HCM5001 Fundamentals of Health and Care Finance Assignment

 

Assignment Task

Task 1

A) Recent developments in the financial and legal environment of social care service delivery

Financial environment:

            Due to changes in financial needs, market dynamics and financial crisis, there is a continuous evolution of financial regulation which as follows:

Health and care Act: On 21 July 2021, New Health and care Bill was enacted with the aim of improving care facilities for all. The bill aims at raising 36 billion pound in upcoming three years through taxes (Department of Health and Social care. 2025). This will help in overcoming the long term financial challenges and provides supports in offering effective services to the patients. In this regard, Government will increase taxes by 1.25% which further used for providing healthcare services to the patients (Health and Social Care Levy, 2024).

Capping adult care cost:  For Increasing health and social care access, UK government has introduced a capping amount of 86000 pound that will be provided by the government to an individual within his lifetime (Adult Social care charging reform. 2025). This limit is further increased to 100000 pound due to the inflation and changing market dynamics. This capping of cost assists people in facing unpredictable scenarios and paying out care cost easily.

Build Back Better plan: In the year of 2023, new health and social care levy plan or Build Back Heath plan has been introduced with the aim of deliver quality care to the large number of patients (Build Back health Plan UK. 2025). Under this plan, individuals with the assets of less than worth 20000 pound will be provided with the maximum care by local authority and they don’t need to make any expense from their saving. Further, patients belonging to income group of 20000 pound to 100000 pound will be provided some mean tested support but other expenses need to bear by themselves. This will help in reducing financial burden on citizens and support in enhancing their overall purchasing power. This plan also emphasis over developing required information which support in improving overall quality of care.

 Legal environment:

            There are large numbers of regulation and legislation that are introduced with the aim of protecting overall welfare of the patients within healthcare sector. MHRA was developed after the merger of Medical Devices Agency (MDA) and Medicine Control Agency (MCA) in year 2003. Medicine and healthcare Products Regulatory Agency (MHRA) are involved towards establishing a code of conduct that aids in protecting public and supports in maintaining their confidence within the healthcare services. In this context, regulatory department is also involved towards maintaining professional register which ensures that all the workers comprised of required skills and knowledge. Following are various new legal developments that are initiated within Healthcare sector:

Health and Social care Act 2022: The new health and social care Act was introduced with the aim of ensuring that all the activities are initiated in a fair manner. Under this act, NHS work together with the local government which remove requirement of fully integrated system and aids in offering high quality care (Health and social care Act 2022, 2024). This act also reduces Bureaucracy which aids in taking the sensible and quick decision. Further, an adequate accountability system was established to boost the responsive of healthcare organization and staff.  Under this, new integrated care system was introduced in recent time that offers patient centred care.

Care Quality Commission’s fundamental Standard (CQC): In the recent times, use of telemedicine has been increased drastically due to which CQC standards has been established (Evans et al, 2021). This regulation aims at managing integrity, ethics, fairness and safety of patients while offering care through technology. This standard provides all the guidelines and standards that healthcare providers need to follow while delivering services through telemedicine and physical manner. In the current time, new strategies have been initiated in which Quality and Risk Profile (QRP) has been launched which is software for recording all materialistic information an offering high quality services.

B) Alternative funding in Health and social care sector

Funding is the crucial requirement of each sector as it aids in seamlessly carrying out all the process and support in attaining overall goals and objective of the business entity. There are three alternative funding options that include Government grants, Private Finance initiatives and agency partnership (Overland and Sovacool, 2020). Private finance initiatives (PFI) are various investors who involved towards offering funding for the larger number of healthcare activities. This organization invests with the aim of earning enough return by offering high quality services. Many organization within the healthcare sector opted for such funding which helps in sourcing funds easily without any type of obstacle. However, this type of funding generally increases the cost of services which ultimately reduces accessibility and affordability for the various income group.

