IDEAS YOU CAN COUNT ON
FINANCE TERMS 101 A glossary for senior living
10-K The U.S. Securities and Exchange Commis- sion requires publicly traded companies to tell us all kinds of things about how much they’re spending, what their executives make, and more. It’s more detailed than an annual report, and it’s good to look over if you’re considering an investment.
Accrual The method of accounting that’s most com- mon. It records money when it is earned, not received, then matches expenses to that revenue. For example, if a resident lived in an apartment in April but paid for it in May, the revenue would be counted in April even though the actual money was received in May. Any expenses related to the resident’s stay for that month (e.g., food, utilities) would also be accounted for in April, whether or not they were actually paid that month.
Assets Community resources—not only the build- ing and furniture, but money in the bank and accounts receivable. The number used on the balance sheet is affected by what goes down and up in value over time, that is, depreciation (e.g., a van) and appreciation (e.g., a new café dining area).
Balance sheet A picture of a community’s finances at a point in time, showing assets, liabilities, and stockholder/owner equity. It’s called “bal- ance” because the sum of the assets must equal the sum of the liabilities and the equity.
Capital budget For purchase of assets that have a long- term life, such as furniture, technology infrastructure, ovens, etc. The budgeting requires looking out five- to 10-years ahead. Executive directors usually create an annual capital budget based on notes and obser- vations and on what department managers say they need.
Capitalization rate Divide the property's net operating income by its purchase price. The higher the rate, the higher the returns—and the risk.
Cash flow statement A picture of a period of time of the case used and generated by a community’s activities— operating, investing, financing. Information for this comes from the balance and income statements. Are you waiting for payments to come in, or have you paid for many services in advance? That affects your cash flow, or liquidity, and may put you in a spot if you have a downturn or crisis.
Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) EBITDA (pronounced eee-bit-dah) is a measure of profitability. It’s a measure that strips out expenses and costs of capital investments (property, equipment). Some say that gives a clearer picture. Others say it’s not enough information to know what’s really going on.
Environment, Social, Governance (ESG) An ESG rating or award shows a company is taking action to improve sustainability, help out the communities or regions it works in, and get diverse representation in the C-suites and the board. Companies do it because they believe it’s the right thing to do. But strong ESG presence and programs tells employees and investors that this is a healthy and forward-thinking company— and therefore a good place to work or in- vest in. After all, planning for climate risk, offering opportunities to new and diverse voices, and working for social justice in cities where you have headquarters is smart busi- ness, too. Every day, improving in this area becomes more important.
Equity (stockholder or owner) Asset amounts minus liability amounts.
Human capital How much is an employee’s experience, cer- tifications, or talent worth? That’s human capital. Because it’s intangible, it doesn’t show up on a balance sheet. Workers are more often feeling like they would prefer not to be described this way. However, it can help measure the value of providing training, education, and equipment or environment that helps employees be more productive—helping to make the case for such benefits.
Just in Case (JIC) and Just in Time (JIT) These inventory terms probably became too familiar with the pandemic. JIC is the prac- tice of keeping large inventories on hand, such as hundreds of packages of bandages at an urgent care center. It can be good, be- cause you’re ready for a surge. At the same time, taking care of large piles of stuff is expensive—storage space, insurance, ener- gy cost—and you lose out on having room for anything else. JIT is the newer practice, made easier with use of logistics technol- ogy and quality management practices. If you’re working at the urgent care center and you get a call that the rugby team is coming in, you can order a big pile of bandages via an app, to get there the same time they do. The disadvantage is that maybe the bandag- es don’t get there or get there too late. With JIT, a good relationship with your suppliers and trust in their reliability is a must.
Key indicators
Important ones in senior living include: • Payroll. The biggest expense; includes salaried (exempt) and hourly staff (non-ex- empt) employees; recommended to mon- itor daily.
• Vacancy expense. Vacant residences can be the second-largest expense in senior living.
26 SENIOR LIVING EXECUTIVE SEPTEMBER/OCTOBER 2020
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