Evaluating U.S. hospital liquidity with current and quick ratios
An important indicator of whether a business is financially healthy is its ability to cover its outstanding debts. And with hospital financial trends showing decreased revenues and low operating margins, hospitals in the U.S. have similar pressures as business entities to have enough readily available (liquid) assets to cover their short-term and upcoming payment obligations.
This Healthcare Insight uses data from the Medicare Cost Report and proprietary Definitive Healthcare calculations to review hospital liquidity via the average current ratios and average quick ratios for more than 5,600 hospitals from our HospitalView product. Data is sourced from the Medicare Cost Report and aggregated from the most recent 12-month interval tracked in our database.
What is current ratio?
Current ratio measures the ability for a company to pay short-term debts and can indicate how they can maximize their current assets in order to satisfy their current debt obligations.
In the Definitive Healthcare HospitalView product, we estimate a hospital’s current ratio using the following formula:
Hospital current ratio = total current assets / total current liabilities
What is the average current ratio for hospitals in the U.S.?
The average current ratio for hospitals in the U.S. is 2.79, with a median value of 1.70, based on our analysis.
What is a good current ratio for hospitals?
Companies can compare their current ratio against an industry average. Ratios similar to or slightly higher than the average indicate adequate performance and a lower current ratio may signal higher risk of default.
How does current ratio differ between hospital size?
Hospitals with 25 or fewer beds have the highest current ratio at 3.55 and hospitals with 101 to 250 beds have the lowest current ratio at 2.09.
Based on our analysis of operating margins and hospital revenue trends, we know hospitals with 25 or fewer beds have some of the lowest median operating margins and saw higher than average expense increases over the last few years – trends which may impact their assets and liabilities, and therefore current ratio as well.
Hospital current ratio by bed size
What is quick ratio?
Quick ratio is also a short-term liquidity metric for companies and can help show the company’s ability to meet its short-term debt obligations with its liquid assets.
In HospitalView, a hospital’s quick ratio is calculated using the following formula:
Hospital quick ratio = (total current assets – inventory) / total current liabilities
What is the average quick ratio for hospitals in the U.S.?
The average quick ratio for hospitals in the U.S. is 2.65 and the median value is 1.70 based on data from more than 5,600 hospitals.
How does hospital quick ratio differ between hospital size?
Similar to current ratios by bed size, hospitals with 25 or fewer beds have the highest quick ratio at 3.37 compared to the national average and hospitals with 101 to 250 beds have a quick ratio of 1.97.
Hospital quick ratio by bed size
What is the difference between quick ratio vs. current ratio?
In HospitalView, when calculating current and quick ratios, the main difference is that the quick ratio removes inventory from the current asset calculation. Inventory is excluded from the calculation since those assets may be harder to convert to cash quickly.
Healthcare Insights are developed with healthcare commercial intelligence from the Definitive Healthcare platform. Want even more insights? Start a free trial now and get access to the latest healthcare commercial intelligence on hospitals, physicians, and other healthcare providers.