Financial management.
As a healthcare manager, daily management tasks include financial management. Financial management includes items such as labor cost, equipment cost, and a budget that controls the operations. Proper operations requires planning and control. The budget is created using the basic financial information and accounting principles that an organization uses in its monthly, quarterly, and annual financial reports.
After learning the basics of financial statements, it is very important for a healthcare manager to understand the basic five areas of performance that set the financial plan for the organization. Define and provide an example of what the following mean:
Short-term solvency
Activity
Financial leverage
Profitability
Value
Define the following terms, and explain why they are important in a healthcare organization:
Current ratio
Total asset turnover
Debt ratio
Profit margins
Sample Answer
Five Key Areas of Performance
- Short-term Solvency: This refers to an organization’s ability to meet its short-term financial obligations. It’s essentially a measure of liquidity.
- Example: A healthcare facility must have sufficient cash on hand to pay its employees’ salaries, utility bills, and supplier invoices.
- Activity: This measures how efficiently an organization utilizes its assets to generate revenue.
- Example: A hospital’s bed occupancy rate and average length of stay are key activity measures. Higher occupancy rates and shorter lengths of stay can improve operational efficiency and financial performance.
- Financial Leverage: This measures the extent to which an organization uses debt financing to fund its operations.