Financial Ratios and Trend Analysis: 2012 Report Suggests Operational Strengthening

The 20th publication of Financial Ratios & Trend Analysis of CARF-CCAC Accredited Communities suggests that accredited organizations have weathered the recent economic turbulence by keeping a firm hand on operations. This annual publication of ratios computed for the CARF-CCAC[i] accredited communities includes the financial results of 30 multi-site providers and 150 single-site providers for fiscal year 2011. Readers should note that the ratios are computed from the audited financial statements of the accredited communities, with the resulting data and ratios calculated and analyzed by representatives from CARF-CCAC, ParenteBeard LLC, and Ziegler, the publication’s sponsors. The reliance upon audited financial statements (rather than self-reported financial ratios) and the review of the resulting ratios by objective third-parties contribute to this annual publication’s importance as a benchmarking tool for the sector.

Ratios computed in the publication fall into three primary categories: profitability, liquidity, and capital structure. Profitability, or margin, ratios reflect the relationship between a provider’s revenues and expenses. During 2011, multi-site providers experienced improvement in each profitability ratio except for the Operating Margin ratio. Single-site provider performance was more mixed, with some profitability ratios weakening. Contributing to this weakening is that single-site providers experienced a greater jump in average operating expenses than in operating revenues.

The liquidity ratios measure a provider’s ability to meet both short- and long-term cash needs from operations and debt requirements. While certain liquidity ratios weakened somewhat, average unrestricted cash balances increased for both provider types; unrestricted cash balances were up roughly four percent for single-sites and nearly nine percent for multi-sites.

The capital structure ratios measure the strength of a provider’s balance sheet and provide insights into a provider’s ability to meet long-term debt and capital expenditure needs. Since many accredited communities rely on entrance fee receipts to meet both operating and debt obligations, factors that affect entrance fee receipts can have an impact on the capital structure ratios. The Debt Service Coverage ratio, a key ratio for measuring a provider’s ability to meet debt service obligations from annual cash flow, declined for both single-site and multi-site providers due, in part, to a five percent decline in net entrance fee receipts. The AGE ratio, an indicator of a provider’s commitment to refurbishing its physical plant, climbed for the ninth consecutive year for single-site providers. For both provider types the ten-year trend has been increasing for the AGE ratio.

This publication offers accredited and nonaccredited organizations the opportunity to benchmark to quartile results of the 17 ratios reported.  To obtain a copy of the publication, contact CARF-CCAC.

[i] Commission on Accreditation of Rehabilitation Facilities – Continuing Care Accreditation Commission

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