Finance Quiz Answers and Explanations, Exams of Nursing

Download Finance Quiz Answers and Explanations and more Exams Nursing in PDF only on Docsity! ACHE BOG FACHE - HC Finance QUESTIONS WITH COMPLETE SOLUTIONS Definition and Rule of Inurement Correct Answer: - Diversion of funds to persons in governance or mgt as a result of their position of trust - Directors, officers, trustees are prohibited from engaging in business that allows them to derive financial advantage from their governing board role (conflict of interest) What is a best practice (as far as how soon in days) in receiving payments from date of invoice? Correct Answer: Less than 50 days Definition of working capital Correct Answer: Amount of cash required to support operations - for the period of delay in collecting revenue. 5 Financial Mgt functions that are essential for survival Correct Answer: 1) Financial planning 2) Pricing 3) Mgt of long term capital 4) Mgt of short term assets & liabilities 5) Multiple corporate acct Relation of Finance to the Governing Board Correct Answer: The finance system relates directly to the gov'n board through the finance committee, and the CFO often represents the Sr. Mgt team on the committee. What 4 budgets comprise a financial budget? Correct Answer: 1) Income & expense budget 2) Budgeted financial statements 3) Cash flow budget 4) Capital & new program budget Definition of Financial Budget Correct Answer: Expectation of future financial performance What does Activity-Based Costing (ABC) promote? Correct Answer: Control of services, the use of make or buy (in-source or out-source) decisions, and improvement of processes that cross several accountability centers. Definition of Capital (capital goods) Correct Answer: Human-made resources (machinery & equipment) used to produce goods & services that do not directly satisfy human wants. General Definition of Capital Expenditure Correct Answer: Purchases of Land, Buildings, & Equipment for operations, are not for resale, and have a useful life of >1yr, cost of $500 or more, and are subject to depreciation. 6 General Conditions required to be a Capital Expenditure Correct Answer: 1) Expenditure of Land, Buildings, & Equipment (Capital Goods) 2) Used for operations, 3) are not for resale, 4) have a useful life of >1yr, 5) cost of $500 or more, 6) are subject to depreciation. What is Section 501(c)(3)? Correct Answer: Section of the IRS Code that makes a HCO tax- exempt What are 2 Ratios that measure the ability to pay current liabilities? Correct Answer: 1) Current Ratio 2) Acid Test (aka Quick) Ratio What are 3 Ratios used to measure ability to sell inventory and collect receivables? Correct Answer: 1) Inventory Turnover ratio 2) A/R Turnover ratio 3) Day's Sales in Receivables ratio What are 2 Ratios used to measure ability to pay long-term debt? Correct Answer: 1) Debt Ratio 2) Time-Interest-Earned Ratio What are 4 Ratios used to measure Profitability? Correct Answer: 1) Rate of Return on Net Sales ratio 2) Rate of Return on Total Assets ratio 3) Rate of Return on Common Stockholder's Equity ratio 4) Earnings Per Share of Common Stock ratio What are 3 Ratios to analyze Stock as an investment? Correct Answer: 1) Price-Earning's ratio 2) Divident Yield ratio 3) Book value per share of common stock What is the Current Ratio Formula? Correct Answer: = (Current Assets) / (Current Liabilities) > Measures ability to pay current liabilities from current assets > The higher the ratio, the better; (want numerator to be larger than the denominator, indicates stronger financial position) What is the Acid Test (aka Quick) Ratio Formula? Correct Answer: = (Cash+Short-term investments+Net current receivables) / Current Liabilities > Shows ability to pay current liabilities from the most liquid assets > Tells whether the organization can pay all its current liabilities if they come due asap > In other words, how quickly can a HCO convert its most liquid assets to cash to pay current liabilities > The higher the better; indicates enough (if not more) current assets to cover current liabilities What is the Inventory Turnover Formula? Correct Answer: = (Cost of Good Sold) / Avg Inventory (at cost) for the Period > Indicates saleability of inventory Definition of Expense Transactions Correct Answer: Transactions that Acquire Resources such as personnel, supplies, and equipment Definition of Revenue Transactions Correct Answer: - Transactions that provide Elements of Care to patients or other Services such as meals to families - Records virtually all HCO routine cash acquisition, except for gifts, loans, and sales of assets What is a Patient Ledger? Correct Answer: - A detailed record of the individual services or supplies rendered to each patient. - It is a financial reflection of the electronic medical record. What is the concept of Time Value of Money? Correct Answer: Money earns income over time - In other words, the fact that we can earn income by investing money for a period of time If you invest $700 today to receive $1,000 in three years: a) What is the interest revenue over the 3yrs? b) How does the issuing company see the transaction? c) Knowing the Defn of Present Value, what is the PV in this example? Correct Answer: a) $300 b) The issuing company paid $300 interest for the use of your $700 for the 3yr period. c) $700 Definition of Present Value - Is it always less or greater than the future amount? Correct Answer: - The amount a person would invest at the present time