An empirical analysis of cash flow, working capital, and the stability of financial ratio groups in the hospital industry

David K.W. Chu, Terrell W. Zollinger, Anne S. Kelly, Robert M. Saywell

    Research output: Contribution to journalArticle

    11 Scopus citations

    Abstract

    Hospitals are facing stringent financial constraints as well as proposed changes in their financial reporting. Three issues were explored: (a) whether hospital financial ratio groups differed from industrial firm financial ratio groups found in previous studies; (b) whether hospital financial ratio groups remained stable over a five-year period 1983-1987; and (c) whether there was a difference between working capital flow, cash flow, and net income plus depreciation as alternative hospital asset flow measures. The results of our study confirmed the existence of five hospital ratio groups that were identical to industrial ratio groups. A separate Cash Flow group emerged for some years but not for the entire study period. And unlike studies on industrial firms, Return On Equity and Working Capital Flow emerged as two distinctly independent financial ratio groups. Furthermore, the Cash Flow ratios did not differ consistently from their surrogate measures-the Net Income Plus Depreciation ratios. Our study provided evidence to suggest that analysts should pay closer attention to two aspects of hospital financial performance: (a) hospital equity in relationship to total assets, net income, working capital flow, and cash flow; and (b) hospital working capital flow as a separate aspect of hospital asset flow rather than just cash flow and/or net income plus depreciation. In fact, hospital cash flow did not differ consistently from net income adjusted for depreciation.

    Original languageEnglish (US)
    Pages (from-to)39-58
    Number of pages20
    JournalJournal of Accounting and Public Policy
    Volume10
    Issue number1
    DOIs
    StatePublished - Jan 1 1991

      Fingerprint

    ASJC Scopus subject areas

    • Accounting
    • Sociology and Political Science

    Cite this