School of Business

Developing a Planning Model to Estimate Future Cash Flows

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Description: As a result of recent developments and implementations, health care administrators no longer can rely on historical reporting formats that emphasize analyses of what actually happens to cash flow. The emphasis in reporting is shifting to forecasting planning models that ensure the long-term solvency of health care operations in a regulated environment. Part of this evolution involves in-depth planning models for cash flow analysis. A discretionary cash flow (DCF) model has been developed to measure anticipated cash flows as a percentage of net income available to administrators once the operational needs of a facility have been met. Since the DCF is an estimate, it is geared to financial planning. Administrators can use the DCF model in a broad range of strategic decisions involving financing alternatives, capital expansion, and performance appraisal. The DCF model gives consideration to 4 factors: 1. assets required to support revenues, 2. the expected rate of long-term growth, 3. capital structure, and 4. profitability.
Language: English
Format: Article