Research & Reports | Finance and Business Strategy

Key Hospital Financial Statistics and Ratio Medians: Glossary of Formulas

Research & Reports | Finance and Business Strategy

Key Hospital Financial Statistics and Ratio Medians: Glossary of Formulas

Use this list of statistics and ratio medians to calculate efficiency, profitability, solvency, and more.

Average length of stay (days) 
The average stay counted by days of all or a class of inpatients discharged over a given period. Used as an indicator of efficiency in containing inpatient service costs.



patient days ÷ total discharges

Maintained bed occupancy (%) 
A measure of the volume and utilization of inpatient services.


(patient days x 100) ÷ (maintained beds x 365)

Operating margin (%)
This profitability indicator shows the income derived from patient care operations. Profitability indicators measure the extent to which the organization is using its financial and physical assets to generate a profit.



(total operating revenue – total operating expenses) ÷ total operating revenue

 

Excess margin (%)
This measure goes beyond the operating margin to include all sources of income and expenses. Other sources of income besides those from patient care operations have become increasingly important to hospitals.



(total operating revenue – total operating expenses
+ non-operating revenue) ÷
(total operating revenue + non-operating revenue)

Debt service coverage ratio (x)
A ratio that measures the organization's ability  to meet its debt repayments. A declining ratio number can indicate that an organization is in danger of becoming insolvent.



net revenue available for debt service ÷ 
(principal payment + interest expense)

Current ratio (x)
This liquidity indicator shows the number of times short-term obligations can be met from short-term creditors. Because it provides an indication of the ability to pay liabilities, a high ratio number is one way short-term creditors evaluate their margin of safety.




total current assets ÷ total current liabilities

Cushion ratio (x)
A measure of  the capital structure of the organization. This ratio is important in evaluating the financial risk position of an organization.

(cash and cash equivalents +
board designated funds for capital)
÷
estimated future peak debt service

Accounts receivable (days)
A measure of the efficiency of the collections function.


(net patient accounts receivable x 365) 
÷ net patient revenue

Average payment period (days)
A measure of how efficiently an organization pays its bills.

(total current liabilities x 365) 
÷
(total operating expenses – depreciation and amortization expenses)

Average age of plant (years)
Indicates the financial age of the fixed assets of the hospital. The older the average age, the greater the short term need for capital resources.



accumulated depreciation ÷ depreciation expense

Debt-to-capitalization (%)
A measure of the long-term sources of debt financing.


long-term debt ÷
(long-term debt + unrestricted fund balance)

Capital expense (%)
A measure of the capital structure and the degree of flexibility an organization might have in raising capital.


(interest expense +
depreciation & amortization expenses) 
÷ total operating expenses

Would patients recommend the hospital to friends and family? One of the questions included in the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS), an instrument and data collection methodology used to measure patients' perspectives of hospital care. Information on the instrument can be found on the Hospital Compare website.

Advertisements

Related Articles | Finance and Business Strategy

Column | Finance and Business Strategy

How it works: hfm’s ‘Expert Reviewed’ status is hard earned

Articles designated as "expert reviewed" in hfm must go through a rigorous vetting process to earn that label and be published in the magazine.

Column | Capital Finance

Liquidity levels in a COVID world: Why healthcare finance leaders should be paying attention

Amid the COVID-19 crisis, many hospitals and health systems are finding they have excess liquidity levels on hand. As a result, they face a question of whether, and how, the should unwind their excess liquidity positions in favor of a more streamlined cash management process.

Sponsored Content | Value-Based Payment

Implications of the HFMA-GHX study of risk-based contracting

In this article discussing implications of the findings of a December 2020 HFMA study, sponsored by GHX, healthcare leaders share their perspectives on key factors contributing to their organizations' success under value-based contracts.

Trend | Strategic Partnerships Mergers and Acquisitions

Healthcare M&A: Are you prepared for the pitfalls?

Leaders of hospitals and health systems whose organizations are embarking on a merger or acquisition should be prepared to avoid the many potential pitfalls associated with such an strategic venture.