Questions and Answers of Financial Management Theory

a. What is a metric?b. What role do metrics play in revenue cycle management?
a. What is a just-in-time (JIT) inventory system?b. What are the advantages and disadvantages of JIT systems?c. Can JIT inventory systems be used by healthcare providers?Explain your answer.
Describe the three major sources of short-term financing.
a. What is the difference between free trade credit and costly trade credit?b. Should businesses use all the free trade credit that they can get?Explain your answer.c. Should businesses use all the
Explain briefly how healthcare providers typically obtain secured short-term financing.
Suppose one of the suppliers to Seattle Health System offers terms of 3/20, net 60.a. When does the system have to pay its bills from this supplier(assuming it abides by the credit terms)?b. What is
Langley Clinics, Inc., buys $400,000 in medical supplies each year (at gross prices) from its major supplier, Consolidated Supplies, which offers Langley terms of 2.5/10, net 45. Currently, Langley
Milwaukee Surgical Supplies, Inc., has gross sales for the year of$1,200,000. The collections department estimates that 30 percent of the customers pay on the tenth day, 40 percent pay on the
Fargo Memorial Hospital has annual net patient service revenues of $14,400,000. It has two major third-party payers, plus some of its patients are self-payers. The hospital’s patient accounts
Healthcare Associates (HA) is in the process of preparing a cash budget for December. HA had the following results for the past three months:HA has no uncollectible accounts. In December, HA is
North Carolina Pediatric Partners has forecast billed charges for the first six months of the year as shown in the following table.Based on historical collection patterns, North Carolina Pediatric
What type of financial performance information is provided in the statement of cash flows?
Does the fact that a business’s cash position has improved provide much insight into the year’s financial results?
What is percentage change analysis, and why is it useful?
Describe several metrics commonly used in operating indicator analysis.
Explain how inflation effects created problems in the Riverside illustration.
a. What is the primary difference between financial statement analysis and operating indicator analysis?b. Why are both types of analyses useful to health services managers and investors?
Should financial statement and operating indicator analyses be conducted only on historical data? Explain your answer.
One asset management ratio, the inventory turnover ratio, is defined as sales (i.e., revenues) divided by inventories. Why would this ratio be important for a medical device manufacturer or a
a. Assume that Pennant and the Wood Group, two operators of nursing homes, have fiscal years that end at different times—say, one in June and one in December. Would this fact cause any problems
a. How does inflation distort ratio analysis comparisons, both for one company over time and when different companies are compared?b. Are only balance sheet accounts or both balance sheet accounts
a. What is the difference between trend analysis and comparative analysis?b. Which is more important?
Assume that a large managed care company has a low return on equity (ROE). How could Du Pont analysis be used to identify possible actions to help boost ROE?
Regardless of the specific line of business, should all healthcare businesses use the same set of ratios when conducting a financial statement analysis? Explain your answer.
What are key performance indicators (KPIs)? What is a dashboard?
a. Modern Medical Devices has a current ratio of 0.5. Which of the following actions would improve (i.e., increase) this ratio?• Use cash to pay off current liabilities.• Collect some of the
Southern Physicians, a medical group practice, is just being formed.It will need $2 million of total assets to generate $3 million in revenues. Furthermore, the group expects to have a profit margin
Riverside Memorial’s primary financial statements are presented in exhibits 17.1, 17.2, and 17.3.a. Calculate Riverside’s financial ratios for 2019. Assume that Riverside had $1,000,000 in lease
Consider the following financial statements for BestCare HMO, a not-for-profit managed care plan:a. Perform a Du Pont analysis on BestCare. Assume that the peer group average ratios are as follows:b.
Consider the following financial statements for Green Valley Nursing Home, Inc., a for-profit, long-term care facility:a. Perform a Du Pont analysis on Green Valley. Assume that the peer group
Examine the peer group average ratios given in problems 17.4 and 17.5. Explain why the ratios are different between the managed care and nursing home industries.Problems 17.4Consider the following
Recent financial statements for the Heart Hospital are provided below:a. Perform a Du Pont analysis on the Heart Hospital. Assume that the peer group average ratios are as follows:b. Calculate and
Refer to the financial statements for the Heart Hospital in problem 17.7. Prepare a common size balance sheet (where each account is expressed as a percentage of total assets) and a common size
Briefly explain the following terms used in the recording and compiling of accounting data:a. Transactionb. Accountc. Journal entryd. Postinge. Chart of accountsf. General ledger g. T-account h.
