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1-2 Reflective Journal: Financial Management Measures
IHP 450
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In the healthcare setting, proper financial measurement is of paramount
importance. It can help to have a better degree of control over the financial elements
that are involved while delivering care to individuals. Zargar has argued that it is
essential to identify and study diverse financial indicators in the healthcare context so
that the performance of the healthcare system can be evaluated in an in-depth manner
(Meritorious et al., 2020).
Some of the key financial ratios that healthcare facilities need to keep track of to
get a clear picture of their financial performance include operating margin, capital
spending, debt to capitalization ratio, days cash on hand and operating EBIDA (Earnings
before interest, depreciation and amortization) margin (Key financial ratios healthcare
providers should track. Becker's Hospital Review, 2021). Each of these measures can
provide insightful and rich insight into the financial health of healthcare organizations.
For example, by measuring the operational margin, it is possible to capture the
profitability of a healthcare entity from its day-to-day operations, including investment-
related decisions and depreciation and interest expenses. An important decision that might
be informed by the measure is the need to purchase new equipment that can aid in
better diagnosis of specific health conditions. The debt to capitalization ratio helps in
measuring the financial leverage of an entity, and thus, it can showcase the debt level of
the entity as compared to its cumulative earnings or funds balance. A vital decision that
might be informed by the financial measure is the decision to take additional loans or
borrowings while expanding the operations of the healthcare facility. By measuring each
of these financial ratios, it is possible to get a clear comprehension of the financial
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health of a healthcare concern (Key financial ratios healthcare providers should track.
Becker's Hospital Review, 2021).
Some of the financial measures that of extremely important for the very survival
of a healthcare organization are day cash on hand and capital spending. Day cash on
hand is also an important liquidity measure that can reflect the number of days a
healthcare entity can support its operating expenses without collecting extra cash. It can
influence the normal functioning of a healthcare facility with the available cash. Maslach
has argued that the financial liquidity of healthcare entities such as hospitals and clinics
is highly critical since it can ensure that there is continuity in the provision of
healthcare services (Maślach et al., 2019). Similarly, capital spending is also a useful
measure that can shed light on the capital expenditure of a healthcare facility as a
percentage of the annual deprecation expenses. By having accurate insight into this
specific financial measure, it is possible to strategically spend the organizational capital
so that it can be optimally used to deliver better care to individuals and contribute to
the profitability of the organization. Choi has argued that organizations operating in the
healthcare landscape need to strategically make decisions relating to capital spending and
capital investment so that the available funds can b productively used to acquire and
maintain new technologies that can aid in improving the quality of healthcare services
(Choi, 2017). Thus, financial measurement in the healthcare context can have a direct
influence on the quality of delivered healthcare services. ad
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References
Choi, S. (2017). Hospital capital investment during the great recession. INQUIRY: The
Journal of Health Care Organization, Provision, and Financing, 54,
0046958017708399.
Key financial ratios healthcare providers should track. Becker's Hospital Review. (2021).
Retrieved May 5, 2022, from https://www.beckershospitalreview.com/finance/5-key-
financial-ratios-healthcare-providers-should-track.html
Meritorious meghanloo, markazi moghadam, zargar top collector, sanaz, & tehrani.
(2020). financial indicators of health system assessment in iran and the world: a
review study. nurse and physician in combat, 8(26), 50-62.
Maślach, D., Markiewicz, J., Warelis, A., & Krzyżak, M. (2019). Importance of financial
liquidity in hospital management. Epidemiol. Rev, 73(3), 369-381.
