Assessment of Financial Liquidity Strategy (Using the Example of Hospitals)

Abstract

Aim: The aim of this article was to identify the financial liquidity strategies implemented by healthcare entities and the consequences of their choices.

Methodology: The income-risk method was used to identify financial liquidity strategies, while the consequences of the strategy choices were examined through the analysis of selected financial indicators. The research was conducted based on the financial statements for the year 2022 for thirty healthcare entities operating as independent public healthcare institutions providing hospital services in the Podkarpackie and Lublin regions.

Results: The study found a diverse approach, indicating an aggressive working capital strategy, a moderate or conservative strategy for financing working capital, and a moderate or aggressive asset-financing strategy. Theoretically, this should result in moderate risk and return. However, most hospitals have low financial liquidity ratios, generate losses, and have negative equity and negative net working capital – all the factors that significantly increase financial risk. In the case of hospitals, the classical assumption of an aggressive strategy – achieving higher profitability through lower financial liquidity – or a conservative strategy, aiming to maintain higher financial liquidity at the expense of lower profitability, does not hold. This is due, among other things, to the specific nature of the functioning of the public sector, whose entities, not being profit-maximising, are managed differently from private sector units. Attention is drawn to the large differences in the values of individual measures of activity, which at the same time proves the differentiated approach to financial security in the hospitals studied.

Implications and recommendations: The research results revealed a discrepancy between the theoretical assumptions of financial liquidity strategies and the practice in healthcare entities. Most of the studied hospitals exhibited high financial risk threatening financial stability, indicating the need to revise the adopted assumptions and financial liquidity strategies, taking into account the specifics of healthcare activities. Developing mechanisms to improve the financial security of health care entities requires more extensive scientific research in the field of assessing the efficiency of health care entities, including a detailed analysis of solutions applied in hospitals operating at a lower level of financial risk. In practice, their implementation in entities with a weaker condition could counteract the threat to the continuation of curative activity, thus maintaining or improving the availability, continuity and quality of health services.

Originality/value: The research showed how the theoretical assumptions of the implemented financial liquidity strategies translated into actual financial results in a specific research group, i.e. hospitals operating as independent public healthcare institutions. Their financial liquidity is determined by the high-cost nature of their activities and the constraints arising from their organizational and legal form.