2.3. Financial performance measures

We used six outcomes to measure health center financial performance: operating margin, DCOH, current ratio, debt‐to‐equity ratio, net patient accounts receivable days, and personnel‐related expenses.

We used operating margin to measure health centers' margins—the revenue in excess of costs in a given year, expressed as a percent of operating revenue. Since all health centers are nonprofit organizations, any health center margins could be reinvested to further the organization's mission and/or retained for financial stability, as opposed to being paid out to shareholders. While health centers' margins are typically small, sustained negative operating margins are a sign of poor financial health. ¹¹ , ¹²

DCOH and current ratio reflect health centers' liquidity (i.e., how quickly assets can be converted to cash). DCOH shows the number of days that a health center can cover its daily cash operating expenses with current levels of cash and investments, and the current ratio measures a health center's ability to pay short‐term obligations.

The debt‐to‐equity ratio is a measure of solvency; it evaluates a health center's financial leverage, showing the degree to which a health center's assets are financed through debt. While higher DCOH and current ratio are financially preferred and indicate stronger liquidity, the lower debt‐to‐equity ratio indicates less balance sheet risk and thus financially preferred.

Net patient accounts receivable days measures, health centers' ability to bill and collect its accounts receivable and receive payments in a timely fashion. Health centers aim to turn receivables into cash as quickly as possible; therefore, lower receivable days are preferred. Personnel‐related expenses are measured as a percentage of total revenues and are considered the largest component of a health center's operating budget. ¹⁹ Personnel‐related expenses include salaries, fringe benefits, and professional/contracted services.

Appendix 2 provides metrics on how each financial performance measure is calculated.