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Summer 24 > Finance Ch. 8 > Flashcards

Finance Ch. 8 Flashcards

1
Q

What is GAAP (Generally Accepted Accounting Principles)

A
  • a set of established industry standards set by The Financial Accounting Standards Board (FASB)
    -is an evolving set of standards, principles, and practices that serve to guide how financial statements are constructed and organized.
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2
Q

What is the basic equation of accounting

A

assets = liabilities + owner’s equity.

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3
Q

What are assets?

A

the total resources owned by the organization.

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4
Q

What can be used to acquire an organization’s assets?

A

Liabilities and Equity

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5
Q

What are liabilities?

A

The total capital investment borrowed.

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6
Q

What are owner equities?

A
  • the total capital owned.
    -owner’s equity is referred to as “net assets” – assets remaining after accounting for liabilities.
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7
Q

What is a balance sheet?

A
  • Statement of Financial Position
    -reports on a company’s assets, liabilities, and equity at a GIVEN POINT IN TIME
  • used to understand the financial health of business operations and impact of strategic decisions
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8
Q

What is a Statement of Comprehensive Income?

A

-profit and loss (P&L) statement
-reports on an institution’s income, expenses, and profits OVER A PERIOD OF TIME

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9
Q

What is a Statement of Cash Flows?

A

reports on a company’s cash flow activities, particularly its operating, investing, and financing activities.

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10
Q

What is the most liquid of all assets?

A

Cash and its always listed first on the balance sheet

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11
Q

What is used to fund daily operations?

A
  • Cash
  • Days Cash on Hand is a critical financial ratio
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12
Q

How can you track cash and cash equivalents?

A

Through accounts receivable (AR)

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13
Q

What are some examples of current assets?

A
  • Inventory items such as dressings, linens, and medications
    -These items are consumed in the process of generating operating revenue.
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14
Q

How do you calculate current net assets

A

Subtract bad debt, charitable allowances, and contractual allowances from gross assets

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15
Q

What is bad debt?

A

payment for care that while expected to be paid, are in fact not paid.

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16
Q

What is charitable allowances?

A

care provided to those who have limited resources and are not expected to pay.

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17
Q

What are contractual allowances?

A

the discount to charges accorded to third-party payers by the hospital.

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18
Q

What are fixed assets?

A
  • Cannot be converted to cash within a year (land, building, and equipment owned by the organization
  • Fixed assets are intended for long term utilization and is accounted for through the process of depreciation
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19
Q

What is depreciation?

A

the spread of cost over time to reflect wear anticipated with the use of a capital asset.

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20
Q

What are current liabilities?

A
  • owed with a year
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21
Q

What are long term liabilities?

A

planned to be paid off in more than a year.

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22
Q

What is the Largest liability for health care organizations

A

salaries

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23
Q

What is net worth?

A
  • owner’s equity
    -liabilities are totaled, the net worth (or owner’s equity) is the difference between the total assets and total liabilities.
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24
Q

What is income statement?

A
  • referred to as the Profit and Loss (P&L) Statement.
  • summarizes organizational and departmental revenue and expenses, or credits and debits.
    -Shows whether the company made or lost money during the period being reported.
  • Typically produces monthly and includes an accounting of all revenue.
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25
Q

What is margin?

A

The percentage of net revenue

26
Q

What is cash flow statement?

A
  • Shows an organization’s cash inflows and outflows.
  • Used to determine the short-term financial viability of the organization.
    -provide information on whether core business activities are self-sustaining, or if the organization must pull in cash from other resources.
27
Q

What is operating cash flow?

A

used to fund core business operations (i.e., patient care)

28
Q

What is investing cash flow?

A

cash deployed for interest income

29
Q

What is financing cash flow?

A

cash borrowed, and loans repaid

30
Q

What is EBITDA?

A
  • Earnings before interest, taxes, depreciation, and amortization
  • how much money a company earns if it did not have to pay interest, tax, or take depreciation and amortization charges.
31
Q

What are paid claims to ratio?

A

the hospital bills versus what they collect. This metric is asking what we collect on the dollar.

32
Q

What are ratios?

