Measurement of financial position: Continuity of indicators

Greater numbers of hospital failures in recent years have increased interest in the measurement of hospital financial performance. This paper presents analyses of hospital financial performance using financial ratios from a sample of illinois hospitals in 1983, 1984 and 1985. The intents are to empirically identify the dimensions of performance and to determine whether those dimensions are stable across the three years. The results from oblique solution factor analyses indicate that there are five dimensions of hospital financial performance and that the same five factors emerge in each of the three years. Further, nearly identical sets of financial ratios load on these dimensions of performance in each of the years. These findings provide assurance that the structure of hospital financial performance is multidimensional and those dimensions include: Liquidity, Asset Use, Debt Structure, Receivable Activity and Profitability. However, stepwise regression analyses indicated that a small set of ratios can not be used as a proxy for the dimensions of financial performance because different ratios explained variance in the dimensions over time. The implications of these findings are discussed.