Along with this, government grants are another significant funding method in health and social care sectors. Under this, government provides effective funding to the organization for offering services at minimal cost which helps in enhancing care access to the larger patients (Fisk, Livingstone and Pit, 2020). Moreover, health organizations that are funded by the government also provided with the tax reliefs. Consequently, it helps firm in managing the overall service cost and supports in offering treatment to the larger segment. On the other hand, this type of funding may not be effectively used within health organization that influences the overall quality of the services (Nyashanu, Pfende and Ekpenyong, 2020). Along with this, government has also established a Social Health Insurance (SHI) scheme in which both employees and workers contribute towards health funding which used to cover the various cost. This scheme supports in enhancing overall quality of life by offering access to all the required services. However, this scheme includes high administrative cost and inability in cover wider population.

Lastly, agency partnership is the third significant method for the healthcare findings. In this various healthcare organization form joint ventures, strategic alliances or contractual agreement with the aim of sharing risk and pool all the resources (Alderwick et al, 2021). This funding agreement helps in fulfilling the funds requirement effectively and supports in offering high quality services to the patients. On the other hand, there is high scope of conflicts between both organization due to the difference in goals and objective that could impact the overall quality of service.

   After critically evaluating all the three type of funding alternative, it has been identified that Government grants is one of the most significant method for the working of healthcare sector. It has been identified that private investor generally aims at earning higher amount of profit due to which healthcare services are offer at higher cost which could not be afforded by large number patients (Alsaifi, Elnahass and Salama, 2020). Further, treatment is necessary requirement of each individual that should be offered at reasonable cost which could be done with only government grants and funds. If a healthcare organization opted for government grant, than it generally loses its autonomy and need to work according to the government policies. In this entity should critically evaluate all the new rules and regulation which aids in easy alignment.

Task 2

A) Return on equity

Return on equity ratio of SPIRE healthcare group ltd for the year ending on 2021 and 2022 as follows.

Particulars	Formula	2022	2021
Profit		8.2	-8.9
Total revenue		1198.5	1106.2
NP ratio	Net profit / sales * 100	1%	-1%
Shareholder's equity		725.1	704.8
Total assets		2159.8	2237.4
Equity Multiplier	Total assets/Total Equity	2.98	3.17
Total revenue		1198.5	1106.2
Total assets		2198.6	2237.4
Asset Turnover	Total Revenue/Total assets	0.55	0.49
ROE	Net profit margin*Asset turnover*Equity Multiplier	1.11%	-1.26%

 

            On the basis of above table, it has been identified that firm is not having adequate ROE which denotes firm’s inefficiency in generating adequate return. Moreover, organization did not attain or near the industry average of 3.70% which in turn indicates inefficiency in managing the overall trust and confidence of the shareholders. This situation has arrived as firm incur loss in the year of 2021 which creates issue in paying out all the expenses. However, in the next year entity is able to increase its profit and assets turnover rate which leads positive ROE. This indicates lower profitability position of the business entity that creates issue in maintaining long term stability. It also indicates that firm is not effectively utilizing its resources which result in poor financial position.

Du point analysis

Du point analysis implies to the financial ratio which is used for evaluating firm’s overall performance. This analysis has been majorly used by the financial advisors, investors and financial managers for gaining insight of firm’s capital structure and factor that contributed towards ROE. This analysis method has been breaks down into three crucial components that include profits margin, leverage and assets turnover (Hanson et al, 2022). This analysis method helps in providing comprehensive information regarding ROE which aids in determining the overall sources of profitability and inefficiencies. This method facilitates towards describing all the strengths and weaknesses of the business entity based on which the most accurate decision are initiated (AÇIKGÖZ and KILIÇ, 2021). Moreover, this analysis method facilitates prominent comparison of financial performance of company with its competitors which eventually helps investors in taking the most accurate decision.

B) Description of NPV and IRR

Net present value (NPV): This capital budgeting method depicts difference in the present value of cash inflow and outflow over the specific period of time (McKinley et al, 2020). It is the most significant method which presents solution by taking into account the time value of money concept that aids in identifying actual monetary benefit in the upcoming time (Shou, T., 2022). However, this method does not consider project size and ROI while taking decision.

