Using an affordability analysis to budget capital expenditures.

A healthcare organization or system often needs to make capital expenditures to expand or renovate its facilities or to finance other important projects. It may be difficult, however, for an organization to gauge how much of its resources it can afford to commit to capital projects. To help the organization evaluate the feasibility of a capital expenditure, an analysis of financial resources should first be conducted. Using an actual healthcare system whose name has been changed to protect its identity, this article outlines how healthcare financial managers can perform an affordability analysis, based on the debt-to-capital ratio or debt service coverage, to determine the amount of resources to allocate for future capital expenditures.