Key Financial Measures Research Articles

Extremes of Emergency Department Boarding are Associated With Poorer Financial Performance Among Hospitals.

Boarding emergency department (ED) patients is associated with reductions in quality of care, patient safety and experience, and ED operational efficiency. However, ED boarding is ultimately reflective of inefficiencies in hospital capacity management. The ability of a hospital to accommodate variability in patient flow presumably affects its financial performance, but this relationship is not well studied. We investigated the relationship between ED boarding and hospital financial performance measures. Our objective was to see if there was an association between key financial measures of business performance and limitations in patient progression efficiency, as evidenced by ED boarding. Cross-sectional ED operational data were collected from the Emergency Department Benchmarking Alliance, a voluntarily self-reporting operational database that includes 54% of EDs in the United States. Freestanding EDs, pediatric EDs and EDs with missing boarding data were excluded. The key operational outcome variable was boarding time. We reviewed the financial information of these nonprofit institutions by accessing their Internal Revenue Service Form 990. We examined standard measures of financial performance, including return on equity, total margin, total asset turnover, and equity multiplier (EM). We studied these associations using quantile regressions of added ED volume, ED admission percentage, urban versus nonurban ED site location, trauma status, and percentage of the population receiving Medicare and Medicaid as covariates in the regression models. Operational data were available for 892 EDs from 31 states. Of those, 127 reported a Form 990 in the year corresponding to the ED boarding measures. Median boarding time across EDs was 148min (interquartile range [IQR]: 100-216). A significant relationship exists between boarding and the EM, along with a negative association with the hospital's total profit margin in the highest-performing hospitals (by profit margin percentage). After adjusting for the covariates in the regression model, we found that for every 10min above 90min of boarding, the mean EM for the top quartile increased from 245.8% to 249.5% (p <.001). In hospitals in the top 90th percentile of total margin, every 10min beyond the median ED boarding interval led to a decrease in total margin of 0.24%. Using the largest available national registry of ED operational data and concordant nonprofit financial reports, higher boarding among the highest-profitability hospitals (i.e., top 10%) is associated with a drag on profit margin, while hospitals with the highest boarding are associated with the highest leverage (i.e., indicated by the EM). These relationships suggest an association between a key ED indicator of hospital capacity management and overall institutional financial performance.

Bank crisis resolution in India

PurposeThe academic literature has examined why bank runs happen based on the work of 2022 Nobel Prize-winning economists Diamond and Dybvig. They have found the source of banking/financial crisis in terms of mismatch between liabilities (deposits being short term and savers wanting to short-term access to their money) and assets (long term and illiquid). The Lakshmi Vilas Bank (LVB) crisis intensified when it came under Prompt Corrective Action (PCA) of the Reserve Bank of India (RBI). This situation provides the opportunity to study whether the elements embodied in the theoretical models like Diamond and Dybvig hold true for LVB crisis. This study aims to examine the reasons for the demise of LVB in India using DuPont financial model, peer group analysis and time series structural break in crucial financial parameters.Design/methodology/approachThe study examines the reason for insolvency of LVB using financial ratios, financial models (DuPont), financial distress model (Z-score) and asset-liability management. The study also adopts univariate structural break models using quarterly financial data covering the key financial measures used in the RBI’s PCA framework.FindingsLVB crisis is like Diamond–Dybvig model, in the sense, savers requiring short-term access to their money (liquidity for their deposits) on the information of high non-performing assets, which further deteriorates the illiquid nature of loan portfolio (assets) of banks. The study finds its profit margin (net interest margin and non-interest margin) and managerial efficiency had started deteriorating since 2018. The study finds that LVB’s main weakness lies in its limited credit appraisal ability, its monitoring and weak internal controls. Lending to sensitive sectors (like real estate, capital markets and commodities) and exposure to large business groups also contributed to its weakness. The study also finds huge, elevated asset-liability mismatch, especially in the short-term maturity buckets. Using univariate econometric time series model, the study also confirms financial weakness being evident much earlier than the time when resolution was undertaken by the RBI through PCA.Research limitations/implicationsThe study has implications for analysing and monitoring financial distress of banks. The study also has implications for devising banking regulation and supervision.Originality/valueThe study brings in a perspective of the banking regulations using the application of PCA framework on a listed private sector bank. The authors combine an accounting ratio model and combine risk measures that could identify the incipient risks in a bank. The authors believe this will help in refinement of banking regulations and better monitoring mechanisms.

