Ratios Flashcards
Current Ratio
Total Current Assets/total current liabilities: ability to meet short-term oblications (liquidity).
Collection Period
Net Receivables/(net patient services recieved/365 days): days in accounts receivable…how long the average patient (or payer) takes to pay the bill after discharge. (it is directional….higher values indicate slower bills coming in and possible liquidity problems.
Days Cash on Hand, Short-Term Sources
Cash+temporary investments/(total expenses-depreciation expenses/365 days) if cash receipts were discontinued, how long could the institution survive. Higher number the better.
Operating Margin
(operating income/total operating revenue)x100: how much are we making from ops. Higher the better.
Total Margin
Excess of revenues over expenses/total operating revenue: THis takes into account expenses as well as ops revenue as well as non ops revenue in the numerator….higher the better.
Return on Net Assests
(Excess of revenues over expenses/net assets) x 100=Return on equity…measure of profit in relationship to investement.
What are the profitability ratios:
operating margin, total margin, and Return on net assets.
Total Asset Turnover
(Total operating revenue + other income)/total assets. How efficiently an organization is using its assets in relation to making revenue. However, older facilities will have lower depreciation and inflate efficiency. Find out the the average age of a facility : Accumulated depreciation/depreciation expense
Age of Facility
Accumulated deprecation/depreciation expense. Lower values are preferable
Fixed asset turnover
(Total operating revenue + other income)/Net fixed assets = how efficiently an organization is using its fix assets (facilities, plant, and equiptment) in relation to generating revenue.
current asset turnover
(total operating revenue+ other income)/current assets. HOw effeciently an organization is using its current assets in relation to generating revenue. Higher is better.
Inventory Turnover
(Total operating revenues + other income)/Inventory = number of times an organziation turns over it sinventory …lwe values usally indicate overstocking.
Net asset financing
(net assets/total assets)x100= net asset (equty) financing measures the relationship between assets woned by the organization (assets minus liabilities) and total assets. This is nondirectional…meaning high numbers don’t always indicate one interpretation of performance. For example, use of debt financing could lower the ratio, yet the hopsital can still be very efficient.
Long term debt to capitalization
(long-term debt/(longterm debt+net assets))x100 = measures the relationship between lonterm debt and assets owned by the organzation. Lower values are preferable. weheras higher values imply a greater reliance on debt financing which might indicat a reduced ability to take on additional debt.
Debt service coverage
(excess of revenues over expenses+ depreciation expense+Interest expense)/Debt principle payment + inerest payments= measures the ability to meet long-term debt obligations. Higher value uses indicate an organizations ability to meet long-term debt obligations. . Note princpal payments are found as payments on long-term debt on the statement of cash flows.
