Financial Management Flashcards

Which financial metric measures the percentage of each revenue dollar remaining after paying variable costs?

Answer: Contribution margin ratio

The contribution margin ratio is calculated as (Revenue - Variable Costs) / Revenue, showing what portion of each dollar contributes to fixed costs and profit.

A medical practice's accounts receivable days outstanding (ARDO) increased from 42 to 58 days. What does this MOST likely indicate?

Answer: Slower collections or billing problems

An increasing ARDO signals that it is taking longer to collect payments, which may indicate billing errors, payer delays, or inadequate follow-up processes.

Under accrual accounting, when is revenue recognized in a medical practice?

Answer: When services are rendered

Accrual accounting recognizes revenue when services are delivered, regardless of when payment is actually received.

Which budgeting approach requires managers to justify every expense from zero each budget cycle?

Answer: Zero-based budgeting

Zero-based budgeting starts from a 'zero base' each period, requiring justification for all expenditures rather than simply adjusting prior-year figures.

A practice is evaluating a new EMR system costing $200,000. If the expected annual savings are $50,000, what is the simple payback period?

Answer: 4 years

Simple payback period = Initial Investment / Annual Savings = $200,000 / $50,000 = 4 years.

What is the primary purpose of a practice's operating budget?

Answer: Forecast expected revenues and expenses over a defined period

An operating budget is a financial plan that projects revenues, expenses, and resulting net income for a specific future period, usually one year.

Which of the following best describes 'overhead' in a medical practice?

Answer: Costs not directly attributable to generating patient revenue

Overhead encompasses all costs that are not directly tied to generating patient revenue, such as rent, administrative salaries, and utilities.