*Financial Management

Question 1

a clear understanding of a hospital’s financial statements requires review of four major areas - what are they?

Answer 1

theories
purpose
practicality
effect of financial reporting

Question 2

term for: detailed list of all accounts regularly used in the normal course of business

Answer 2

summary of chart of accounts

Question 3

term for: report detailing revenue minus expenses to show net income during a period

Answer 3

profit & loss statement, aka income statement

Question 4

term for: statement of the financial condition of the practice listing it’s assets, liabilities, and owner’s equity at a specific point in time

Answer 4

balance sheet

Question 5

what is the difference between straight-line depreciation and the Modified Accelerated Cost Recovery System?

Answer 5

straight-line: spreads value of investment evenly over useful life
MACRS: more of the value of an investment is placed in the earlier years of the useful life

Question 6

What are the three main financial statements and the differences between them?

Answer 6

Balance sheet - income vs expenses at specific point in time
Income statement - income vs expenses over period of time
Statement of cash flows - cash in vs out

Question 7

Define: percentage statement analysis

Answer 7

Describing expenses as percent of revenue
Aka: common sizing or right sizing

Question 8

define: right sizing, AKA common sizing

Answer 8

listing expenses as percent of revenue

Question 9

what is the most important tool for controlling expenses?

Answer 9

comparing to the BUDGETED expenses

Question 10

name three ways to evaluate expenses

Answer 10

1. against previous year
2. against budgeted expenses
3. against industry standards

Question 11

define: variance analysis

Answer 11

investigation of variances in expenses

Question 12

define direct vs indirect expense

Answer 12

direct - expense that can be linked to specific service provided (i.e. vet salary)
indirect - expense not linked to service provided (i.e. utilities)

Question 13

How are the profits of the practice to be paid as compensation to the owner different in a C-corp vs S-corp?

Answer 13

C: typically paid as bonus which avoids additional taxation

S: paid as bonus or draw on owner’s equity

Question 14

what is the first step a hospital should take in assessing it’s financial health?

Answer 14

set up financial statements

Question 15

what is a way to analyze the viability of a new initiative before implementing it?

Answer 15

cost-benefit analysis

Question 16

Net profit margin =

Answer 16

Profit / revenue

Question 17

Gross profit margin =

Answer 17

Gross profit / revenue

Question 18

Accounts receivable turnover=

Answer 18

Credit sales / average AR

Question 19

Average AR =

Answer 19

Beginning AR + ending AR / 2

Question 20

Days in AR =

Answer 20

Number of days in period / AR turnover

Question 21

Debt service coverage =

Answer 21

Gross profit / principle + interest

<1.0 is poor
1.5+ is ideal

Question 22

Debt to capital =

Answer 22

Total debt / total debt + equity

Question 23

Return on equity =

Answer 23

Net income / average equity

Question 24

Current ratio =

Answer 24

Current assets / current liabilities

Question 25

Days cash balance =

Answer 25

How many days of overhead current level of cash would cover

Cash / annual operating expense / 260 days

Question 26

What website has lots of vet med financial resources?

Answer 26

ncvei.org

Question 27

What two documents are most important for fraud and embezzlement prevention?

Answer 27

Invoice and receipt for payment

Question 28

What are the four stages of the economic cycle?

Answer 28

Expansion, prosperity, contraction, recession

Question 29

What are the steps of budgeting?

Answer 29

Determine desired financial result
Analyze financial statements
Normalize revenue and expenses
Budget revenue
Budget expenses
Combine budgeted revenue and expense and make adjustments

Question 30

when preparing a budget, what are the four categories expenses can be broken down into?

Answer 30

personnel, facility, COGs, admin

Question 31

If your budget is indicated more profit is needed, what are your three options?

Answer 31

increase revenue
lower expenses
lower target profits

Question 32

define: pro forma statements

Answer 32

financial statements including income statement, cash flow statement, and balance sheet based on projections about the future

Question 33

what elements should be included in a business plan?

Answer 33

operational overview
financial management
capitalization plan
budgeting
pro forma financial statements
SWOT analysis

Question 34

what two measures reflect a projects risk and profitability?

Answer 34

net present value and internal rate of return

Question 35

what type of lease provides an opportunity for ownership?

Answer 35

capital lease

Question 36

what is the accounting equation?

Answer 36

equity = assets - liabilities

Question 37

define: acquisition cost

Answer 37

cost of equipment or property plus expenses needed to place and ready that asset for use

Question 38

define: adjusting entry

Answer 38

entry made to correct an accounting event that was improperly recorded or wasn’t recorded

Question 39

define: application service provider

Answer 39

third party that manages software-based services for customers

Question 40

define: appreciation (in regards to finances)

Answer 40

increase in value of asset

Question 41

define: articles of incorporation

Answer 41

document filed with authority by people forming a corporation, outlining management of corporation

Question 42

in regards to finances, define: balloon

Answer 42

large final payment on a debt