...