Where there’s a will, there’s a way: Closing the US multicultural wealth gap with purpose-driven organisations

This multidisciplinary paper examines the economic impact of closing the US multicultural wealth gap and proposes a potential solution to solve this problem. It contends that the persistent wealth gap in the country is not only a burden on African American and Hispanic families, but on the US economy more widely. The paper starts by reporting the demographic changes of the last decade and consumer expenditures by ethnicity and race. It then outlines the multicultural wealth gap and calculates the economic impact of Hispanics and African Americans achieving parity on key financial measures. Specifically, the findings suggest that parity in wealth across ethnicity and race could grow the US economy by more than US$8tn. The paper goes on to offer a conceptual, prescriptive model to help reduce the multicultural wealth gap, and proposes that purpose-driven organisations that use ‘purpose’ not just as a starting point but as a raison d’être are better positioned to grow their business in an increasingly diverse society. The paper closes with a discussion of the implications for organisations seeking to balance purpose with performance in the 21st century.

Financial Statements Effects of Adopting IFRS: Evidence from Listed Manufacturing Firms in Sri Lanka

Accounting Information would be beneficial only if it is relevant to the decisions being made. According to International Accounting Standards Board (IASB), the usefulness of accounting information depends on the fundamental qualitative characteristics of relevance and faithful representation. As a result of harmonization and standardization, International Financial Reporting Standards (IFRS) were adopted in Sri Lanka as a developing country from 1st January 2012. Given the differences that exist between developed and developing countries in the context of the accounting profession and other contextual differences, the impact of IFRS adoption in developing countries remains as an empirical gap in the accounting literature. Therefore, the main purpose of the current study is to examine the impact of IFRS adoption on the accounting information quality, in terms of value relevance and the effect on key financial measures of financial statements in Sri Lanka. Data for the current study are collected from audited annual financial statements and Colombo Stock Exchange (CSE) reports for all the listed manufacturing companies in Sri Lanka, for the period of 10 years from 2008/2009 to 2017/2018. Based on the regression estimates obtained, the study concludes that the value relevance of book values of equity is increased upon IFRS adoption. Further the findings reveal that there are favourable impacts of financial statement measures upon IFRS adoption in listed manufacturing firms in Sri Lanka. These results would be pertinent and significant to both Sri Lankan investors and to accounting standard setting bodies such as the IASB and CA Sri Lanka. Further, the study might also be of value to emerging nations with an investment environment similar to that of Sri Lanka and where IFRS reporting have recently been or will be adopted. Keywords: IFRS Adoption, Value Relevance, Financial Statements Effects, Listed Manufacturing Companies, Sri Lanka.

Nonfinancial Measures and Fraud Risk: Evaluating Investors' Reactions to Greater Transparency

ABSTRACTWe examine whether increased transparency in the comparison of financial measures and nonfinancial measures (NFMs) influences nonprofessional investors' reactions to the risk of fraudulent financial reporting. We consider a comparison of key financial measures and NFMs to be transparent when the relevant information is presented in close proximity and formatted to provide an easy comparison of the individual measures. We manipulate the presence of an NFM red flag and the transparency of the comparison of financial measures and NFMs. We find that when the NFM red flag is present (i.e., higher fraud risk) and transparent, investors choose lower investment levels. However, without increased transparency, as is typical in the current reporting environment, we observe that investors are more likely to increase their investment levels in firms with elevated fraud risk. Additionally, we observe that the effect of transparency on investment levels is driven by investors with greater investing experience.Data Availability: Contact the authors.JEL Classifications: M40; M41; M48.

Subsidiary banks in emerging markets: how strong is the coordination on a group-wide basis?

