To analyze health care organizations, many authorities use financial ratios such as current ratio, quick ratio, days of cash on hand, accounts receivable days, debt service coverage, liabilities to net worth (or liabilities to equity), operating margin, and return on investment. What is the value of these eight ratios to health care organizations?
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Hospitals are business organizations that use the same financial indicators that are needed to keep their institution solvent and their doors open. Current ratio measures indicators determine whether the healthcare organization has enough resources to pay their debt for a period of a year. A quick ratio measure can determine how soon the institution could liquidate its current assets or could at least have a measure in mind of this number.
Days of cash on hand are the operating expenses of the organization minus the depreciation expense. Depreciation is basically the decrease in value of all the assets owned by the company. A hospital needs to estimate the value of the organizations equipment and how this will impact the care of patients. Accounts receivable days are the number of days it takes to collect …
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