Topic

Provider finance

Provider finance looks at the financial health of hospitals and other care organisations, using measures drawn from their accounts. Concepts include profitability measures such as Operating Margin and Return on Assets, liquidity measures such as Days Cash on Hand and the Current Ratio, and budgeting tools such as Variance Analysis.

Concepts in this topic

• Activity-Based BudgetingActivity-based budgeting (ABB) builds a health service budget from forecast service volumes, the activities each needs and each activity's cost per unit.
• Current RatioA financial ratio calculated as current assets divided by current liabilities, used to assess an organisation's ability to meet short-term obligations.
• Days Cash on HandA financial ratio measuring how many days an organisation could cover its operating expenses using only available cash reserves, without extra revenue.
• Days in Accounts ReceivableDays in accounts receivable (AR days) is a provider's net receivables divided by average daily net patient revenue, giving days of revenue still unpaid.
• Debt RatioA financial ratio calculated as total liabilities divided by total assets, showing the proportion of assets financed through debt rather than equity.
• Financial RatioA quantitative measure derived from an organisation's financial statements, used to assess liquidity, solvency, or profitability.
• Liquidity RatioA liquidity ratio is a financial measure comparing an organisation’s readily available or current assets with its near-term obligations to assess its capacity to meet payments as they fall due.
• Net MarginA financial ratio calculated as net income divided by total revenue, showing the proportion of revenue remaining as profit.
• Operating MarginA financial ratio calculated as operating income divided by revenue, showing the proportion remaining after operating expenses but before non-operating items.
• Quick RatioA financial ratio calculated as current assets excluding inventory, divided by current liabilities, a more conservative liquidity measure than the current ratio.
• Return on AssetsA financial ratio calculated as net income divided by total assets, showing how efficiently an organisation uses its assets to generate profit.
• Return on EquityA financial ratio calculated as net income divided by owner equity, showing the return generated on capital invested by an organisation's owners.
• Variance AnalysisA technique for decomposing the difference between budgeted and actual financial results into component causes, such as price and volume effects.