Working capital management is an important aspect of a hospital's financial health. The goal of working capital management is to ensure that the hospital has enough cash on hand to cover its daily operations and pay its bills. It is important for hospitals to manage their working capital in order to maintain financial stability and growth.
The two main approaches to working capital management are the traditional approach and the dynamic approach.
The traditional approach to working capital management focuses on the working capital ratio. This ratio is calculated by dividing current assets by current liabilities. A healthy working capital ratio is typically between 1 and 2. A ratio that is too low indicates that the hospital may not have enough cash on hand to pay its bills and may be at risk of insolvency. A ratio that is too high indicates that the hospital may have too much cash on hand and may be missing out on potential investment opportunities.
The dynamic approach to working capital management takes into account the changing needs of the hospital. This approach involves adjusting the working capital ratio to match the current and future needs of the hospital. This can be done by managing the current assets and liabilities more effectively. For example, the hospital may choose to invest more in short-term investments or may adjust its inventory levels to better match.
Department of Management Science
Preston University
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