If you recall from your study of Accounting, the basic financial statements are: Balance Sheet, Income Statement, and Cash Flow Statement. While our spreadsheet does not exactly capture or display how this information would be captured in a real business, we can, in a simplified way, utilize this information to analyze our operations’ financial performance for any given time period.
A month in Practice Operations is 4 weeks and one year is 48 weeks. We will look at our performance for a few time periods to gain an understanding of our financial performance in Practice Operations. An Operations Manager must be be able to read, understand, analyze, and explain financial statements.
In a real environment, the Balance Sheet would have many line items and might include cash, investments, production machines, land, building, raw material inventory, work-in-process inventory, finished goods, material handling equipment, goodwill, patents and copyrights, etc.. Our balance sheet only gives us Net Worth and Account Balance. Net worth in Practice Operations is a combination of the value of the production equipment minus depreciation (which in PO is 1/2 of purchase or upgrade price) and total added income (income from sales plus interest plus other) minus expenses. Account Balance in Practice Operations is basically cash in a bank.
For our spreadsheet and Practice Operations then, Account Balance (AB) and Net Worth (NW) are calculated as follows:
(new) Account Balance (AB) = Previous Period AB + Total Income – Expenses
(new) Net Worth (NW) = Previous period NW + {(new) AB – Previous AB} + (Added Equipment Value – Equipment Depreciation)
For Practice Operations and our spreadsheet, Account Balance is essentially how much cash we have in the bank. Net Worth is Account Balance plus sales value of equipment. Again, in real life Net Worth or value of assets, would have all of the items listed in a previous paragraph. Also remember the Accounting Equation:
Assets = Liabilities + Owner’s Equity.
In our situation, if Net Worth is positive we have zero liabilities and Assets and Owner’s Equity is equivalent. This is usually not true in a real business. If Net Worth is negative it will be because our Account Balance is negative and greater than the value of the equipment and because we are spending more (expenses) than we are bringing in (income from customer contracts).
In our spreadsheet (Financial Statements) you have three time periods analyzed for you (Month 1, 2nd Quarter Year 1, 4th Quarter Year 1). Please review this data and analysis. You will have to look at both worksheets in the workbook.
ASSIGNMENT DETAILS
First watch the M07 – Practice Operations Financial Analysis video explaining how to navigate and analyze the data in the workbook.
Watch Video Here (Links to an external site.)
In the Financial Statements worksheet of the M07 – Practice Operations Financial Analysis.xlsx download, you will analyze the data given for:
Month 5
Month 10
3rd Quarter Year 1
The data is already entered in the Financial Statements worksheet. As an Operations Manager, you might receive reports like this. Your boss or the board might ask you to explain certain items. Your task is to:
Do the analysis for each of the given periods just as in the examples given for Month 1, 2nd Quarter Year 1, and 4th Quarter Year 1.
You will upload this file
In 3 or more paragraphs, in the submission area of this assignment, explain as you would to your boss or the board, the following, at a minimum
Why are the financial results the way they are?
What do the data indicate about how well the operation started?
What do the data indicate about how well the operation is operating right now?
What concerns do you have?
What are you optimistic about?
What are your projections for the future?
