UNDERSTANDING THE RATIOs
Net Profit per Resident per Day
Net Profit is total revenue less total expenses. It is the amount of profit left after all expenses have
been paid. The calculation for Net Profit is:
Net Profit = total revenue - total expenses
Net Profit is an actual earnings figure; not a ratio. Therefore, to allow a greater comparison
between small and large services, the Net Profit figure has been calculated on a resident per day
basis (subsidy days). Therefore, the formula is modified:
Net Profit per subsidy day = (total revenue - total expenses) ÷ subsidy days (no. of residents)
What is Net Profit per Resident Day
Net Profit is total revenue less total expenses. It is the amount of profit left after all expenses have
been paid. To allow for a greater comparison between small and large companies, net profit has
been divided by the number of full-year equivalent subsidy days (subsidy days ÷ 365) to give an
amount of net profit earned on each resident per annum.
The difference between net profit and EBITDA is that EBITDA removes interest and depreciation
to allow for a comparison of operational performance between services – net profit does not
remove any expenses, and therefore, is a measure of the overall profitability.
How to Use this Ratio
Net profit per resident is an important measure for a provider, particularly when comparing their
financial performance against like services. Continued losses over time could be sustained by
financing from other sources such as other activities, the owner or a third party.
If the net profit per resident has been decreasing over the past few years, analysis is required to
determine whether it reflects a relative decrease in revenue or increase in expenses.
Benchmarking analysis at the cost centre level of reporting would suggest which cost or revenue
centres might benefit from review.