Healthcare Finance -Final Study Guide questions n answers, Exams of Nursing

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Healthcare Finance -Final Study Guide

The face value of a bond when held to maturity is: - correct answer ✔✔ Amortization Schedule - correct answer ✔✔ Credit rating - correct answer ✔✔ Profit and Loss Statement - correct answer ✔✔ Profit Margin - correct answer ✔✔ Treasury Security - correct answer ✔✔ Full cost pricing - correct answer ✔✔ Expense Budget - correct answer ✔✔-the expense budget combines volume data with detailed resource utilization data to forecast expenses. To be most useful, expenses must be broken down into fixed and variable components. Like revenues, expenses must be forecasted at multiple levels. Operating Budget - correct answer ✔✔-for larger organizations, the operating budget, which focuses on projected profitability, combines information from the revenue and expense budgets. Smaller organizations may use a single operating budget in place of multiple budget types. Flexible Budget - correct answer ✔✔-a flexible budget, which is based on all initial budget assumptions but then adjusted (flexed) to reflect actual (realized) volume. Bottom-up budgeting - correct answer ✔✔-Begin at sub-unit (departmental) level. Are reviewed and compiled by the finance department. Are approved by Senior management.

Role of Finance - correct answer ✔✔-the primary role of finance within health services organization is to plan for, acquire, and utilize resources to maximize the efficiency (and value) of the organization. CFO -Chief Financial Officer - correct answer ✔✔Comptroller -Budgeting, reporting, payables, and financial operations Treasurer -Capital acquisition, capital employment, debt management, and financial risk management Tax-exempt debt offering - correct answer ✔✔ Assets - correct answer ✔✔Assets -either possess (i.e., cash) or create (i.e., buildings and equipment) economic benefit to the business. -current assets include *cash *other assets that are expected to be converted into cash within the next year: *cash equivalents *short-term investments *net patient account receivable *inventories -note that current assets are listed in order of liquidity, or nearness to cash -current assets are necessary to support operations, but they provide no (or little) explicit monetary return. -long-term investments -are investments in securities (financial assets), as opposed to land, buildings and equipment (real assets), that have maturities greater than one year. -net property and equipment represents real assets (as opposed to financial assets) having useful lives greater than one year. Often, such assets are called fixed assets. Accounts Receivable - correct answer ✔✔

Capital Structure - correct answer ✔✔-is the financing mix used to acquire a business's assets. Simply put, it is the proportion of debt financing used by a business. DCF -(Discounted Cash Flow) - correct answer ✔✔analysis is the name given to techniques that account for the time value of money. IRR -(Internal Rate of Return) - correct answer ✔✔measures a project's rate of (percentage return). IRR is the project's expected rate of return. If a project's IRR is greater than its cost of capital, then there is an "excess" return that contributes to the equity value of the business. NPV -(Net Present Value) - correct answer ✔✔measures a project's time value adjusted dollar return. NPV measures return on investment (ROI) in dollar terms. A positive NPV signifies that the project will enhance the financial condition of the business. The greater the NPV, the more attractive the project financially. EBIT - correct answer ✔✔ Capitation - correct answer ✔✔-payment is not tied to utilization but rather to the number of covered lives, payment to providers usually is made on a per member per month basis, and it is used primarily by managed care organizations. Capitation changes the playing field for providers: the incentive now is to: Increase the number of covered lives; decrease the volume of services. Capitation changes the way in which profit analysis is conducted Perhaps the best way to see the effect of capitation is by graphical analysis Utilization (number of visits) Membership (covered lives) GAAP -Generally Accepted Accounting Principles) - correct answer ✔✔the result is a set of guidelines for the preparation of financial statements called GAAP Cash Accounting - correct answer ✔✔-recognizes an event when a cash transaction takes place.

