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Pharmacy Management (P1 Spring) > Financial Reports and Budgeting > Flashcards

Financial Reports and Budgeting Flashcards

1
Q

_____ is the process of recording, reporting and analyzing financial transactions

A

Accounting

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2
Q

_______ fiscal/financial events that are recorded.

A

Transactions

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3
Q

________ a defined period of time over which transactions are recorded.

A

Accounting period

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4
Q

Income is measured at the END of the “____ ___” which is normally ____ year(s) long

A 
"accounting period"
1 year (12 months)
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5
Q

T/F? The accounting year is ALWAYS the “calendar year”(Jan-Dec) long

A

False

- it can be the calendar year or the FISCAL YEAR (more common)

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6
Q

The measurement of goods sold or services rendered for which payment is received.

A

Revenue

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7
Q

The measurement of resources used up during a period of time in order to earn revenue.

A

Expenses

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8
Q

T/F?

The time in which you measure Revenue and Expense MUST BE THE SAME.

A

TRUE

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9
Q

Expenses- Resources that can be used up. (3)

A

-Inventory (cost of goods sold)
- personnel
-intangible expenses
(all must be recorded)

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10
Q

Drugs owned by a retail pharmacy are examples of what?

A

Assets

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11
Q

When a pharmacy OWES another business money it is considered a what?

A

Liability (Creditors- loan money= Liability)

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12
Q

_______ is the sum of monies that are owned outright.

A

Owners Equity

Assets minus Liabilities

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13
Q

Accounting Equation

A 
A-L= OE
A= L+OE (balance sheet will be listed this way)
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14
Q

____ ____ is the Mathematical expression used to describe the relationship between assets, liabilities and owner’s equity.

A

The accounting equation

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15
Q

What are the 3 fundamental accounting activities

A

-obtain financing
-make investments
-conduct a profitable operation
(we can do this by using the accounting equation)

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16
Q

Financing may be obtained from _____ and/or _____

A

owners (shareholders) and/or creditors

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17
Q

Who has a claim on the BUSINESS ASSETS and receives regular MONETARY distributions (dividends)

A

Owners/Shareholder (owners-invest money= shareholder)

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18
Q

____ loan money and are considered a liability

A

Creditors

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19
Q

______ have a claim on the business assets and requires a business to repay loan w/ interest over a specified period of time.

A

Creditors

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20
Q

T/F?

Type of investment depends upon the type of business conducted.

A

True

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21
Q

Funds are typically invested into what 3 things?

A
  • Inventory (COGS)
  • Equipment (computers, Rx vials)
  • Personnel
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22
Q

T/F?

Assets are used/engaged to conduct business operations.

A

True

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23
Q

Operating activities include what 4 things?

A

Purchasing
Distribution
Clinical activities
Administration

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24
Q

______ ______ a written report that summarizes the transactions of a company for an entire accounting period.

A

Financial Statement

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25
Q

What are the 3 most common types of financial states?

A
  • Income Statement
  • Balance Sheet
  • Statement of Cash Flow
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26
Q

Income statement is also knows as what? (2)

A
  • a income and expenses statement

- profit and loss statement

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27
Q

What Provides information about monies coming into the business (income) and monies used to generate income (expenses)?

A

Income Statement

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28
Q

Revenue - Expenses = ?

A

Income

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29
Q

T/F?

Income after taxes= Net income= net profit= earnings= link between income statement and balance sheet

A

True

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30
Q

____ _____ Provides information about an organization’s assets, liabilities, and owner’s (shareholder) equity at any point in time.

A

Balance sheet

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31
Q

T/F? Balance sheets can ONLY be prepared at the end of the accounting period

A

False

-May be prepared at any point in time but is commonly prepared at the end of each fiscal year

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32
Q

Assets can be put into what 2 categories?

A

Current and Fixed

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33
Q

Current Assets

A
  • CASH ON HAND or the promise of cash

- if we had to pay a bill today we are able to meet financial obligations

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34
Q

Fixed Assets

A

things that we own but could sell if we needed to in order to generate income.

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35
Q

Current Liabilities

A

expenses that are due within 30 days

36
Q

Long-term Liabilities

A

financing of something over a long period of time.

i.e. loan for a house

37
Q

T/F?

The balance sheets runs the LIFE of the business.

A

True

38
Q

Cash flow provides what?

A

information about the flow of cash into and out of an organization

(important to follow trends of cash flow)

39
Q

What 3 categories does cash coming in or going out fall into?

A
  • operating
  • investing
  • financing
40
Q

How often should cash flow trends be looked at?

A

monthly

-on a planning basis

41
Q

Financial ratios provides information about what 3 financial performances?

A
  • Profitability
  • Liquidity
  • Turnover
42
Q

T/F?

Ratios use data from balance sheets only.

A

False

- income statements and balance sheets

43
Q

T/F?

Financial ratios are not compared to REFERENCE POINTS.

A

False

  • should be compared to a reference point
  • industry standards
  • historical trends
44
Q

What type of Ratios Measure the overall success of DAILY OPERATIONS?

A

Profitability Ratios

45
Q

What are the 3 most common PROFITABILITY RATIOS?

A
  • Gross profit margin (GPM)
  • Net profit margin (NPM)
  • Return on investment (ROI)
46
Q

Gross Profit Margin (GPM)- (3)

A
  • Availability of money to pay expenses
  • Typical range: 10-40%
  • Affected by DRUG prices and 3RD PARTY reimbursement
47
Q

Net profit margin (NPM) (2)

A
  • Fraction of net profit generated for every dollar of sales

- Indicates how well operating expenses are managed

48
Q

T/F?

