CMS Reveals How It's Going to Assess Your Financial Moxie
Providers can stop wondering how CMS is going to evaluate whether they have the right financial stuff to participate in competitive bidding. The agency last week unveiled the calculations, which it called "standard accounting ratios used to evaluate financial health," that it and the Competitive Bidding Implementation Contractor (CBIC) will make based on the financial information that HMEs submit. CMS expects their analysis to identify suppliers robust enough to deliver over the duration of their contracts should their bids win.
The ratios are:
Current ratio = current assets/current liabilities
Collection period = (accounts receivables/sales) x 360
Accounts payable to sales = account payable/net sales
Quick ratio = (cash + accounts receivable)/current liabilities
Current liabilities to net worth = current liabilities/net worth
Return on sales = net sales/inventory
Sales to inventory
Working capital = current assets - current liabilities
Quality of earnings = cash flow from operations/(net income + depreciation)
Operating cash flow to sales = cash flow from operations/(revenue - adjustment to revenue)
This article originally appeared in the June 2007 issue of HME Business.