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This tool calculates basic financial ratios and select key factors associated an enterprise's financial position and results of operations. Routine reporting, monitoring and benchmarking of financial ratios and key factors is essential to strengthening financial position and improving operating performance. Key factors can apply to a wide range of financial, operational and clinical management information.
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Definitions
- Working Capital
- The working capital position of an enterprise reflects the availability of current resources to meet short term obligations. Stated in terms of dollars (current assets less current liabilities) or reported as the current ratio (current assets divided by current liabilities), a negative working capital position (or a current ratio less than 1.0) is indicative of a cash and liquidity problem. Days Cash on Hand; AR Days Outstanding; and AP Days Outstanding are among the key factors associated with managing the working capital position.
Days Cash on Hand – This factor measures immediate cash and liquidity available to sustain continuing operations – stated as the number of days operating expenses represented by cash reserves. It is calculated by dividing total cash and cash equivalents by the average daily operating expenses for related operations.
AR Days Outstanding – This factor measures the number of days revenue represented by accounts receivable outstanding. Useful in managing credit and collection practices, routine reporting and monitoring of this factor will readily detect improving or deteriorating trends. It is calculated by dividing accounts receivable outstanding by the average daily revenue for related operations.
AP Days Outstanding - This factor measures the number of days operating expenses represented by accounts payable outstanding. Useful in managing vendor relations, routine reporting and monitoring of this factor will readily detect improving or deteriorating trends. It is calculated by dividing total accounts payable outstanding by the average daily operating expense (exclusive of labor) for related operations.
- Resident Occupancy Factors
- Resident Occupancy Factors represent measurements associated with facility capacity utilization and related census mix of revenue realization. These include those related to overall occupancy as well as quality mix – representing resident census contributing to more desirable contribution margins.
Resident Day Capacity – This factor represents total facility capacity (or available capacity) for the operating period – stated in number of resident days. For an annual period, it is calculated by multiplying the total number of licensed beds – or resident units – by 365 days.
Resident Days – This factor represents the actual resident days reported for the operating period. Resident Days divided by Resident Day Capacity yields the occupancy or utilization factor.
Quality Days – This factor represents the actual resident days represented by quality payors. Generally, resident days other than Medicaid beneficiaries are considered quality days. The Quality Mix factor is calculated as Quality Days divided by Resident Days for the period.
- Per Diem Reporting
- Customary management practices include routine reporting and monitoring of operating performance on a per diem basis. As such, operating revenue and expense items are presented in terms of the resident per day dollar equivalent – or dividing the dollar amount by the corresponding resident days represented by the period. Per Diem Reporting is a valued management tool - particularly in measuring and monitoring desired benchmarks of operating performance.
- EBITDAR
- The Operating Margin of an enterprise is often reported as EBITDAR – representing earnings before interest, taxes (income), depreciation, amortization and rent. EBITDAR is generally regarded as the level of funds provided by operations and available to support capital requirements – debt service, rent or other capital needs. The EBITDAR margin, or operating margin, is calculated dividing EBITDAR by the related operating revenue. Reporting EBITDAR on a per resident basis is frequently generated for analytic or benchmarking purposes.
- Debt Service Coverage Ratio
- The Debt Service Coverage Ratio is a direct measurement of operating capacity to meet and sustain payment of debt service obligations. The ratio is calculated by dividing EBITDAR by the debt service requirement for the associated operating period. Generally, lenders and investors seek Debt Service Coverage Ratios of not less than 1.25.
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