Gross profit margin and drug prices and 3rd party reimbursements have an INVERSE relationship.

A

True

49
Q

What Measures how well an organization can make a profit from owner’s/investors funds?

A

ROI- Return on investment (sweat equity)

50
Q

What may be used to gauge manager’s performance?

A

Return on investment

51
Q

What does liquidity Ratios measure?

A

an organization’s ability to meet SHORT-TERM financial obligations

52
Q

T/F?

Two PROFITABLILITY ratios include Current ratio and Quick ratio.

A
  • False

- LIQUIDITY Ratios

53
Q

T/F?

QUICK ratio Takes into consideration ALL current assets (cash, accounts receivable, COGS)

A

FALSE

- CURRENT

54
Q

Increased current ratio = a decrease in what?

A

↑ CR = ↓ risk in meeting financial obligations

May indicate organization is too conservative

55
Q

Decreased current ratio = inability to ____ and can lead to _____

A

↓ CR = inability to pay current liabilities → bankruptcy

- indicates CASH FLOW issue.

56
Q

What is the desired range for current ratio?

A

2-5

57
Q

Quick ratio (5)

A
  • Also known as the acid-test ratio
  • Quick assets are easily converted to cash
  • BEST INDICATOR of ability to pay financial obligations
  • Good current and bad quick ratio
  • –Too much money is tied up in inventory
  • Desired QR: >1
58
Q

T/F?

Turn over ratios measure an organization’s efficiency in using its assets

A

True

59
Q

Inventory turnover ratio measures ____?
Increased ITOR indicates ____?
Decreased ITOR indicates ____?
Desired Range____?

A

Measures how quickly inventory is sold
↑ ITOR indicates inventory is bought and sold quickly
↓ ITOR indicates inventory is sitting on the shelf
Desired range: 6-12
ITOR DAYS = 365 / ITOR

60
Q

Accounts receivable ratio measures ____?
Increased ARTOR indicates ____?
Decreased ARTOR indicates ____?

A

Measures how quickly money owed is collected

↑ ARTOR indicates efficiency in collecting money owed, probable good cash flow, and the ability to meet financial obligations

↓ ARTOR indicates inefficiency in collecting money owed, probable poor cash flow, and the inability to meet financial obligations

ARTOR DAYS = 365 / ARTOR

61
Q

What is the best indicator of a business’ ability to pay financial obligations?

A

Quick Ratio

62
Q

Detailed plan specifying how resources will be acquired and used during a specified time

A

Budgets and Budgeting

63
Q

Practice-specific financials can be _____and ____.

A

Community

Institution

64
Q

Community or Institution:

  • Payment plan reports
  • Personnel expense reports
A

community

65
Q

Community or Institution:

  • Expense reports related to cost of personnel
  • Budget reports (pharmacy vs. organization)
A

institution

66
Q

5 steps for Budgets and Budgeting

A
  • Planning
  • Communicating
  • Allocating resources
  • Controlling operations
  • Evaluating performance
67
Q

Name the step- Budgets and Budgeting:

  • Quantify a plan of action
  • Requires members of an organization to anticipate or react to changes in the sector
A

Planning

68
Q

Name the step- Budgets and Budgeting:

  • Effective managers are aware of plans made by other managers
  • Discuss financial and operational needs
A

Communicating

69
Q

Name the step- Budgets and Budgeting:

  • Resources are limited (personnel and financial)
  • Budgeting for competing uses
  • -Patient safety (pharmacy) vs. patient care (nursing)
A

Allocating resources

70
Q

Name the step- Budgets and Budgeting:

  • Useful benchmark to compare budget vs. actual
  • -May result in changes when faced with unexpected decline in sale or increase in expenses
A

Controlling operations

71
Q

Name the step- Budgets and Budgeting:

Pay-for-performance incentives

A

Evaluating performance

72
Q

T/F?

BUDGETING is a process known as budget padding.

A

False

-BUDGET BEHAVIOR

73
Q

_____ is the difference between actual and projected values.

A

Budgetary Slack

74
Q

What are 3 reasons for budget padding?

A
  • Perceived superior performance
  • Way to plan for the “unexpected”
  • Achieve desired budget after resource-allocation
75
Q

Budget Behavior:

Leadership is often incentivized to_____ _expenses and _____ costs.

A

underestimate; overestimate

76
Q

When developing an budget you must estimate what 2 things?

A

expenses and revenue

77
Q

Estimated expenses (4)

A
  • Production
  • Merchandising
  • Patient Care
  • Cash
78
Q

Estimated revenue (6)

A
  • Organization’s past sales and trends
  • General economic and industry trends
  • Impact of political and legal events
  • Promotional activities
  • Expected actions of pharmacy and competitors
  • Market research studies
79
Q

____ is the OVERALL financial plan or statements.

A

Pro forma

80
Q

Pro forma is made up of (2)?

A

Income and expense sheet (income statement)

Balance sheet

81
Q

The LARGEST EXPENSE of a pharmacy is ______

A

Inventory

82
Q

Income Sheet reports

A

Revenue and Expenses

83
Q

Balance Sheet reports

A

Assets
Liabilities
Owner’s Equity

84
Q

T/F The ARTOR rate and days are inversely proportional to each other

A

TRUE

85
Q

Good Current Ratio and Bad Quick Ratio

A

We have too much money tied up in inventory

Pharmacy Management (P1 Spring) (11 decks)

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