HIM 481 - Exam 1: Focus on Units 3 and 4 Financial Concepts

What is return on investment? written as?

increase in value of asset; as percentage

How do you calculate the ROI for an organization?

earnings (after taxes)/ total assets

x 100

earnings is revenue - expenses

assets is $ you had from the beginning

To perform a vertical analysis on an income statement, each figure should be divided by

revenue

To perform a vertical analysis on a balance sheet, each figure should be divided by

total assets

What are the 4 profitability ratios?

total (gross) margin, return on assets, return on equity, operating margin

Profitability ratios:

What type of org. uses this more?

What's the equation?

not for profit

net income / measure of business size

What is the total margin aka gross margin? Does it use balance sheet or income statement?

net income/total revenue; income statement

Return on assets: Does it use balance sheet or income statement?Calculation?

both; net income/average total assets

What is return on equity? Does it use balance sheet or income statement?

net income/total equity; both

What is net income?

change in net assets

Assets can also mean?

equity

What is operating margin? Does it use balance sheet or income statement?

operating income/operating revenue; income statement

What are liquidity ratios?

Measures ability of a company to meet current obligations or debts

What are the 3 liquidity ratios?

current ratio, quick ratio, days cash on hand

What is the current ratio? Does it use balance sheet or income statement?

total current assets/ total current liabilities

balance sheet

What does the current ratio measure?

measures short term or current assets available to cover short term liabilities

What does a current ratio of >1 mean? What does too high value mean?

facility has enough readily available assets to cover short term liabilities

Too high means facility not efficiently using assets

What is a quick ratio?; also called? Does it use balance sheet or income statement?

cash+cash equivalents+short term investments+accounts receivable divided by total current liabilities

acid test

balance sheet

What is the difference b/t current ratio and quick ratio?

QR more conservative measure of liquidity

True or false: QR => CR

False. QR should be less than or equal to CR

What is Days Cash on hand? Does it use balance sheet or income statement? reported as?

(unrestricted cash and cash equivalents) divided by (operating expense - depreciation and amortization)/number of days in period

Uses both; days

What is a traditional budget?

-Target percent increases/decreases for expected revenue and expenses

What are the disadvantages of a traditional budget?

stifles creativity and misallocates resources

Are traditional budgets usually use top down or bottom up approach? What are they?

Use top down

top down: based on executive team's expectations

bottom up: · based on dept's own contractual obligations and expectations

What is a flexible budget? Disadvantages? Where should it be used? not be used?

varies based on volume; time consuming; lab; him dept

What is a zero-based budget?

Begins w/ evaluation of success service lines or projects, then expenses must be justified based on revenue, then budget starts at 0 and goes up based on justifications

When should zero-based budgets be used?

Special projects for large HC orgs, charitable orgs, foundations, professional associations

Formula for contractual allowance?

gross revenue - net revenue

What is an operating budget?

Defines routine revenue and expenses for a coming period

Characteristics of operating budget?

Depends on nature of activities

Consists of estimated revenues and expenses

Used as benchmark against departmental management performance

What is a permanent variance?

Not expected to resolve before year end

What is a temporary budget variance?

Expected to resolve before year end

What is a favorable budget variance?

-Revenue higher than budget

-Expense lower than budget

Unfavorable variances are

-Low revenue

-high expenses

7,500.00 for outsourced coding services to address backlog

unfavorable; permanent

$12,500.00 as a result of Assistant Director laid off in November

favorable; permanent

$500 for new computer needed to replace one that quit and was not repairable

unfavorable; permanent

$4,000.00 1st quarter record destruction postponed a quarter due to staffing issue

unfavorable; temporary