Question

Assume that you were deciding between capital investments in a healthcare facility but did not have a clear view of the cash flow associated with each. What alternative analysis methods might you consider in lieu of cash flow analysis? Identify what you would use and explain your rationale.

The quwstion does not state either one or two capital investments it just states that we are assuming between capital investments and what we could consider if we were deciding between two different investments. Hope that helps?

Answer 1

When Cash Flows are not available, we can use Income Statement of the firm to look at Healthcare facility's Profitability. EBITDA is a good measure of cash flow of the company. It needs to be adjusted by Capital expenditures and Changes in Working capital. After adjusting these two figures from EBITDA, we will have an estimate of the firm's Cash Flow from Operation activity less any capital expenditure. This information will be sufficient to compare the two healthcare facilities in absence of Cash flows.

Also, we can estimate the income from number of patients handled daily multiplied by average income per patient. This will provide us an estimate of firm's income. We can predict expenses in similar way. This will help us to compute EBITDA as suggested above.