What condition must be met when entering transactions on the balance sheet?
What is the effect on a business’s equity account of a payment on a bill that has already been recorded as an accounts payable?
What is the effect of the collection of a receivable on a business’s equity account?
What is a semi-fixed cost?
How does the addition of semi-fixed costs change a cost structure graph?
What is the impact of semi-fixed costs on per unit average cost?
What is operating leverage, and how is it measured?
Why is the operating leverage concept important to managers?
Can managers influence their firms’ operating leverage?
How does an organization’s cost structure affect its exposure to economies of scale?
What is the primary difference between the direct and step-down methods of cost allocation?
Why might organizations adopt a more complicated allocation system rather than use the direct method?
Why does utilization management play such an important role in pricing and service decisions under capitation?
Why are nonmedical costs included in the analysis?
What would you do regarding the contract if you were the CEO of Baptist Hospital?
What other factors should Baptist’s managers consider when making the capitation contract decision?
Can spreadsheets easily solve for interest rate or time?
What does the term credit enhancement mean?
Why would healthcare issuers seek bond insurance?
What is the FHA 242 program?
What is meant when a stock is listed? What about when a stock is unlisted?
What are the differences between shares that Tenet Healthcare sells in the primary market and its shares being sold in the secondary market?
What is the purpose of securities market regulation?
What agencies and groups are involved in such regulation?
What is a prospectus?
What is a margin requirement?
Are there any conflicts that might arise between the issuer and the investment banker when setting the offering price on a securities issue?
What are two ratios that measure market value for publicly traded investor-owned businesses?
Why is it useful?
Grandview Clinic has fixed costs of $2 million and an average variable cost rate of $15 per visit. Its sole payer, an HMO, has proposed an annual capitation payment of $150 for each of its 20,000
Instead of the results in problem 8.4, consider the results reported below:Assume the results reported in problem 8.4 hold, except that a difference existed among budgeted (static) enrollment and
Why is it necessary to have a book dedicated to healthcare finance?
Briefly describe the organization of this book.
What features of this book are designed to make learning easier?
What is meant by the term healthcare finance?
What is the difference between accounting and financial management?
From a financial perspective, briefly describe a business.
What is the role of finance in today’s health services organizations?
What are the four Cs?
Briefly describe the typical structure of the finance department within a health services organization.
How does the structure of the finance department differ between small and large health services organizations?
Name a few settings in which health services are provided.
Briefly describe horizontal and vertical integration.
What are the three primary forms of business organization, and how do they differ?
What is the purpose of hybrid forms of business organization?
What types of requirements have been placed on not-for-profit hospitals to ensure that they meet their charitable mission?
What are the purpose and content of IRS Form 990?
What is the difference in goals between investor-owned and not for-profit businesses?
Briefly describe the differences in key stakeholders between investor-owned and not-for-profit businesses.
What is the primary purpose of healthcare reform?
What is an accountable care organization (ACO), and what is it designed to accomplish?
What is the medical home model, and what is its purpose?
Briefly describe the purpose and organization of this book and the learning tools embedded in each chapter.
a. What are some of the subsectors that make up the healthcare sector?b. What is meant by the term healthcare finance as it is used in this book?c. What are the two broad areas of healthcare
What is the difference between a business and a pure charity?
a. Briefly discuss the role of finance in the health services sector.b. Has this role increased or decreased in importance in recent years?
What is the structure of the finance department within health services organizations?
a. Briefly describe the following health services settings:• Hospitals• Ambulatory care• Home health care• Long-term care• Integrated delivery systemsb. What are the benefits attributed to
What are the major current concerns of healthcare managers?
What are the three primary forms of business organization?Describe their advantages and disadvantages.
What are the primary differences between investor-owned and notfor-profit corporations?
a. What is the primary goal of investor-owned corporations?b. What is the primary goal of most not-for-profit healthcare corporations?c. Are there substantial differences between the finance goals of
Briefly describe the main provisions of the Affordable Care Act and its implications for the practice of healthcare finance.
Describe the primary features of accountable care organizations and medical homes. What benefits are attributed to them?
What is the moral hazard problem, and how do insurers mitigate it?
What are the different types of private insurers?

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