Determining Your Organization's Value

Generally, there are three approaches to a valuation, Nelson says, and which one is right depends on what areas an organization is most interested in:

• Cost or asset valuation
• Sales or market comparison
• Income or cash flow

“We didn’t use our valuation to determine what we were going to pay,” says Balko. “We used it as part of our due diligence. So we used it to get a handle on what to expect.”

Though the reasons may vary as to how a valuation is used, it is a key part of the merger or acquisition process. “The resultant effect of the valuation process can drive strategic and operational decisions that affect the ability of hospitals to provide care to patients,” says Nelson.

With the ever-changing economicclimate that finance leaders are dealing with, doing a valuation preemptively can be an eye-opening experience. “It is important for communities, governing boards, and leaders of hospitals and health systems to continually develop and report the value of the enterprise,” says Nelson.