Expense Ratio and PPD Analysis
The seniors housing industry is familiar with complex financial statements. Understanding these statements is imperative to ensure the success of an assisted living or skilled nursing facility. Correct analysis gives you the tools to maximize your facility’s profits, which subsequently maximizes the overall value.
Those interested in purchasing an assisted living facility or comparing many skilled nursing facilities for sale, it is essential to understand expense ratios, margins, and other ways to measure expense control like PPD/PRD (per patient day or resident day). Mastering these skills is very important in understanding how a senior housing investment is performing.
Take Caution when Reviewing Expense Ratios
The investment specialists and agents with The Stahler Group, a skilled nursing and assisted living brokerage, understand how fluid expense ratios can be. Those who are familiar with senior living investments such as assisted living facilities are most experienced with expense ratios, which are expressed as a percentage of revenue.
Although these percentages can stay constant, the dollar amount can fluctuate. For example, 40 percent of 100 and 40 percent of 1000 are different values. Because of this, you cannot rely only on expense ratios. To be more accurate with your facility’s expenses, you must collect data that relates directly to your facility’s revenue source – the residents or patients.
The PPD/PRD Method
The per patient day analysis is used popularly with skilled nursing facilities within the seniors housing industry. With assisted living facilities, the analysis is named PRD, or per resident day. Both types of analyses produce numbers that focus on daily expenses. Understanding the profitability of your facility through expense control is easy to grasp and compare.
PPD is calculated by dividing a given expense line item by the number of residents or patients in an assisted living or skilled nursing facility for the same time period that the expense is incurred. This method connects expenses directly to the unit producing the revenue stream. It is recommended that you assess the PPD/PRD before purchasing any seniors housing for sale to note any areas of under or overspending.
The PPD measure has recently spread from skilled nursing to assisted living facilities because it is simple to calculate, accurate, and efficient. Calculating the PPD is extremely similar to simply analyzing the value of a facility based on units or beds.
The investment specialists at The Stahler Group can assist you in calculating that number by collecting documents such as:
- Expense Reports
- Profit-Loss
- Facility Rent Roll
- Census Report
The PPD or PRD measures are great tools for comparing assisted living facilities for sale or skilled nursing facilities for sale when interested in making a purchase. It can also be very helpful for a check and balance system on your existing operations.
Though there are many opportunities in the seniors housing industry, the right investment specialist is crucial to finding the best facility for sale.
The Stahler Group is a leader in the seniors housing industry, brokering some of the highest-profile seniors housing investments. Our team of experts can guide you along the process and help you discover what a business is worth through our free business valuation service.
To discover your next care home for sale or to discuss what your next move is, contact one of our experts at The Stahler Group.