IRR (Internal Rate of return):  It is another method which helps in determining overall profitability of the potential investment (Hughes et al, 2021). This method also includes time value & money and could be calculated without referring the cost of capital (Yan and Zhang, 2022). However, this method also ignores crucial factors such as size, future cost and project duration.

In the present case, there are two investment opportunity available to Spire Healthcare Group Plc. For identifying the profitability of both the cases, NPV and IRR have been calculated based on which accurate decision will be taken:

NPV assessment

		Project 1		Project 2
Year	PV factor @ 10%	Cash inflows (in £)	Discounted cash inflows (in £)	Cash inflows (in £)	Discounted cash inflows (in £)
1	0.909	140000	127273	120000	109091
2	0.826	165000	136364	150000	123967
3	0.751	195000	146506	165000	123967
4	0.683	210000	143433	170000	116112
5	0.621	240000	149021	180000	111766
Total discounted cash inflow			702597		584903
Initial investment			610000		515000
NPV (Total discounted cash inflows - initial investment)			92597		69903

 

IRR

Year	Cash inflows (in £) Project: 1	Cash inflows (in £) Project:  2
0	-610000	-515000
1	140000	120000
2	165000	150000
3	195000	165000
4	210000	170000
5	240000	180000
Internal rate of return (IRR)	15%	15%

 

From the above analysis, it has been identified that NPV of project one is higher and there is no significant difference in the IRR rate of both the options. High NPV indicates high profitability potential of the investment due to which investment one will be selected. Project 1 should be selected as it indicates that investor is going to earn higher return on this investment that support in optimum utilization of the funds. The above depicted table shows that business entity will get 92597 GBP by making investment in project one. Referring overall evaluation, it can be stated that project one will prove to be more beneficial and profitable for the firm.  

Task 3

A) Define process of developing financial statements 

Financial statement implies for the formal record of all the financial activities of the organization which aids in identifying its overall position. It is the most crucial requirement of each business entity to prepare such statements as it aids in summarizing the financial transaction, health and overall performance of entity over the specific period. There are diverse step that an organization follows for developing financial statement effectively which are as follows:

(Source: Six Section of accounting cycle. 2024)

Bookkeeping: The financial statement development process begins with the booking process in which all the transaction is written without any specific format (Marufu et al, 2021). This step is undertaken with the aim of effectively written down all the crucial information.

Entry of financial information: After bookkeeping all the details regarding payment, receipt and other transaction are entered into the accounting system from which necessary journal entries are entered.  On the basis of double entry book system, ledger accounts are developed by the accounting system.

Trail balance: For verifying the ledger balances, trial balances are prepared at the end of each year. Moreover, focus is paid over determining exceptional items, suspense account and posting year end journals entries.

Income statement: After the preparation of trial balance, emphasis is laid over the development of income statement which summaries the overall revenue, expenses, profits and loss of the firm (Patricios et al, 2023). It is the crucial aspect which reveals the firm’s financial position by describing its over net and gross profit. In the healthcare sector, accrual accounting has been followed which helps in identifying profits without paying or receiving all the cash.

Preparation of Balance sheet: After income statement, financial manager is involved towards preparing balance sheet which contributes in describing the overall assets, equity and liabilities of the business entity. Equity section defines all the shareholders and reserve of the company, assets includes building, accounts receivable and other equipment that are owned by the entity (Dost et al, 2020). Along with this, it also includes liability section which denotes all the debts and obligations of the business entity. Total balance of assets, liability and equity play a crucial role in estimating the firm’s position based on which major decision are taken by all the stakeholders.

Development of cash flow statement: Lastly, for identifying overall cash inflow and outflow of the business entity, cash flow statements are prepared by the financial manager (Kolisnyk and Shatskov, 2024). This includes determining all the cash inflow from insurance reimbursements, investments and patient’s payments which assist in identifying overall cash flow position of business entity based on which decision are taken. This statement is developed on the basis of income statement and balance sheet due to which it is prepared in last.

