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Annual Debt Service

Used to determine how heavily leveraged a hospital or hospital system is. Sum of current portion of long-term debt and interest expense. (Notes and loans payable [short-term] plus interest expense.)

Average Age of Plant

A measure of the average age in years of the hospital's fixed assets. Lower values indicate a newer fixed base and, thus, less need for near-term replacement.The average age of plan is often a proxy for future capital spending - higher ages indicate the need for more capital spending.

Capital Costs Ratio

Used as a measure of the capacity or size of a hospital. Total capital-related operating costs (e.g., depreciation, interest, and capital leases) is expressed as a percentage of total operating expense.

Capital Expenditure

Used to determine other ratios that demonstrate a hospital's financial strength and level of investment. Capital expenditure is acost that is added to the utility of an asset for more than one accounting period.

Capital Expenditure Growth Rate

A gauge of how aggressively a hospital is investing in its plant and equipment. This percentage can vary greatly over time as capital expenditures fluctuate. Higher values for this indicator imply an active capital expenditure program of additions and replacements.

Capital Expense Ratio

Provides an important measure of operating leverage. Because both interest and depreciation are considered fixed costs, a high capital expense ratio would imply greater sensitivity to volume changes. Increases in volume should enhance improvements in profit, while decreases in volume should worsen declines in profit for hospitals whose capital expense ratio is high.

Cash

Used to determine liquidity ratios. Unrestricted cash and investments plus unrestricted board-designated funds.

Current Ratio

The number of dollars held in current assets per dollar of current liabilities. A widely used measure of liquidity. An increase in this ratio is a positive trend.

Cushion Ratio

Measures the relationship between total debt service, both interest and principal, and total cash reserves, both current and noncurrent. A high value would indicate that a hospital is less likely to default on debt service payments because it has the cash reserves to meet its expected obligations. For example, a value of seven would mean the hospital had cash reserves seven times its annual debt service obligation.

Debt Service Coverage

Measures total debt service coverage (interest plus principal) against annual funds available to pay debt service. Does not take into account positive or negative cash flow associated with balance sheet changes (e.g., workdown of accounts receivable). Higher values indicate better debt repayment ability.

Depreciation Rate

Provides a measure of the rate at which the organization is depreciating its physical assets. A rate of 5 percent would imply that the average life of the organization's depreciable assets is 20 years. Increases in this rate often imply that newer assets are being added to the organization's depreciable asset base.Rates varydepending on the useful life assigned to various assets.

Days Cash on Hand

Measures the number of days of average cash expenses that the hospital maintains in cash or marketable securities. It is a measure of total liquidity, both short-term and long-term. An increasing trend is positive.

EBITDA or EBIDA

EBITDA is used by for-profits and EBIDA is used by not-for-profits as a measure of cash flow. The acronyms stand for:earnings before interest, taxes, depreciation, and amortization (EBITDA) or earnings before interest, depreciation, and amortization (EBIDA).

Fixed Asset Turnover

Used as an indicator of operating efficiency. The number of operating revenue dollars generated per dollar of fixed asset investment.

Interest Coverage

Used to determine leverage. Net coverage looks at net available for debt service divided by interest expenses.

Investment Grade Bond Rating

BBB- and above. Below that is generally considered below investment grade. Below investment grade is frequently referred to as speculative grade or even "junk".

Long-term Debt to Capitalization

Higher values for this ratio imply a greater reliance on debt financing and may imply a reduced ability to carry additional debt. A declining trend is positive.

Return on Assets

Useful as another measure of profitability. It measures the size of the surplus generated in relation to the amount of assets needed to achieve the surplus. A simple equations for return on assets is net income divided by total assets.

Return on Equity

A financial indicator that measures a hospital's ability to add new investment in plant and equipment without adding excessive levels of new debt. An increase is a positive trend.

Working Capital

Can be positive or negative. Increasing amounts of positive working capital enable a hospital to fund expansions, renovations, and other expenditures.