Alternate Working Capital

Running Head: ALTERNATE WORKING CAPITAL

Alternative Working Capital

Alaine Schauer

University of Phoenix

FIN/HCS 571

Al White

Working capital is measure of an organizations liquidity, efficiency and overall health. Working capital includes cash, inventory, accounts payable, accounts receivable, and debt due within one year. Each of these components is a product of activities that must be strictly managed to ensure accuracy. Without adequate process to ensure the outcomes of these activities, the future of an organization can be unpredictable and subject to failure. Elijah Heart Center (EHC) is a 120-bed non-profit cardiac care hospital who is reported to be facing a working capital shortage. In case of an emergency, this hospital may not have enough cash to sustain itself. The following paper will serve to address a future capital management policy addressing the process of managing cash, inventory and resources, accounts payable, accounts receivable and debt of EHC. In addition, recommendations will be made regarding the implementation and evaluation of this new policy.

Cash

According to (Cleverly & Cameron, 2007), cash is the lifeblood of an organization and is more important in health care than many other industries. Good cash management should focus on all aspects of the cash conversion cycle. Reduction in this cycle should be a critical objective in the working capital policy at EHC. Minimum required cash balance should be established. This balance should be determined consistent with hospitals overall risk position. The cash conversion cycle includes the amount of time it takes from initial purchase of supplies and labor for the provision of care to the patient to the receipt of payment for the care rendered. For EHC, 39% of the care provided is to government covered health care recipients who only pay 70% of charges. Additionally, payment is delayed due to excessive lag time. A large remainder of the patients seen at EHC is...