B) Identify Debt ratio and include statement on solvency of firm

For determining overall solvency position of the SPIRE healthcare group ltd, Debt equity ratio and debt ratio has been calculated below:

Solvency ratio analysis
Particular	formula	2022	2021
Total debt		1434.7	1532.6
Total assets		2159.8	2237.4
Long-term debt		1095.1	1172.8
Shareholder's equity		1205.6	1206.1
Debt-equity ratio	Long-term debt / shareholders equity	0.91	0.97
Debt ratio	Total debt/total assets	0.66	0.68
Equity ratio	Total equity/Total assets	0.55	0.53

 

             By doing evaluation, it has been found that there is no significant change in the debt ratio of firm in the two consecutive years. This indicates that firm is utilizing effective strategies that assist in maintaining the overall solvency position in the two years. It has been identified that debt ratio of organization is also very high which indicates huge amount of risk for the business entity. It has been determined that industry average should be 0.18 which firm failed to attain. Moreover, high ratio indicates that firm is excessively depending overall debt to fund assets which creates issue in attracting new investors and shareholders (Kyere and Ausloos, 2021).  On the other hand, on the basis of Modigliani- Miller Theorem, it has determined that capital structure does not have any significant impact on overall performance of the business entity. From this theory, firm should not faced issue in raising funds as firm could earn higher amount of profit with current capital structure that could be used for providing effective returns.

For identifying overall solvency position of firm, debt-equity ratio has been calculated. In year 2021 firm’s debt equity ratio was higher than 2022 which indicates that organization is having the high amount of debt. However, firm has decided to reduce the overall debt with the aim of managing its financial risk and gaining the trust of investors and other stakeholders (Roszkowska, 2021). The current debt equity ratio is also very high that accounted for 0.91 respectively which create issues in gaining the trust of investors and could leads to develop issue in sourcing funds in future easily. From the above analysis, it has been stated that firm is not having effective solvency position as it faced issues in attaining the ideal ratio and also have huge financial risk which indicates issue in effectively paying out all long term obligation in upcoming time. It has identified that firm’s equity ratio is increasing that denotes lower financial risk of the business entity. This situation aids in attracting large number of investors which support in easily fulfilling funds requirement. 

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C) Appraisal the role of traditional finance function within healthcare organization

Traditional finance function is concern with the process of procuring fund and financing overall expansion and diversification activities of business entity. Traditional finance function is not the part of regular managerial process and only initiated at the time of sourcing funds. In traditional finance function, individual involved in decision making process were given less importance and focus was only paid towards outsiders (De Villiers and Sharma, 2020). Further, finance function was only related to sourcing long term fund and no concern was paid over concept of working capital. Beside this, the traditional finance function concentrated more over descriptive decision making and ignore analytical decision making. Following are the various role of traditional finance function in the overall working of the healthcare organization:

Formulate effective budgeting: In the past finance function, traditional approach of budgeting has been used that helps in allocating monetary sources for each activity effectively. In this context, managers are involved toward formulating budget on the basis of previous year while considered inflation which facilitates effective allocation of funds (Morais, Kakabadse and Kakabadse 2020). This helps healthcare organization in receiving adequate funds for purchasing all the new technology that aids in enhancing overall efficiency of healthcare delivery. This budgeting method also supports optimum utilization of funds by adequately allocating resources and managing finances of the business entity.

Financial reporting: Finance function of organization also includes financial reporting which aids in optimum utilization of funds. This reporting assists in gaining the trust of investor by providing accurate information regarding the fund utilization leading to avoiding frauds. Due to the necessity of financial reporting, healthcare organisations are involved in utilizing all the funds adequately that ends up providing effective healthcare services.

Cost control: Another significant role of traditional finance function is to control overall cost of the healthcare organization that aids in carrying out all the activities in an effective and efficient manner (Jusoh et al, 2022). In this, manager uses proactive approach which aims at ensuring that all the resources are effectively utilized that aids in minimizing unnecessary cost. This helps healthcare organization in offering services at reasonable cost which ultimately enhances the access of large number of patients.

