Cash Flow Analysis

When preparing the cash flow analysis of a medical network, revenue, expenses, and profits must be considered. Revenue is generated by treating patients and rendering services such as an MRI. Costs are created by expenses in the network that include salaries for employees, purchase of medications and supplies, and payment of obligations incurred. Revenue does not necessarily mean that an enterprise is gaining profits and disregard for this detail may result in the network inadvertently, operating at a loss (McLean 2003). Once income is calculated, expenses must be deducted to determine the networks net profit. These expenses include costs associated with medical services, administration, marketing, staff salaries, depreciation, taxes and …show more content…
Identifying the startup cost associated with acquisition of an MRI machine is important since it assists in the determination of revenue needed to pay ongoing business operating costs. For example, if payment for MRI services totals $5,000, this will not cover the $5,000 in monthly fixed expenses. The operating cost for the machine could easily be $3,000, therefore the $5,000 in produced revenue only provides $2,000 in gross profit. The breakeven point is determined when revenue is at par with all the business expenses. To compute the breakeven point, you need to identify the fixed and variable expenditures. Fixed costs are those that do not vary with service quantity, such as administrative salaries and rent. These expenses must be paid despite the volume of services and are often called overhead costs. Variable costs oscillate directly with service volume, where an increase in service volume increases costs as well. To estimate the breakeven point, the following equation is used; Breakeven point = fixed costs/ (unit selling price – variable