Financial Management Flashcards

Which financial statement shows a practice's assets, liabilities, and equity at a specific point in time?

Answer: Balance sheet

The balance sheet (statement of financial position) provides a snapshot of what a practice owns (assets), owes (liabilities), and the owner's equity on a given date.

A medical practice has total monthly collections of $180,000 and total monthly expenses of $144,000. What is the overhead percentage?

Answer: 80%

Overhead percentage = Expenses / Collections × 100 = $144,000 / $180,000 × 100 = 80%.

Which cost behavior remains constant in total regardless of changes in patient volume within a relevant range?

Answer: Fixed cost

Fixed costs, such as rent and salaried staff, do not change in total as patient volume increases or decreases within a relevant range.

What does a negative net present value (NPV) for a capital investment indicate?

Answer: The investment is expected to destroy value

A negative NPV means the present value of expected cash inflows is less than the initial investment, indicating the project would reduce the practice's value.

Which payer mix change would MOST likely improve a medical practice's average reimbursement per visit?

Answer: Increase in commercial insurance patients

Commercial insurers typically reimburse at higher rates than government payers, so a greater proportion of commercial patients raises average reimbursement.

What is the function of an internal audit in a medical practice's financial management?

Answer: Independently verify financial records and internal controls

An internal audit evaluates the accuracy of financial records and the effectiveness of internal controls to detect errors, fraud, and inefficiencies.

A practice's current ratio is 0.8. What does this indicate about short-term financial health?

Answer: Current liabilities exceed current assets

A current ratio below 1.0 means current liabilities exceed current assets, suggesting potential difficulty meeting short-term obligations.