Formulate investment strategies: Financial function of the organization is also concerned over carefully evaluating all the potential and available investment opportunities. Based on the analysis, the most adequate investment options are selected which helps firm in earning higher return. Due to the increase in the firm's earning it helps in providing high quality services and treatment to the patients.

Effective decision: Finance function of the organization also plays a crucial role in taking the most effective decision. This function is involved towards drafting of financial statement which provides information regarding the overall profitability, liquidity and solvency position of business entity based on which the most accurate decision are taken by the manager (Alkaraan et al, 2022). This also assists organization in identifying all the available risk and opportunities based on which optimum decisions are taken.

Assists in maintaining regulatory compliance: Finance function also plays a crucial role in avoiding legal obligation as this department is involved towards carefully evaluating all the regulation based on which accurate decision are taken on timely basis (Collins et al, 2024). Further, this function also concentrate over upgrading infrastructure and acquiring latest equipment which assist in promoting sustainability and growth of healthcare organization.

However, Traditional finance function does not include automation rather based on manual process which increases scope of error and inefficiency. Moreover, this finance function is not capable in addressing concern related to expected return which impact on overall financial performance. Along with this, traditional method does not emphasis over long term finance management rather focuses on short win which impact on overall functioning.

References

Books and Journals

AÇIKGÖZ, T. and KILIÇ, G., (2021). Investigation of Financial Performance and Market Value of Technology Firms With Dupont-Regression Analysis. Journal of Accounting & Finance/Muhasebe ve Finansman Dergisi, (90).

Alderwick, H., Hutchings, A., Briggs, A. and Mays, N., (2021). The impacts of collaboration between local health care and non-health care organizations and factors shaping how they work: a systematic review of reviews. BMC public health, 21, pp.1-16.

Alkaraan, F., Albitar, K., Hussainey, K. and Venkatesh, V.G., (2022). Corporate transformation toward Industry 4.0 and financial performance: The influence of environmental, social, and governance (ESG). Technological Forecasting and Social Change, 175, p.121423.

Alsaifi, K., Elnahass, M. and Salama, A., (2020). Carbon disclosure and financial performance: UK environmental policy. Business Strategy and the Environment, 29(2), pp.711-726.

Collins, G.S., Moons, K.G., Dhiman, P., Riley, R.D., Beam, A.L., Van Calster, B., Ghassemi, M., Liu, X., Reitsma, J.B., Van Smeden, M. and Boulesteix, A.L., (2024). TRIPOD+ AI statement: updated guidance for reporting clinical prediction models that use regression or machine learning methods. bmj, 385.

De Villiers, C. and Sharma, U., (2020). A critical reflection on the future of financial, intellectual capital, sustainability and integrated reporting. Critical perspectives on accounting, 70, p.101999.

Dost, S., Hossain, A., Shehab, M., Abdelwahed, A. and Al-Nusair, L., (2020). Perceptions of medical students towards online teaching during the COVID-19 pandemic: a national cross-sectional survey of 2721 UK medical students. BMJ open, 10(11), p.e042378.

Evans, L., Rhodes, A., Alhazzani, W., Antonelli, M., Coopersmith, C.M., French, C., Machado, F.R., Mcintyre, L., Ostermann, M., Prescott, H.C. and Schorr, C., (2021). Surviving sepsis campaign: international guidelines for management of sepsis and septic shock 2021. Critical care medicine, 49(11), pp.e1063-e1143.

Farooq, I. and Ali, S., (2020). COVID-19 outbreak and its monetary implications for dental practices, hospitals and healthcare workers. Postgraduate medical journal, 96(1142), p.791.

Fisk, M., Livingstone, A. and Pit, S.W., (2020). Telehealth in the context of COVID-19: changing perspectives in Australia, the United Kingdom, and the United States. Journal of medical Internet research, 22(6), p.e19264.

Hanson, K., Brikci, N., Erlangga, D., Alebachew, A., De Allegri, M., Balabanova, D., Blecher, M., Cashin, C., Esperato, A., Hipgrave, D. and Kalisa, I., (2022). The Lancet Global Health Commission on financing primary health care: putting people at the centre. The Lancet Global Health, 10(5), pp.e715-e772.

