Ratios 1
Determines the time needed to recover the original investment. It does NOT use TVM concepts. Serious limitations because it does not account for TVM, risk, financing, or opportunity cost.
What is the Payback Method in Capital Budgeting?
Dupont Analysis
Total profit margin x Total asset turnover x Equity multiplier
Operating Margin
Net operating income / operating revenue
Return on Assests
Treasurer
The treasurer position is responsible for corporate liquidity, investments, and risk management related to the company's financial activities. Principal Accountabilities: Forecast cash flow positions, related borrowing needs, and funds available for investment.
Used to estimate each potential project's value by using discounted cash flow (DCF) valuation. It does use TVM concepts. Requires estimating the size and timing of all incremental cash flows from the project.
What is the Net Present Value (NPV) method in Capital Budgeting?
Debt Ratio
Total Liabilities / Total Assets
Current Ratio
Current Assets / Current Liabilities
Operating Income
Total Revenues- Total Expenses
Direct Costs
costs that are directly attributable to patient care. Examples of direct costs include: nursing services, drugs, medical supplies, diagnostic imaging, rehabilitation and food services.
Discount rate that results in a net present value of "0". Commonly mistakenly understood to convey the actual annual profitability of an investment. Measures investment efficiency.
What is the Internal Rate of Return (IRR) Method in Capital Budgeting?
Days Cash on Hand
Cash & cash equivalents + short term investments / (Expenses - Depreciation) / 365
Times Interest Earned Ratio (TIE)
Earnings before interest and taxes / Interest expense
Accrual Accounting
Earned revenue is recognized in financial statements when service has been provided that creates an expectation of payment rather than when payment is actually received
Indirect Costs
costs that are not directly related to patient care. Examples of indirect costs include: general administration, health records, information technology, physical plant and maintenance, human resources, volunteer services, capital expenses, and other regional services.
Average Collection Period
Net Accounts Receivables / Daily Patient Revenue
Capitalization Ratio
Long term debt / Long term debt + equity
Cash Accounting
Economic events are recognized when a financial transaction occurs-- when cash actually changes hands
Fixed Asset Turnover Ratio
Capital
Organizations money used to purchase land, equipment, other businesses
Net Income / Total Equity
Total Profit Margin
Net Income / Total Revenues
Total Asset Turnover
Total Revenue / Total Assets
Controller
A financial controller is a senior-level executive who acts as the head of accounting, and oversees the preparation of financial reports, such as balance sheets and income statements.
Capital Budget Analysis