Financing A Healthcare Organization - Essay Example

If a firm has sufficient net working capital it is assumed to have enough liquidity (ICFAI Center for Management Research ICMR, 2004). In the operating cycle of the firm current assets are converted into cash to provide funds for the payment of current liabilities. Hence, if the current ratio is higher it means that the short-term liquidity of the firm is also higher. Long-term Solvency Ratio - This is one of the leverage ratios. When the analysis of a firm is extended to the long-term solvency, we come into the category of leverage ratios.

The leverage ratios are structural ratios and coverage ratios. Structural ratios are based on the proportions are derived from the relationships between debt servicing commitments and sources of funds for meeting these obligations. This ratio measures the extent to which borrowed funds support the firm’s assets. The denominator in the ratio is total of all assets as indicated in the balance sheet. The type of assets an organization employs in its operations should determine to some extent the sources of funds used to finance them.

Management/Expense Ratio - An expense ratio is determined through an annual calculation, where a funds operating expenses are divided by the average dollar value of its assets under management. Operating expenses are taken out of a funds assets and lower the return to a funds investors (Investopedia). Line-item Budget: Line item budgets are used in private industry for the comparison and budgeting of selected object groups and their previous and future estimated expenditure levels within an organization.

The line-item budget should include all income and expense associated with the proposed project. The major advantages of the line-item budget are that is easy to prepare, understand and justify. The big disadvantage is that there is no relationship between the budget request and objectives and priorities, and it is different to transfer