Working Capital Management in Healthcare
Houma Guy.
HCS 579 Health Care Finance
September 24, 2005

Working Capital Management in Healthcare
Working capital is the money required to finance the day to day operations of an organization. Working capital may be required to bridge the gap between buying of stocked items to eventual payment for goods sold on account. Working capital also has to fund the gap when products are on hand but being held in stock. Products in stock are at full cost, effectively they are company cash resources which are out of circulation therefore additional working capital is required to meet this gap which can only be reclaimed when the stocks are sold (and only if these stocks are not replaced) and payment …show more content…

Targets for the appropriate debt to equity ratio are based on debt capacity, rating agency benchmarks, and tolerance for risk. When considering which traditional and nontraditional financing vehicles are appropriate for an organization's circumstances and credit position, healthcare leaders should consider factors including all-in borrowing rate, costs of issuance, use of proceeds, and credit position.
SELECT AND ACHIEVE THE "RIGHT" RELATIONSHIP BETWEEN FIXED-RATE DEBT AND VARIABLE-RATE DEBT
The relationship or mix is dependent on the organization's bond ratings, availability of bond insurance, amount of free cash, investment policy and the board's attitude toward risk, and changing interest rates. Achieving the right mix requires planning, timing, and proper execution
DIVERSIFY VARIABLE-RATE DEBT AND AVOID EXPOSURE TO ANY ONE FORM OF RISK
Variable-rate debt comes with certain risks, including basis risk, put risk, bank risk, credit risk, and failed auction risk. A diversified variable-rate debt portfolio can mitigate these risks and lower the organization's overall cost of capital.
USE SWAPS AND OTHER DERIVATIVES TO MANAGE THE COST OF CAPITAL AND THE CAPITAL STRUCTURE
As an organization's capital structure increases in complexity, the importance of the use of derivative strategies, including interest rate swaps, also increases. Derivatives and swaps provide a mechanism to maintain a flexible