Definition Essay

Definitions of Basic Health Care Finance Terms

Current Ratio is defined as a measure of the ability by a firm to meet its short-term financial and debt goals through an assessment of its current liabilities and assets.

Days cash on hand is a measure of the amount of money or resources that a health care provider has set aside for the management of its monthly and daily operational expenses with the exclusion of the revenue collected from each day’s activities.


Day’s receivable is a measure of the time it takes to receive payment for services and purchases after they have been billed.

Debt Service Coverage Ratio is a comparison of net operating income against total debt service to evaluate debt servicing ability.

A liability to fund balance is the remainders accruing after assets have been used to settle the cost of liabilities.

Liquidity ratios are a measure of a company’s ability to pay of all its short- and long-term debts by comparing its assets with liabilities while putting into consideration the ease of converting those assets into cash.

The operating margin is a measure of the profits or total revenue left after the operational costs have been deducted.

A profitability ratio is a measure of profitability, financial performance and the ability to make profit revenue, which is collected after all deductions have been made.

The quick ratio is the calculation of an organization’s ability to convert its assets to cash and meet its short-term debt obligations.

Return on total assets is a ratio used to evaluate the total pre-tax earnings against the total net assets of a company.

Solvency ratios are a measure of an organization’s ability to meet its long-term debts and financial obligations. It is calculated by adding the after-tax income and depreciation and then dividing it by the total liabilities.

The internal rate of return is the total interest rate at which positive and negative cash flows’ net present value is equal to zero, that is, at a break-even point. This rate is normally used by potential investors to evaluate the suitability of an investment.

The payback period is the time taken for the amount invested to be recovered by the investment assets.

Present value analysis is the evaluation of the time value of money, maturity of assets and cash flows. This applies to current assets as well as expected future cash flows. 


The time value of money is the idea that money is of greater value in the present timeframe than in the future due to the principle of interest.

The unadjusted rate of return is a percentage representation of the return on investment. It is calculated by taking the expected net income and dividing it by the investment.

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