Fundamentals of Financial Management

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Management

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32 Terms

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4 basics management functions

planning

decision making

organizing

implementing/controlling.

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Financial Accounting

to record and summarize transactions to produce periodic financial statements.

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Management Accounting

is focused on the use of financial data to assist managers in making decisions. 

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Balance Sheet

a document that represents the financial position of an organization at a particular point.  It represents an organization’s assets, liabilities, and equity.

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Assets

represent the resources of the organization.

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Liabilities

are the obligations that an organization has to creditors.

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Owner’s Equity

represents the “book value” of the organization.

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Income Statement

presents the financial results of an organization over a stated period of time.

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Accrual Accounting

revenues are recognized or reflected in an income statement when they are earned, not when they are collected.

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Cash Basis Accounting

revenues are not reflected until the cash payment is received and expenses are not reflected until payment is made for the purchase.

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Revenue

reflect the earnings of the organization, both billed and unbilled, and collected or yet to be collected.

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Expense

are recognized as charges to the income statement as they are incurred.

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Inventories

•the value of merchandise that has been purchased for resale or for inclusion in the value of merchandise that is to be sold, but is at the date of the financial report, as yet unsold.

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Property, plant, and equipment

represent assets that have been purchased that are to be used in the revenue producing activities of the organization.

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Accrued Liabilities

represent the accumulation of costs which have been incurred in operations, but which are not yet due for payment.

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Depreciation

represents the periodic charges of costs to recapture the value of property, plant and equipment in terms that have been purchased and assigned to the balance sheet as long-term assets.

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Ratio analysis

Analysis of financial statements

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Ratio Analysis groups

Liquidity Ratios

Debt-Equity Ratios

Profitability Indicators

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Liquidity Ratios

used to determine the organization’s ability to meet short-term debt obligations.

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Debt-Equity Ratios

used to determine an organization’s ability to meet long-term debt.

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Profitability Indicators

such as Return on Investment (ROI) demonstrate the organization’s efficiency of operations.

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Internal ratios (8)

•Cost-per-test(procedure)

•Total cost per billable test

•Direct cost per billable test

•Technical labor cost per billable test

•Billable tests per labor cost

•Billable tests per patient admission

•Revenue per billable test

•Profit margin per billable test

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Return on Investment (ROI) definiton

profitability ratio used to determine the organization’s efficiency of operations.

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ROI equation

profit margin x assets turnover

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Breakeven aka Cost-Volume-Profit (CVP) definition

Breakeven analysis allows for the projection of costs and revenues given variability in volume and pricing, and provides the necessary information to make decisions regarding potential changes in business operations.

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Breakeven (CVP) equation

Total Fixed Cost ÷  Contribution Margin/test

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What is paramount to achieving fiscal success of an organziation

Planning process and control of operations through sound internal planning and proper budgeting

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SWOT

determine a organizations

–Strengths

–Weaknesses

–Opportunities

–Threats

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2 types of costs

Direct

Indirect

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Direct costs includes

fixed costs: constant regardless of volume

Variable costs: vary with volume

Labor costs: falls under fixed or variable depending on type of compensation

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Indirect costs examples

HR, facility maintenance

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