PurposeThe parent-subsidiary nexus has been explored since the mid-1990s, but the extent to which subsidiaries resemble their parents remains unclear. Therefore, this study examines the performance drivers for subsidiary banks in emerging markets and their parents to determine the similarities between these groups. The findings could help identify key financial performance measures that should be included in global strategies for multinational banks operating in emerging markets.Design/methodology/approachThe study uses data on subsidiaries from 32 countries, including 20 European transitioning countries and 49 parent companies operating internationally from 1996 to 2015. It considers several models that distinguish between units using individual bank effects and the stochastic structure. In a robustness analysis, EU- and non-EU-based institutions are distinguished and long-term historical links between parents' and subsidiaries' countries are considered.FindingsCost control, capital adequacy and asset quality policies have similar importance for parent banks and subsidiaries and are strictly coordinated, whereas the remaining policies allow more flexibility. Subsidiaries in the EU and in countries that were politically and/or militarily influenced by parent countries do not “fall far from the tree”, which signals their strong group-wide integration and coordination.Research limitations/implicationsThis study covers a limited number of emerging market countries due to the limited availability of long-term series data. Future studies should include more countries.Originality/valueThis study identifies key financial measures used on a group-wide basis for performance management while accounting for long-term relations between host and home countries and the geopolitical characteristics of host countries.

Financial Statement Effects of Adopting International Accounting Standards: The Case of Greece

This paper investigates the effects of adopting International Accounting Standards (IAS) on financial statements and their value relevance for a sample of Greek firms during 2003-2004. By implementing an innovative research design, we make a comparison between accounting results reported under Greek accounting rules (Greek GAAP) with those under IAS for the same set of years and document how IAS adoption changes key financial measures and the value relevance of financial statement information. Greek accounting system is stakeholder-oriented and usually viewed as a historical cost accounting model that gives emphasis in income smoothing while IAS is shareholder-oriented and generally viewed as fair value accounting model that gives emphasis in balance sheet valuation. According to these realizations, we find that total assets and book value of equity as well as variability of book value and net income are significantly higher under IAS than Greek GAAP. In addition, we find that book value (net income) plays a greater (lesser) valuation role under IAS than under Greek GAAP. Finally, we find that while the IAS adjustments to book value are generally value relevant, the adjustments to net income are generally value irrelevant.

A Financial Ratio Analysis of For‐Profit and Non‐Profit Rural Referral Centers

National financial data show that rural referral center (RRC) hospitals have performed well financially. RRC hospitals' median cash flow margin ratio was 10.04% in 2002 and grew to 11.04% in 2004. The aim of this study is to compare the ratio analysis of key operational and financial performance measures of for-profit RRCs to those of private, non-profit RRCs. To control for accounting aberrations within a given year, we selected RRCs that reported 3 consecutive fiscal years of Centers for Medicare and Medicaid Services (CMS) cost report data, starting with fiscal year 2004 and ending with fiscal year 2006. Given a limited sample size of 28 for-profit RRCs and 127 non-profits, we used the non-parametric median test to assess median differences in operational and key financial measures between the 2 groups. For-profit RRCs treated less complex cases and reported fewer discharges per bed and fewer occupied beds than did non-profits. However, for-profit RRCs staffed their beds with fewer full-time-equivalent (FTE) personnel and served a higher proportion of Medicaid patients. For-profit RRCs generated operating cash flow margins in excess of 19%, compared to only 8.1% for non-profits, and maintained newer plant and equipment. For-profit RRCs generated a substantially higher cash flow margin by controlling their operating costs.

Effective Hospital Revenue Cycle Management: Is There a Trade-off Between the Amount of Patient Revenue and the Speed of Revenue Collection?

Effective hospital revenue cycle management practices have gained in importance in today's hospital business environment, in which many hospitals are confronted with stricter regulations and billing requirements, more thorough preauthorization and precertification, underpayments, and greater delays in payments. In this article, we provide a brief description of current hospital revenue cycle management practices. Next, we suggest measures of the financial benefits of revenue cycle management in terms of increases in the amount and speed of patient revenue collection. We consider whether there is a trade-off between the amount of patient revenue a hospital earns and the speed with which revenue is collected. Using financial statement data from California hospitals for 2004 to 2006, we test empirically the relationships among key financial measures of effective hospital revenue cycle management. We find that hospitals with higher speeds of revenue collection tend to record higher amounts of net patient revenue per adjusted discharge, lower contractual allowances, and lower bad debts. Charity care provision, on the other hand, tends to be higher among hospitals with higher speeds of revenue collection. We conclude that there is no evidence of a trade-off between the amount of patient revenue and the speed of revenue collection but that these financial benefits of effective hospital revenue cycle management often go hand in hand. We thus provide early indication that these outcomes are complementary, suggesting that effective hospital revenue cycle management achieves multiple positive results.

