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Finance Flashcards

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1
Q

In what situation would it be beneficial to apply the economic order quantity formula?

A

When ordering regularly used products

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2
Q

What are three key management elements to maximize profits? 

A

Cash control
A/r
Asset inventory

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3
Q

What should your percentage of AR each year be as a % of revenue? At what point is it an all hands on deck situation?

A

1.5%

When it is 3% or more

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4
Q

What is the inventory turnover ratio?

A

Ratio : total # of purchases / average inventory on hand.

Find average inventory on hand by (BI+EI)/2

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5
Q

Name 4 ways to increase your inventory turnover.

A
  1. Product consolidation
  2. Order quantities that make sense
  3. Measure and increase compliance
  4. Doctor and staff product education
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6
Q

3 Keys to Maximize Profit (emphasis on profit)

A
  1. Cash Control
  2. A/R
  3. Asset Inventory
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7
Q

How much per minute does it cost the average hospital to be open?

A

$10/ minute

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8
Q

To get the most efficiency from a CPA at tax time, it is best to have all accounting records to the CPA by when?

A

3rd or last week of January

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9
Q

3 Steps When Looking at P&L

A
  1. Look at percentages and compare
  2. Ask questions of the percentages
  3. Implement Change
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10
Q

Three Types of Reference Data for Benchmarking

A
  1. Historical Information
  2. Rule of Thumb
  3. Industry Norms
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11
Q

5 Steps to Benchmarking

A
  1. Identify the area for benchmarking
  2. Collect the Data
  3. Analyze the Data
  4. Action Plan (recommending and implementing change)
  5. Evaluating the results
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12
Q

5 C’s of Credit Rating

A

Character (integrity)
Capacity (sufficient cash flow to service the obligation)
Collateral (assets to secure debt)
Capital (net worth)
Conditions (of the borrower and overall economy)

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13
Q

For Client Charge Accounts or Client Credit Policy, it is suggested to have 2 subpolicy components:

A
  1. Client Credit Policy (pre-qualification criteria by which a particular client is permitted to open an account)
  2. Charge Account Policy (establish credit limits, payment due dates,etc.)
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14
Q

Which method of accounting will have an A/R and A/P statement?

A

Accrual

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15
Q

A/R Turnover Equation

What is determines better A/R turnover number?

A

Credit sales* / Average A/R

Higher the number the quicker collections occur which is better

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16
Q

Current Ratio Equation

What is this used for and what is a good number

A

Current Assets / Current Liabilities

Lenders look for 2:1 Ratio

One of the most commonly used financial ratios to evaluate a business’s balance sheet

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17
Q

Days in A/R

A

365 / AR Turnover Ratio for Entire Year

<40 days in A/R is considered good measure which would be a turnover of ~9

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18
Q

Fraud Triangle

A
  1. Situation Pressures
  2. Opportunities to commit fraud
  3. Personal integrity
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19
Q

Two types of internal controls when it comes to money:

A
  1. Prevent Controls
  2. Detect controls
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20
Q

How much money should be set aside for reinvestment annually in asset replacement or purchase?

A

1% of gross revenue

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21
Q

Modified Accelerated Cost Recovery System

A

Depreciation system to all recovery property (not land or intangibles).

Usually 5 years on autos, computers, etc.

7 years on office equipment (except for computers)

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22
Q

Depreciation is for what?

A

Tangible items. Allocation of cost of the asset over time.

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23
Q

Amoritization is for what?

A

Intangible Assets

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24
Q

Use Tax - What is it?

A

Also known as compensating tax, it compensates the state when sales tax should have been collected but wasn’t

