***This handout is supplemental material – Used at discretion of presenter***
COVERING the FINANCIALS
of HEALTH CARE COMPANIES
Covering the financials of health care companies
¾ Brief overview of health care marketplace
¾ Financial accounting basics
¾ The government role in health care
o Federal
o State
¾ Key institutional players
Health care as a business:
¾ 15 percent of GDP and still rising
o Insatiable demand?
o Public health crises?
o Technology?
¾ Indirect and imperfect markets
o Patients as consumers
o Providers: physicians, hospitals, nursing homes, suppliers including drug,
device and equipment manufacturers
o The insurers: the public-private mix
¾ Covering health care business financials – Generally Accepted Accounting
Principles (GAAP)
o Financial Accounting Standards Board sets the rules
o American Institute of Certified Public Accountants applies the rules
o Securities and Exchange Commission enforces the rules
o Internal Revenue Service ignores the rules
The Income Statement
¾ Sales
¾ Expenses
o Cost of sales (goods and services)
o Research & development
o Marketing, administrative, general
o Depreciation and amortization
o Interest expense and other
¾ Income before taxes
¾ Income taxes
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Donald W. Reynolds National Center for Business Journalism at the American Press Institute
Covering the Business of Health Care
Page 1 of 5
***This handout is supplemental material – Used at discretion of presenter***
¾ Net income
¾ Earnings per share
o Basic and Diluted
Pro forma versus GAAP earnings
¾ Earnings by press release
¾ Excluded items
o Certain non-recurring expenses
o Stock options and other stock compensation
o Depreciation and amortization
¾ Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)
The Balance Sheet
¾ The basic formula: Assets are equal to Liabilities and Stockholders’ Equity
¾ Definitions:
o Cu