Question

2) Assume that you are a hospital administrator, and one of your responsibilities is selecting financial ratios to be included on your management dashboard. Determine the two (2) most critical financial ratios for you to monitor at your facility, and indicate how each of these ratios would help you assess the current performance of your facility. Provide support for your rationale.

Answer 1

The key financial ratios to be used in a hospital industry are as follows

1. Cash flow coverage ratio- It is the liquidity ratio that measures a company's ability to pay off its obligations with its operating cash flows.It is particularly important in businesses like hospitals and medical practices. This is because such companies should wait substantial period of time to obtain financial reimbursements from insurance companies or government agencies. Since the number of healthcare industries booming up this ratio is very important.

2.Debt to capitalization ratio- It is an important leverage ratio for evaluating companies that have significant capital expenditures and therefore substantial long term such as healthcare companies .A ratio higher than indicate a precarious financial position and less than 1 indicates lower financial position.This ratio essentially shows how much debt a hospital has to the hospital's overall equity.