Conquer the 2026 Healthcare Finance Exam – Unlock Financial Fitness in Healthcare!

Unlock all questions

This demo includes only 20 questions. Upgrade to access hundreds of questions, flashcards, exam simulations, and disable ads.

Full question bankExam simulationsFlashcards

From $12.50Unlock all

Session length

1 / 20

Why is operating cash flow a better indicator of ongoing liquidity than net income?

It reflects cash flows from core operations, while net income includes non-cash items and accruals.

It includes net income plus depreciation adjustments.

It is identical to net income for most healthcare organizations.

It reflects cash-generating ability from core operations, while net income includes non-cash items and accruals.

Operating cash flow captures the actual cash generated by daily operations, which is what liquidity hinges on. Net income is based on accrual accounting and includes non-cash items and timing effects, so it can look strong even when cash isn’t actually available. In healthcare, depreciation and other non-cash charges reduce net income but don’t draw cash, while changes in working capital—like delays in collecting from payers or timing of supplier payments—directly affect cash. Because of this, operating cash flow provides a clearer picture of the cash-generating ability from core operations that can be used to meet ongoing expenses, debt service, and other short-term needs. That's why it’s the better indicator of ongoing liquidity.