The adoption of IFRS in Australia: The case of AASB 138 (IAS 38) Intangible Assets

AASB 138 Intangible Assets, adopted by reporting entities in Australia for annual reporting periods beginning on or after 1 January 2005, required derecognition of internally generated intangible assets. Prior to its adoption, the standard was widely expected to have a substantial impact on the reports of affected listed entities. On the basis of information available in the 2004/05 annual reports, this paper projects the expected effects of AASB 138 on reported intangible assets and on key financial measures. It compares these projected measures to the realised measures, reported under both Australian GAAP and AIFRS in the 2005/06 reports. While reported intangible assets and the debt to equity ratio were expected to change significantly as a result of AASB 138, the reported AIFRS results show a significant change in only the debt to equity ratio. The paper considers reasons why the pre‐adoption expected changes did not eventuate, and also how the actual changes were reported to stakeholders in the management discussion sections of the annual reports. The conclusion draws implications regarding the transparency of communication in annual reports.

Red Flags in Enron's Reporting of Revenues &amp; Key Financial Measures

In this article, we analyze forensic warning signals that appeared in Enron's financial statements in the years 1996-2001, in which Enron's revenues increased over 1000%, from $13.3 to $138.7 billion in 4 years and 9 months. Enron's phenomenal revenue growth resulted in it achieving the number 6 rank on the Fortune Global 500, surpassing the world's largest companies, including General Electric, Royal Dutch/Shell, DaimlerChrysler, Toyota and ChevronTexaco. Such growth attracted the attention of Wall Street, the media and heads of state, propelling Enron into the class of Fortune's most innovative and admired companies. Inexplicably, when analysts and business writers started digging deeper into Enron's remarkable ascendancy and its financial statements, the realization that Enron's profitability was microscopic compared to its revenues meant that the quality of its earnings was non-existent. As Enron raced ahead in revenues through perilous waters without the requisite number of lifeboats in the form of adequate corporate controls and a compensation system that rewarded dealmakers and executives lavishly with cash upfront for ill-conceived business ventures and phantom cash flow. CEO Jeff Skilling's abrupt resignation in August, 2001 accelerated the decline of Enron's stock price, resulting in bankruptcy at the end of the 3rd quarter of 2001. Indeed, since executive compensation is strongly correlated to company revenue size, Lay's and Skilling's obsessive compensation driven culture without appropriate governance and controls was a determinative factor in Enron's ultimate collapse.

Voluntary IAS 1 accounting disclosures prior to official IAS adoption: An empirical investigation of UK firms

This paper focuses on firms’ voluntary compliance with the reporting requirements of the International Accounting Standard (IAS) 1 before the official adoption of IASs. The paper seeks to identify the motives for the voluntary adoption of IAS 1 and investigates the relation to the provision of voluntary accounting disclosures, the increase in equity capital, managers’ remuneration and firms’ stock returns. The study shows that the decision-making process of firms is significantly influenced by the intention to improve key financial measures, such as leverage, profitability and growth. Firms would tend to adopt an accounting policy or regulation when they feel that adoption would favourably impact on their financial situation. For example, the study indicates that firms voluntarily adopted IAS 1 before the official IAS adoption date in order to provide evidence of superior managerial ability and high quality reported accounting information. It is found that firms that perform well are more motivated to voluntarily abide by IAS 1. The study also reports that firms that provide voluntary accounting disclosures and perform increases in their equity capital appear to voluntarily adopt IAS 1. Similar findings are obtained for firms that display higher management remuneration and stock returns.

Financial statement effects of adopting international accounting standards: the case of Germany

This study investigates the effects of adopting International Accounting Standards (IAS) on financial statements and their value relevance for a sample of German firms during 1998-2002. By implementing an innovative research design we compare accounting numbers reported under German accounting rules (HGB) with those under IAS for the same set of firm-years, and document how IAS adoption changes key financial measures and the value relevance of financial statement information. While HGB is stakeholder-oriented and commonly viewed as a historical cost accounting model that emphasizes income smoothing, IAS is shareholder-oriented and generally perceived as a fair-value accounting model that emphasizes balance sheet valuation. Consistent with these perceptions, we find that total assets and book value of equity, as well as variability of book value and net income, are significantly higher under IAS than HGB. In addition, we find that book value (net income) plays a greater (lesser) valuation role under IAS than under HGB. Finally, we find that while the IAS adjustments to book value are generally value relevant, the adjustments to income are generally value irrelevant. Our evidence provides new insights into the accounting differences between stakeholder-oriented and shareholder-oriented accounting systems and sheds light on the financial statement and valuation implications of adopting IAS in stakeholder-oriented economies, an issue that is particularly important in the upcoming adoption of IAS by the European Community.