to receive a greater amount at a future date. - Always less than future amount What is the basic problem when controlling costs associated w/ A/R? Correct Answer: Controlling the time or the length of the A/R payment cycle Name one Financial Ratio that monitors A/R Correct Answer: Days in A/R = (Net Pt A/R) / (Net Pt service Revenue/365) What are 3 objectives associated w/ A/R Mgt? Correct Answer: 1) Minimize lost charges 2) Minimize write-offs for uncollectible accts 3) Minimize the A/R collection cycle List 3 costs associated with granting A/R (credit) Correct Answer: 1) Carrying Costs 2) Routine Collection & Credit costs 3) Delinquency Costs Definition of Carrying Cost related to A/R Correct Answer: The opportunity cost equal to the return that could have been obtained if the funds invested in A/R were invested in some other manner. Definition of Routine Collection & Credit Costs Correct Answer: Operating expenses arising from extending credit. - Fixed cost of having a credits and collection dept. Definition of Delinquency Cost Correct Answer: Costs that arise due to the uncertainties inherent in the credit screening and granting process. What is the Concept of Capital Rationing? Why might a firm do this? Correct Answer: Limiting an HCO's new investments by setting a cap on parts of the capital budget or by using a higher cost of capital. - An HCO may do this b/c of poor ROI in recent investments or when an HCO can't find the necessary financing for its positive NPV projects Definition of Zero-based Budgeting Correct Answer: An approach to budgeting that continually questions both the need for existing programs and their level of funding, as well as the need for new programs. Definition of Incremental Budgeting Correct Answer: An approach to budgeting which starts w/ an existing budget to plan future budget. Uses historical values as a baseline. Definition of Program Budgeting Correct Answer: An extension of the line item budget (shows revenues and expenses by category, such as labor and supplies). Formula for Operating Margin Correct Answer: = Operating Income / Total Operating Revenues (Where Operating Income = Total Operating Revenues - Total Operating Expenses) Name 4 Reimbursement Methods Correct Answer: 1) Per Diem 2) DRG 3) Capitation 4) Cost-based Definition of Per Diem reimbursement method - Who bears the risk w/ this method? Correct Answer: - The provider is paid a fixed amount per day of service provided, regardless of the nature of the service - The provider bears the risk for any costs that exceeds the per diem rate. Definition of DRG Correct Answer: "Diagnostic Related Group" Method of reimbursement based on a standardized diagnosis (DRG) reimbursement rate. Used for inpatient services. Used for Medicare patients. The provider is at risk for the porion of care that exceeds the allowable amount for the DRG. Definition of Capitation method of reimbursement Correct Answer: When a provider is paid a fixed amount per enrollee per period (usually a year). This is the most risky for the provider. - The total amt of reimbursement is a function of the # of subscribers, not the volume of services provided. Definition of Cost-based Reimbursement. - 2 types: Correct Answer: - Type of reimbursement based on the cost of providing care. The payer and provider negotiate over the costs that will be reimbursed. - Retrospective and Prospective Definition of Retrospective reimbursement Correct Answer: Type of cost-based reimbursement where the provider is reimbursed for the allowable costs as they happen and receive a final settlement when the care is complete. Definition of Prospective Reimbursement Correct Answer: Type of cost-based reimbursement where the payer knows how much they will reimburse for each category of care provided. If the costs exceed the predetermined amt, sometimes the payer will upwardly adjust the reimbursement. Definition of Experience-Rated Premiums Correct Answer: A premium based on an a group's prior claims experience, plus appropriate adjustments based on various valid reaons, plus an adjustment that estimates what the expected claims level will be during the next plan year. Definition of Community Rating Premiums Correct Answer: A premium based on the total claims or health expenditure experience of the members w/n a given geographic area or "community," and uses that info to determine a rate common for all groups, regardless of the claims experience of any one group. What is the Con of using the community rating premium? Correct Answer: Usually the healthy subscribers pay higher premiums than they would otherwise pay while the unhealthy subscribers pay less (in other words, the healthy subscribers subsidize the unhealthy). What are the 3 main Financial Statements? Correct Answer: 1) Balance Sheet 2) Income Statement (Statement of Operations for NFP HCOs) 3) Statement of Cash Flows What is a balance sheet and what is the formula? Correct Answer: Shows a snapshot Assets = Liabilities + Shareholder Equity What is an Income Statement and what is the formula? Correct Answer: Shows revenues earned and expenses incurred over a period of time (quarter, year) = Revenues - Expenses What is the Statement of Cash Flows? Correct Answer: Shows sources and uses of cash from operating activites, investing activies, and financing activities Is Financial Accounting used for historical or for forecasting, and is it mainly for internal or external use? Correct Answer: - For historical - Mainly for external