STATEMENT OF OPERATIONS

The statement of operations is one of the four main financial statements of an entity. It provides detailed information about the entitys revenues and expenses for a fiscal period. For not-for-profit organizations, such as the University Health Network (Toronto), the statement of operations is very useful for users, more specifically members, for assessing the organizations ability to fulfill its purpose and mission. This statement is also valuable for evaluating the entitys long-term financial health, and also a great tool for revealing red flags when appropriate. The main difference between a for-profit and not-for-profit statement of operations is the bottom line. For example, for for-profit organization, net income after tax is shown as the final number whereas for not-for-profit, it shows the excess or deficiency of revenues over expenses. This difference is explained by the fact that not-for-profit organizations are tax-exempt. However, these two figures are similar in essence since both represent the change in economic resources within the fiscal period. UHNs statement of operations is consistent with the CICAs guidelines for the deferral method of accounting for contributions. More specifically, it has presented its revenues and expenses grouped together in meaningful categories. Additionally, the excess of revenues over expenses reports the change in the organizations unrestricted resources (CICAHB, 4400.34). REVENUES In order to fulfill UHNs purposes such as operating, research and capital, it requires numerous streams of funding (Strategic Directions). UHNs receives revenues primarily from four sources: The Ontario Ministry of Health and Long-Term Care/ Toronto Central Local Health Integration Network, Other Patient Services, Grants and Donations and Ancillary Services. The Ontario Ministry of Health and Long-Term Care/ Toronto Central Local Health Integration Network is one of UHNs main contributors. They are responsible for funding both Hospital and Specifically funded programs, which represent about 59% of the total revenues. The Ministry of Health and Long-Term Care is a publicly funded health system; in other words, they are a part of Ontarios provincial government (Ontario.ca, 2013). It is also responsible for specific funding such as capital contributions occasionally (Strategic Directions, 2011). The disadvantage of relying so

heavily on Government assistance is that UHNs can potentially be subject to certain concerns such as budget cuts. In not-for-profit organizations, funding is not always achieved through contributions. Donations are not always sufficient therefore; these entities are permitted to generate profits by other means called ancillary services in order to sustain its operations and, still keep its tax-exempt status as long as it meets the following criteria: The profits are incidental to the operations of the entity (Wilkinson, 2012) The entity is not using its not-for profit status for tax evasion purposes (Wilkinson, 2012) The cash reserves are reasonable relative to the needs of the entity to carry its not-forprofit activities (Wilkinson, 2012) Ancillary services represent an important part of UHNs revenues. Ancillary services include pharmacy, parking and food services (Strategic Directions). In total, they generated $254,502,000 and represent the second biggest source of revenues. This incidental income is a good source of cash inflow and can support UHNs primary objectives or be used as a buffer when there is a shortage of cash. The 13.95% increase from 2011 is worth noting as UHN is very successful at achieving its 2011 goal of opening new commercial ventures (Strategic Directions, 2011). Grants and donations totaled $246,081,000 which represents 13.43% of total revenues and are ranked third in major sources of revenues. Though not specifically mentioned from which sources, their Strategic Directions suggested that it was from various fundraising campaigns and research revenues from both public and private granting agencies (Strategic Directions, 2011). This 2.77% increase from 2011 is good news since it can be translated into UHNs being more efficient and effective in attracting donors in order to achieve its objectives. Last, other patients services, such as private rooms, provided $178,786,000 of total revenues. This amount represents a 10.66% from 2011. Overall, UHN total revenue for 2012 was $1,832,057,000. It revenues are steadily increasing meaning that UHN is currently in good health and is operating efficiently in order to attract and receive contributions from its members. By increasing its revenues by 5.22%,

Comparative amounts as well as percentage increase from the two last years of operation is shown in Table 1.1 below.

It is important to note that for both for-profit and not-for-profit sectors, major variations and fluctuations in revenues can be translated to unstable operations. In other words, when items in the financial statements incur major variations, it raises concern about the entity ability to operate in the long run. For instance, if an organization loses a major contributor and as a result, this negatively impacts contributions revenue, it increases uncertainty about the firms income and survival. As a benchmark for these variations, a 10% of total revenue has been used to discern these variations. Therefore, each increase in items under revenues has been compared to the amount of $183,205,700. As a result, no variation over 10% has occurred over the span of 2011 to 2012.