Financial risk factors for aged care providers

The Aged Care Financial Monitoring and Business Assistance team considers several risk factors when determining an aged care providers financial performance.

The Aged Care Financial Monitoring and Business Assistance team works with aged care providers to:

  • understand their financial issues
  • assist with planning and developing options to manage issues and reduce risk
  • monitor they are meeting their goals and reducing risks.


Residential aged care providers may have a minimal occupancy that sets the rate for a break-even financial performance.

Occupancy is one of the largest drivers of profitability for the industry. Previous experiences show that if a provider consistency has low occupancy levels, they will also experience adverse operational capabilities.

Providers should have a plan to reach an optimal occupancy level for their organisation.

Economies of scale and resident mix

The ability to achieve economies of scale and high-level care services is essential. However, this can be difficult for some providers to achieve, including smaller scale providers.

Earnings before interest, tax, depreciation, and amortisation (EBITDA)

The earnings before interest, tax, depreciation, and amortisation (EBITDA) financial metric is used to indicate a provider’s yearly cash position.

A negative rending EBITDA is a viability issue. While this issue is not always avoidable, we will work with providers to understand their forecasted cash-flows.

Negative equity position

If a provider’s liabilities exceed their total assets and they do not have sufficient reserves to use, they are likely to have a high viability risk.

A poor equity position also restricts a provider’s ability to participate in capital expansion. Providers with a negative equity position should have a plan to return to positive equity.

Audit qualification

An audit qualification means the auditor of the provider’s financial reports has assessed there is information within the report that Health cannot rely on.

This may have implications for the organisations’ governance and we may need to discuss the issue with the provider.

Wages to turnover ratio

Wages are the largest expense item a residential care provider incurs.

Compared to the industry average, a consistently high ratio of wages to income indicates there may be difficulties in meeting obligations without using financial reserves.

This is a common challenge for some providers including those providing care in regional and remote areas.

Balance sheet metrics

The provider’s balance sheet enables assessment of financial performance measures such as liquidity and debt serviceability. This assists in understanding whether the provider can meet short and long-term financial obligations specific to residential aged care providers.


Aged Care Financial Monitoring and Business Assistance

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