The condition and trends of the modern retail market system in Russia: Macroeconomic and financial aspects

The paper explores main trends of the retail market in Russia. The role and place of retail trade systems in the modern economy is described with due regard for international experience. The authors use their original approach to develop quantitative estimates of key financial measures of trade and attempt to appraise the macroeconomic effect of the development of retail trade systems.

An investigation of the effect of Balanced Scorecard implementation on financial performance

In this quasi-experimental study, we investigate whether bank branches implementing the Balanced Scorecard (BSC) outperform bank branches within the same banking organization on key financial measures. Although the BSC has gained popularity among managers as a performance measurement tool, little empirical evidence exists to substantiate claims that the BSC promotes superior financial performance when compared to a traditional performance measurement system. We find evidence of superior financial performance for branches implementing the BSC when compared to non-BSC implementing branches.

An investigation of the effect of Balanced Scorecard implementation on financial performance

In this quasi-experimental study, we investigate whether bank branches implementing the Balanced Scorecard (BSC) outperform bank branches within the same banking organization on key financial measures. Although the BSC has gained popularity among managers as a performance measurement tool, little empirical evidence exists to substantiate claims that the BSC promotes superior financial performance when compared to a traditional performance measurement system. We find evidence of superior financial performance for branches implementing the BSC when compared to non-BSC implementing branches.

Financial Statement Effects of Adopting International Accounting Standards: the Case of Germany

This study investigates the effects of adopting International Accounting Standards (IAS) on financial statements and their value relevance for a sample of German firms during 1998-2002. By implementing an innovative research design we compare accounting numbers reported under German accounting rules (HGB) with those under IAS for the same set of firm-years, and document how IAS adoption changes key financial measures and the value relevance of financial statement information. While HGB is stakeholder-oriented and commonly viewed as a historical cost accounting model that emphasizes income smoothing, IAS is shareholder-oriented and generally perceived as a fair-value accounting model that emphasizes balance sheet valuation. Consistent with these perceptions, we find that total assets and book value of equity, as well as variability of book value and net income, are significantly higher under IAS than HGB. In addition, we find that book value (net income) plays a greater (lesser) valuation role under IAS than under HGB. Finally, we find that while the IAS adjustments to book value are generally value relevant, the adjustments to income are generally value irrelevant. Our evidence provides new insights into the accounting differences between stakeholder-oriented and shareholder-oriented accounting systems and sheds light on the financial statement and valuation implications of adopting IAS in stakeholder-oriented economies, an issue that is particularly important in the upcoming adoption of IAS by the European Community.

Real Time Srategy

Historically, one of the key financial measures of corporate success is return on assets (ROA). Corporate strategists and financial investors use ROA to compare management's use of the firm's total assets to industry averages as well as to the firm's direct competitors.

Wall Street's growing influence on plastic surgery.

The advent of managed care has unleashed market forces on the health care system. One result of these new pressures is a shift from nonprofit to Wall Street-based financing. This report quantifies these trends by comparing health organizations' financial structures in the 1980s and now. The reasons behind this shift and the function of the stock market are examined. A review of Wall Street's key financial measures confirms that health care has shifted to the stock market as its principal means of financing. The stock market works by assigning a current price to a company's stock based on estimates for future earnings. Thus, companies desire predictability in their costs, revenues, and profits. Plastic surgeons can master this system by meeting the challenges imposed by Wall Street financing. Important steps include continuously measuring costs and outcomes of procedures, demanding cost data from hospitals and payers, using these data to improve costs and outcomes, and taking advantage of the system's openness to innovation and easier access to capital. As they seek to protect their role as medical decision makers under the new free-market system, plastic surgeons can benefit from understanding the mechanisms of the stock market.