Health Ratios: Financial Management
Understanding key financial ratios is essential for maintaining a healthy and sustainable medical practice. As a CPA and CFO, I’ve seen firsthand how critical these metrics are. Ratios such as:
- Current Ratio- solvency ratio indicating the firm’s ability to pay back its short-term liabilities
- Days in Accounts Receivable- ability to convert receivables into cash. A low days-in-A/R number indicates that the practice can quickly collect on its debts.
- Operating Margin- measure of what proportion of the company’s revenue is left over after paying the variable costs of production of the services or goods
- Working Capital- measures the practice’s abilities to pay its bills on time. It is another liquidity or solvency ratio.
- Days in Accounts Payable- measures how long it takes for the practice to pay its bills. This is an important ratio because it can be a lagging indicator of the financial health and solvency
These ratios offer valuable insights into your practice’s financial stability and operational efficiency. Just as we ask our patients to monitor their health, it’s imperative for us to keep a close eye on these financial indicators. Stay diligent in managing your practice’s finances to ensure long-term success and stability. Email me to connect and explore how we can unlock transformative value for your business together.