Hughes, K., Ford, K., Bellis, M.A., Glendinning, F., Harrison, E. and Passmore, J., (2021). Health and financial costs of adverse childhood experiences in 28 European countries: a systematic review and meta-analysis. The Lancet Public Health, 6(11), pp.e848-e857.

Jusoh, Y.H.M., Abd Razak, S.N.A., Noor, W.N.B.W.M., Hudayati, A., Puspaningsih, A. and Nadzri, F.A.A., (2022). Audit committee characteristics and timeliness of financial reporting: Social enterprises evidence. Contemporary Economics, 16(2), p.211.

Kolisnyk, O. and Shatskov, V., (2024). Financial statement audit: strategy, plan, procedures and methods. Ekonomichnyy analiz, 34(1), pp.226-235.

Kyere, M. and Ausloos, M., (2021). Corporate governance and firms financial performance in the United Kingdom. International Journal of Finance & Economics, 26(2), pp.1871-1885.

Marufu, T.C., Collins, A., Vargas, L., Gillespie, L. and Almghairbi, D., (2021). Factors influencing retention among hospital nurses: systematic review. British Journal of Nursing, 30(5), pp.302-308.

McKinley, N., McCain, R.S., Convie, L., Clarke, M., Dempster, M., Campbell, W.J. and Kirk, S.J., (2020). Resilience, burnout and coping mechanisms in UK doctors: a cross-sectional study. BMJ open, 10(1), p.e031765.

Morais, F., Kakabadse, A. and Kakabadse, N., (2020). Leading through discontinuous change: A typology of problems and leadership approaches in UK boards. Long Range Planning, 53(2), p.101870.

Nyashanu, M., Pfende, F. and Ekpenyong, M., 2020. Exploring the challenges faced by frontline workers in health and social care amid the COVID-19 pandemic: experiences of frontline workers in the English Midlands region, UK. Journal of interprofessional care, 34(5), pp.655-661.

Overland, I. and Sovacool, B.K., (2020). The misallocation of climate research funding. Energy Research & Social Science, 62, p.101349.

Patricios, J.S., Schneider, K.J., Dvorak, J., Ahmed, O.H., Blauwet, C., Cantu, R.C., Davis, G.A., Echemendia, R.J., Makdissi, M., McNamee, M. and Broglio, S., (2023). Consensus statement on concussion in sport: the 6th International Conference on Concussion in Sport–Amsterdam, October 2022. British journal of sports medicine, 57(11), pp.695-711.

Roszkowska, P., (2021). Fintech in financial reporting and audit for fraud prevention and safeguarding equity investments. Journal of Accounting & Organizational Change, 17(2), pp.164-196.

Online

Adult Social care charging reform. 2025. Online. Available through: < https://www.gov.uk/government/publications/build-back-better-our-plan-for-health-and-social-care/adult-social-care-charging-reform-further-details>

Build Back health Plan UK. 2025. Online. Available through: < https://www.gov.uk/government/publications/build-back-better-our-plan-for-health-and-social-care/build-back-better-our-plan-for-health-and-social-care>

Department of Health and Social care. 2025. Online. Available through: < https://www.gov.uk/government/organisations/department-of-health-and-social-care >

Health and social care Act 2022. 2024. Online. Available through: < https://www.kingsfund.org.uk/insight-and-analysis/projects/health-and-care-act-2022-make-sense-legislation#:~:text=The%202022%20Health%20and%20Care,NHS%20England%20and%20NHS%20Improvement.>

Health and Social Care Levy. 2024. Online. Available through: < https://www.gov.uk/guidance/prepare-for-the-health-and-social-care-levy#:~:text=From%206%20April%202023,separate%20new%20tax%20of%201.25%25.>

Six Section of accounting cycle. 2024. Online. Available through: < https://www.netsuite.com/portal/resource/articles/accounting/accounting-cycle.shtml>