When did you last calculate the average age of plant for your organization? It’s a ratio that needs to be calculated at least once a year when preparing your organization’s budget. This simple estimate, based on the straight-line depreciation method, is used by many not-for-profit Life Plan Communities (CCRC) to monitor the financial age of fixed assets.
The average age of plant is a simple ratio to calculate. Just divide your accumulated depreciation from your balance sheet at year-end by your annual depreciation expense. The result is an estimate of your facilities’ average age. In addition, it’s important for CCRCs to closely review property and equipment detail listings each year for additions and disposals. This helps provide accuracy to the detailed property and equipment records. If the property and equipment records aren’t accurate, the calculation could be affected.
So what’s the bottom line? A higher average age indicates a greater need for capital.
If your organization’s ratio is 20, it indicates your fixed assets are approximately 20 years old. According to the Commission on Accreditation of Rehabilitation Facilities’ benchmark for single-site providers, a ratio of 10 indicates you’re closer to the upper quartile and the mean ratio is 12 years, while the lowest quartile is approximately 15 years.
If your average age of plant is below the mean or below the lowest quartile (greater than 15 years), it may be time to evaluate your strategic plan and chart the course for the next five years. This can help your organization remain relevant to your existing residents and future generations alike.
If you need help developing a strategic plan, check out our solutions and resources or contact your trusted BKD advisor.