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25
Balance Sheet Equation
Assets = Liabilities + Owners Equity
26
How much do indirect costs make up of the cost of products? Indirect costs are made up of two things, and how are those broken down?
25-40%. (Another said 25-35%) Holding Costs - 8-20%. (Another said 8-15%) Ordering Costs - 15-20%
27
What % is the holding cost of inventory?
8-20% of the cost of the item.
28
What is the cost of ordering an item?
15-20% of the cost of the item.
29
Inventory turns should be how often?
8-12 times each year so a product isn’t’ on a shelf for more than 30-45 days
30
Economic Order Quantity Equation
31
How much inventory ($) per FTE should have on hand?
$16,000
32
4 Inventory Functions
Control Forecasting Purchasing Selling
33
20/80 rule of inventory (3 of them)
20% of items make up 80% of revenue 20% of products make up 80% of cost 20% of products produced 80% of profit
34
Cycle Counts - Suggestions broken down by products
1. Controlled Substances - weekly for those accessed on daily basis, monthly for central supply. 2. A and B products - divide into quarters and do it weekly 3. C products - divide into 26 sections and do on part per week. 4. Central inventory 6-12 months
35
Average Shelf Life of Inventory in Days equation
365 / Annual Inventory Turn ratio
36
4 Way to Determine Reorder Point and Formula
1. Time needed for Delivery (lead time) 2. Rate of inventory usage 3. Safety stock level 4. Effective of special manufacturer and vendor offerings Average Daily Use x Lead Time Average Daily Use = Amount Sold/Days
37
Reorder Quantity - how to figure it out 3 steps and formula
1. Average daily use 2. Turnover goals *Should try to match vendor billing 3. Product Expiration Average Daily Use x Turnover Goal Average Daily use = Amount sold/days practice is open
38
What % mark up is close to break even on any given product?
35-40%
39
To calculate Mark Up on Cost:
Cost x (1+Mark up %) = Sell Price
40
Calculate Mark up with Selling Price is known
Selling Price - Cost / Cost = Mark up %
41
To calculate margin pricing on cost:
Total Cost / (1-GPM%) = Selling Price
42
Calculate Profit Margin % when selling price is known
Selling Price - Cost / Selling Price
43
Break Even Analysis
SP = FC + VC + Profit
44
According to the AVMA - the average net income a general practice produces in a given year is
10-12%
45
Intangible property examples
Goodwill, copyrights, non-compete agreements
46
There are two types of accounting - which one is used more often, and which one has to be used for certain hospitals?
Most common is cash Accrual required by IRS for hospitals of $10mil or more
47
How quickly should financial reports be generated each month?
5-10 days after end of month
48
Return on Capital Analysis as a % and equation
Income / Average Total Assets = Return on Capital %
49
Payroll Practices: 3 kinds and how many times are they paid. Pro/Cons?
1. Weekly 52 times 2. Bi weekly - 26 times. This once can reduce payroll costs, but YOY hard to do apples to apples because there will be two quarters with more pay periods. 3. Semi-monthly - 24 times a year, usually paid on 1st and 15th.
50
Wage and Tax Reporting Requirements (9)
1. EIN 2. 1-9 from employees 3. W-4 from employees 4. Calculate and deduct employee’s income tax 5. Make required deposits with IRS 6. File 941 quarterly tax return 7. File 940 (Employers annual federal unemployment tax return) annually 8. Prepare and distribute W-2s to each employee by Jan 31 9. Prepare W-3 and file with IRS along with W-2s
51
Form 1099 issued for who each year?
IC’s who received more than $600 in wages
52
A/R Turnover
Credit sales / average A/R
53
Annual Revenue per DVM
Annual Gross Revenue / FTE DVMs
54
Average Age of A/R
365 / AR Turnover AR Turnover = credit sales / average AR
55
Average Age of Inventory
365 / Inventory Turnover Ratio Inventory Turnover Ratio = Annual Supplies Purchase / Avg Inventory Value
56
Average Transaction Value
Total Revenue / total # of transactions
57
Cash Flow ratio
also known as Current Ratio Current Assets / Current Liabilities
58
Efficiency Ratio
# of patient visits / # of staff hours
59
Employee Rentention
# of positions retained / # of positions in organization
60
Employee Turnover
# of employees who have left / # of employees who are in the organization
61
Equity Ratio
Total Liabilities / Total Owner’s Equity
62
Revenue - COGS = What? What - Operating Expenses = What? What - Taxes = Net Income
Gross Profit Gross Profit - OPEX = Net income before taxes Net Income Before Taxes
63
Profit Margin Equation
Net Income Before Taxes / Revenue
64
Profitability Ratio
Operating Income / Revenue
65
Return on Investment (ROI)
Expected Annual Return / Investment
66
Working Capital
Cash on Hand + A/R - Current Liabilities
67
If a client has a NSF Check, what should you have done to prevent this and what should you do after?
Collect Driver’s Licenses before to prevent fraud Place a returned check fee on client account
68
Accepting payment on Accounts Receivable - two methods
Manually - keeping a ledger Computerized - automatically calculates interest, statement fees, etc.
69
Estimates should be given to all clients who receive services — what must be done after?
The client signature should be obtained and put in medical record 50% deposit collected
70
Where should an overdue sticker be placed?
On the statement - but NOT on the outside envelope because of the Fair Debt Collection Practices Act
71
Fair Debt Collection Practices Act (4 examples)
Protect public from unethical collection procedures Cannot be subject to harassment, oppressive tactics or abusive treatment Can’t claim to be a lawyer or make false claims Can’t call before 8am or after 9pm Account details only discussed with client themselves.
72
Collection agencies generally will charge what %
40-60%
73
Charge Account Policy should have 5 things:
1. Pre-qualification procedures for a client of unknown standing 2. Process for flagging a pre-qualified client in your PIMS 3. Total invoice amount a client can charge 4. The per range of a bill that must be paid at patient discharge 5. The procedure for managing aging accounts and collecting overdue A/R
74
Cost of a Service Equation
(Fixed Cost/minute + Staff cost/min) X Length of procedure in staff minutes + (DVM Costs/minute) X length of procedure in DVM minutes + direct costs x 2 + profit
75
How much does a practice lose in embezzlement annually? What percentage of practices have been victim to embezzlement?
5% 67.8%
76
What two INVENTORY roles should not be performed by the same person?
Inventory Receiver And Inventory Documenter/Tracker
77
5 Steps in getting inventory under control:
1. Print code or product list (delete/inactivate/reclassify) 2. Re-print the list 3. Create a list of unconsolidated products and consolidate them 4. Count Inventory 5. Begin to Enter/Receive inventory efficiently and accurately
78
What is the normal variance % on high turn inventory items?
1-4%
79
Break Even Analysis on Equipment Formula
Price of Equipment, Support, Maintenance / Client invoiced cost - cost to produce the service = Number of times the service must be performed to break even
80
Tax Act of 2003: including Section 179 and 168K - what are all those?
Tax Act of 2003 has improved benefits for small business owners 179 increased the amount of property that can be written off in first year ($139k) Section 168K gives an additional deduction of 50% of the remaining balance of equipment that is above the $139k Remainder of purchase can be depreciated on straight line using MACRS
81
Days of Cash on Hand Equation
Cash / Operating expenses / 260 Want 20-30 days cash on hand
82
Inventory Control Goals (10):
83
What are the four steps to inventory budgeting
1. Project revenue 2. Project COGS 3. Project COG subsection expenses 4. Share the budget and communicate expectations
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