FINANCIAL RATIOS REPORT



FINANCIAL RATIOS REPORT

Michigan Department of Community Health

CERTIFICATE OF NEED

Lewis Cass Building

320 S. Walnut St.

Lansing, Michigan 48913

Phone: (517) 241-3343 or 44 – Fax: (517) 241-2962

| AUTHORITY: PA 368 of 1978, as amended |The Department of Community Health is an equal opportunity employer, |

|COMPLETION: Is Voluntary, but is required to obtain a Certificate of Need. |services and programs provider. |

|If NOT completed, a Certificate of Need will NOT be issued. | |

Calculation Instructions:

NOTE: When calculating ratios, do not include cash and temporary investments from designated or restricted funds that are not available for operating purposes.

|1. Current Ratio: |

|The ratio of current assets to current liabilities (CA to CL). The current ratio indicates the number of dollars of current assets for each dollar of |

|current liabilities; it shows the number of times that current assets will "pay off" the current debts of the facility, and relates to a safety margin. |

|A favorable ratio is > 1.6. |

| |

|Formula: Current Assets |

|Current Liabilities |

|2. Acid Test Ratio: |

|The ratio of cash, temporary investments, and net receivables to current liabilities. It is a test of the current debt-paying ability of the facility in|

|that it indicates the relationship between the facility's liquid assets (cash and near-cash items) and its current debt. A favorable ratio is > 1.4. |

| |

|Formula: Cash + Temporary Investments + Net Accounts Receivable |

|Current Liabilities |

|3. Quick Ratio: |

|The ratio of cash and temporary investments to current liabilities. Quick assets are the assets used to cover a sudden emergency. This is a more severe |

|test of the current debt-paying ability of the facility. Such a ratio is helpful in cases where the collection period for receivables might be unusually|

|long or where the composition of current liabilities is such that extreme pressure exists for immediate payment. A favorable ratio is > .6. |

| |

|Formula: Cash + Temporary Investments |

|Current Liabilities |

|4. Days of Working Capital: |

|This indicates the number of days that a hospital would be able to operate at a current level with cash and temporary investments available as of the |

|balance sheet date if no additional income was received and no additional expenses were incurred. Non-cash items include depreciation and amortization. |

|A favorable ratio is > 15. |

| |

|Formula: (Cash + Temporary Investments) X 365 DAYS |

|(Total Operating Expense - Non Cash Items) |

|5. Long-Term Debt to Equity: |

|This ratio reflects the relationship between debt and non-debt sources of asset financing, thereby serving as an indicator of the soundness of the |

|facility's capital structure. This ratio also could indicate the ability to borrow additional long-term funds, sometimes referred to as financial |

|leverage. A favorable ratio is < 1.0. |

| |

|Formula: Long Term Debt |

|Equity |

|6. Operating Margin (Loss) as a % of Total Operating Patient Revenue: |

|This operating ratio is commonly interpreted as an indicator of operating efficiency, performance, and productivity. A favorable ratio is > 1%. |

| |

|Formula: Operating Margin (or Net Loss) |

|Total Operating Patient Revenue |

|7. Accounts Receivable Days Outstanding: |

|The average number of patient days of billing (gross operating patient income) in accounts receivable. A measure of the accounts uncollected as of the |

|balance sheet date (e.g., how long it takes to collect a bill?) A favorable ratio is < 65. |

| |

|Formula: Gross Accounts Receivable X 365 DAYS |

|Gross Operating Patient Income |

|8. Accounts Receivable (% of Current Assets): |

|This ratio reflects the portion of current assets that the hospital has invested in accounts receivable. While it is anticipated that accounts |

|receivable will be converted to cash in a reasonable time, they are not currently available for paying bills by the hospital. Large investment results |

|in a carrying cost to the hospital. Therefore, as a percent of current assets, accounts receivable has a relative importance to the financial position |

|since it measures the investment tied up. A favorable ratio is < 70%. |

| |

|Formula: Net Accounts Receivable |

|Current Assets |

|9. Net Fixed Asset Value to Long-Term Debt: |

|This ratio indicates the extent to which the net fixed asset value is tied up in long-term debt. This ratio may be used by creditors as an index of the |

|protection accorded their principal. A favorable ratio is > 2.0. |

| |

|Formula: Net Fixed Asset Value |

|Long-Term Debt |

|DEBT SERVICE COVERAGE: |

|This coverage ratio is an indicator of your facility’s ability to pay it’s overall debts. This ratio is calculated by dividing your net operating income|

|by your total debt service. Ideally, you want your coverage ratio to be over 1.0, as this indicates that your operating income is sufficient to cover |

|your total debt service. |

| |

|Formula: Net Operating Income |

|Total Debt Service |

|EXCESS WORKING CAPITAL AVAILABLE (In $000s): |

|The amount by which current assets exceed liabilities is known as the working capital of a business. Changes in the amount of working capital from period|

|to period are of interest because working capital represents the dollar amount of short-term debt-paying ability over short-term debt. |

| |

|Formula: Current Assets – Current Liabilities |

10. FINANCIAL RATIOS AND GUIDELINES

Refer to pages 1and 2 of this form for instructions and interpretation of results.

|Ratio |HISTORICAL |PROJECTED |

| |Year: |Year: |Year: |Year: |Year: |

| |     |     |     |     |     |

|Current |      |      |      |      |      |

|Acid Test |      |      |      |      |      |

|Quick |      |      |      |      |      |

|Days of Working Capital |      |      |      |      |      |

|Long-Term Debt to Equity |      |      |      |      |      |

|Operating Margin % of Current Assets |      |      |      |      |      |

|Accounts Receivable Days Outstanding |      |      |      |      |      |

|Accounts Receivable % of Current Assets |      |      |      |      |      |

|Net Fixed Asset Value to Long-Term Debt |      |      |      |      |      |

|Debt Service Coverage |      |      |      |      |      |

|Excess Working Capital Available (in $000s) |      |      |      |      |      |

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