A
  • comparison of numbers
  • compared over a given time frame
    -More valuable when also compared to state, regional, and/or national benchmarks for the same ratio.
    -
33
Q

What are the most common types of ratios?

A
  • Liquidity ratios
  • Solvency ratios
  • common size ratios
  • Profitability rations
  • efficiency ratios
34
Q

What is liquidity ratio?

A

provide insight into an organization’s ability to meet its obligation over the next year.

35
Q

what are solvency ratios?

A

provide insight into an organization’s ability to meet its obligation in the long term.

36
Q

What are common size ratios?

A

provide an indication of the relative size of the organization.

37
Q

what are profitability ratios?

A

provide insight into an organization’s ability to produce profits and cash flow.

38
Q

what are efficiency ratios?

A

provide insight into how efficiently an organization is using its resources.

39
Q

What is current ratio?

A

an indicator of whether a hospital has enough resources to pay its debts over the next 12 months. It compares current assets to current liabilities.

40
Q

How is current ratio used?

A
  • helps investors and creditors understand the liquidity of an organization and how well that organization is managing its liabilities
  • HIGHER current ratio is BETTER
41
Q

How do you calculate current ratio?

A

current assets over current liabilities (divided by)

42
Q

What is quick ratio (acid test)

A

Measures the dollars of current assets (not including inventories) per dollar of current liabilities.

43
Q

How is quick ratio used?

A

a more stringent measure of liquidity
versus the current ratio because it removes the least
liquid of assets, inventories, from the calculation.

44
Q

how is quick ratio calculated?

A

Quick ratio (Acid test) = Current assets – Inventories and then divide that answer by
Current liabilities

45
Q

What is debt ratio?

A

The debt to equity ratio is another analysis of liquidity that
compares an organization’s total debt to total equity.

46
Q

How is debt ratio used?

A

defines debt as all interest bearing and
noninterest bearing liabilities making it the most inclusive
of the capitalization ratios. shows the
percentage of financing that comes from creditors and
investors. The higher the debt ratio, the greater the
amount of debt financing.

47
Q

How is debt ratio calculated?

A

total Debt divided by total assets and that answer multiplied by 100

48
Q

What is total margin %

A

Net income divided by total revenue

49
Q

How is total margin used?

A

Calculates an organization’s ability to control expenses by
measuring the total profitability as a percentage of total
revenues. The higher the total margin, the better it is.

50
Q

How is total margin calculated?

A

net income divided by total revenues. and then multiply the answer by 100

51
Q

What is return of assets %?

A

profitability ratio that measures total
profitability as a percentage of total assets. It provides
guidance on how efficiently an organization uses its to
generate income

52
Q

How is return of assets used?

A

the organization is to investors as
it shows more effective management of assets to produce
greater amounts of net income.

53
Q

how do you calculate return of asset?

A

Net income divided by total assets and the answer is multiple by 100

54
Q

What is days cash on hand?

A

measures the number of days that an
organization could continue to pay its daily cash obligations
without new cash resources.

55
Q

How is days cash on hand used?

A

Higher values imply higher liquidity and are viewed favorably
by creditors. However, organizations should avoid holding
excess amounts of cash and short-term investments because
they typically provide a lower return than long-term
investments

56
Q

What is days in accounts receivable?

A

a measure of the average time it takes an
organization to collect what it is owed (receivables)

57
Q

How is days in accounts receivable used?

A

Provides insight into how effective an organization is at
managing its receivables. The shorter the average
collection period, the lower the dollar amount of
receivables, which leads to a lower carrying cost

58
Q

What is the average daily census?

A

the average number of
inpatients treated during a given period of time

59
Q

How is average daily census used?

A
  • Provides a measure of inpatient volume on the basis of
    number of patients.
  • higher average
    daily census is considered beneficial as it tends to indicate
    higher profitability.
60
Q

What is the pro forma tool?

A
  • used to model and predict future operational
    performance based upon a series of business assumptions
    -forward-looking document used to guide executive
    decision making in the application of capital for business investment.
61
Q
A
62
Q

What is net revenue?

A

expected revenue minus the bad debt, contractual allowances from both governmental and other payers, and charity care.

Summer 24 (17 decks)

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