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Using ratios to measure hospital financial performance: can the process be simplified?
Health Services Management Research
|October 6, 1988
Summary
This study simplifies hospital financial assessment by identifying five key factors from 25 financial ratios. These factors explain 77% of financial variance, aiding health services management.
Area of Science:
- Health Services Management
- Financial Analysis
- Healthcare Finance
Background:
- Hospital financial condition assessment relies heavily on financial ratio analysis.
- Existing methods can be complex, necessitating simplification for broader application.
Purpose of the Study:
- To simplify hospital financial assessment.
- To identify underlying empirical dimensions within financial ratios.
- To explore the factor structure of 25 common financial ratios.
Main Methods:
- Factor analysis was applied to 25 financial ratios.
- The study included 114 Illinois hospitals.
- Summative scaled measures were explored.
Main Results:
- A factor analytic solution identified five underlying factors.
- These five factors explain approximately 77% of the total variance in financial ratios.
- The identified factors offer a more concise representation of financial condition.
Conclusions:
- The five identified factors provide a simplified yet comprehensive approach to hospital financial assessment.
- These findings can enhance the utility of financial ratio analysis in health services financial management and research.
- The study supports the use of summative scaled measures for evaluating hospital financial health.