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Published on: February 16, 2011
A new perspective on hospital financial ratio analysis
T L Zeller1, B B Stanko, W O Cleverley
1School of Business Administration, Department of Accounting, Loyola University, Chicago, IL, USA.
Summary
This study defines six financial performance characteristics for not-for-profit hospitals using audit data. Financial ratios are identified to measure these key hospital financial health indicators.
Area of Science:
- Healthcare Financial Management
- Nonprofit Healthcare Operations
- Financial Performance Analysis
Background:
- Assessing the financial health of not-for-profit hospitals is crucial for sustainability and effective resource allocation.
- Previous studies may not have comprehensively defined key financial performance indicators specific to the nonprofit hospital sector.
- Understanding financial performance is vital for hospital boards, managers, and policymakers.
Purpose of the Study:
- To define and identify measurable financial characteristics of performance for not-for-profit hospitals.
- To establish a framework for evaluating the financial health of these institutions.
- To provide actionable insights for healthcare financial managers and stakeholders.
Main Methods:
- Utilized audit financial data from a large sample of 2,189 not-for-profit hospitals.
- Conducted analysis for the period spanning 1989-1992.
- Defined six key financial characteristics of performance through statistical analysis.
Main Results:
- Identified six critical financial performance characteristics: profitability, fixed-asset efficiency, capital structure, fixed-asset age, working capital efficiency, and liquidity.
- Determined specific sets of financial ratios capable of measuring each of these six characteristics.
- Provided a statistical output detailing these financial ratios and their relevance.
Conclusions:
- The defined financial characteristics and associated ratios offer a clear understanding of not-for-profit hospital financial performance.
- These findings are beneficial for healthcare financial managers, hospital boards, and policy groups.
- The study provides a valuable tool for assessing and improving institutional financial performance in the nonprofit hospital sector.
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