*Simple and easy *Mimics tax statements Accrual Accounting - correct answer ✔✔-recognizes an event when an obligation is created. *More complicated *Provides a better picture of the true economic status of a business *Is required by GAAP Double Entry System - correct answer ✔✔ The Four C's of a good manager - correct answer ✔✔· Costs -must be continuously monitored to ensure that they are not excessive for the amount of services provided · Cash -business must have sufficient cash on hand to meet payment obligations as they occur · Capital -business must raise the capital (money) necessary to buy the facilities and equipment needed to provide services · Control -business must control their resources to ensure that they are used wisely Contribution Margin - correct answer ✔✔-the contribution margin is defined as the difference between per visit (per unit) revenue and the variable cost rate. It is the amount of each visits revenue that is available to: *FIrst cover fixed costs *Flow to profit when fixed costs are covered KPI (Key performance Indicators) - correct answer ✔✔-are limited number of operational (and financial) metrics that measure performance critical to the success of an organization. Income Statement - correct answer ✔✔-provides information about a business's operations and economic profitability...AKA Statement of Operations and Statement of Activities

-reports the results of operation over some period of time, say, a year. It has three key elements: Revenues Expenses Profit Measure = Revenues - Expenses Balance Sheet - correct answer ✔✔-contains information about: The assets of an organization The liabilities and equity of the business, or how the assets are financed

• the balance sheet presents a business's position at a given point in time -the basic format of the balance sheet highlights the accounting identity, often called basic accounting equation: Assets = Liabilities + Equity -Noth that the accounting identity is often expressed as follows: Equity = Assets - Liabilities, which highlights the fact that the equity amount is a residual Par Value - correct answer ✔✔ An Example of a Cost Driver - correct answer ✔✔-a cost driver is the basis on which the cost pool will the allocated. For example, the cost driver for facilities overhead (building space depreciation, maintenance, utilities, and so on) might be the amount of space used by each patient service department. Fiscal Year - correct answer ✔✔ Maturity Date - correct answer ✔✔ Yield-to Maturity - correct answer ✔✔ Variance - correct answer ✔✔-a variance is the difference between actual results and the budgeted (standard) value. Variance analysis is a technique applied to budget data to: Identify problem areas, enhance control

Zero-based budgeting - correct answer ✔✔in zero-based budgeting, each new budget is started from scratch Relative Value Unit (RVU) - correct answer ✔✔-payments are made according to a Resource-Based Relative Value System with three components: *physician work *practice (overhead) expense *malpractice insurance expense -roughly 8,000 procedures have been assigned relative value units (RVUs) for each of the component -the procedure RVU total is multiplied by a dollar conversion factor and geographic cost index to obtain the payment amount. Reciprocal Method - correct answer ✔✔-the reciprocal method recognizes all of the support department interrelationships, but it requires a system of simultaneous equations or a complex set of iterative calculations. Portfolio - correct answer ✔✔ Statement of Cash Flow - correct answer ✔✔-combines both income statement and balance sheet data to create an income statement-like report that focuses on cash flows. -like the income statement, it reports transactions over some time period. -the top part of the statement is divided into three sections: *Cash flow from operating activities *Cash flow from investing activities *Cash flow from financing activities -the bottom part reconciles the change in cash on the statement with the cash account on the balance sheet. ABC method - correct answer ✔✔-Unlike traditional cost allocation, which is a top-down system, activity based costing (ABC) begins with the individual activities that comprise the services provided. Although it holds great promise for costing individual services, it requires more information and is more complex than traditional costing.

Price-taker - correct answer ✔✔ Cost of Debt - correct answer ✔✔-the component cost of debt is the return required by debt suppliers, and the cost of equity is defined similarly. For a not-for-profit business, the cost of debt is unadjusted interest rate. The debt cost plus risk premium method is one way to estimate the cost of equity. NASDAQ & NYSE - correct answer ✔✔ Retained Earnings - correct answer ✔✔ The Float - correct answer ✔✔-is the difference between the cash amount on the bank's books and the amount on the firm's checkbook. Depreciation - correct answer ✔✔-expenses arises because according to GAAP expenses must be matched to the revenues with which they are associated. Deductible - correct answer ✔✔ Amortized Loan - correct answer ✔✔