Chapter 8 Hsmg 303

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  • 1/20 Questions

    Horizontal analysis is a method of reviewing financial performance by 

    • Evaluating line items by looking at percentage changes over time  
    • Comparing important line items to a base number
    • Computing and showing relationships between important line items  
    • None of the above
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About This Quiz

This quiz for Chapter 8 of hsmg 303 focuses on key financial concepts in healthcare management, such as working capital, liquidity, and sources of funding. It assesses understanding of financial management within healthcare organizations, crucial for effective administration and operations.

Healthcare Management Quizzes & Trivia

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  • 2. 

    Sunshine Clinic purchases a piece of equipment for $250 with a 2–15 net 30 provision. What is the effective interest rate if the clinic pays on day 16? And on day 30. 

    • 146 percent on day 16; 9.7 percent on day 30

    • 744.9 percent on day 16; 30.6 percent on day 30

    • 292 percent on day 16; 9.7 percent on day 30

    • 146 percent on day 16; 19.5 percent on day 30

    Correct Answer
    A. 744.9 percent on day 16; 30.6 percent on day 30
    Explanation
    The effective interest rate on day 16 is 744.9 percent because the clinic is paying on the 16th day instead of the 2nd day, resulting in a delay of 14 days. This delay significantly increases the interest rate. On the other hand, the effective interest rate on day 30 is 30.6 percent because the clinic is paying on the 30th day, which is within the net 30 provision. This means that no additional interest is charged for paying on time.

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  • 3. 

    Liquidity refers to 

    • How quickly an asset can be converted into cash

    • how quickly a liability can be paid off

    • the rate at which a healthcare organization disbursesits cash

    • the rate at which a hospital sells its current assets

    Correct Answer
    A. How quickly an asset can be converted into cash
    Explanation
    Liquidity refers to how quickly an asset can be converted into cash. This means that liquidity measures the ease with which an asset can be sold or converted into cash without causing a significant loss in value. It is an important concept in finance and is often used to assess the financial health and stability of a company or organization. The higher the liquidity of an asset, the easier it is to convert it into cash, providing flexibility and ensuring that the organization can meet its short-term financial obligations.

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  • 4. 

    Examples of current assets include 

    • inventories

    • prepaid expenses

    • salaries and wages

    • (a) and (b)

    Correct Answer
    A. (a) and (b)
    Explanation
    Current assets are assets that are expected to be converted into cash or used up within one year or one operating cycle, whichever is longer. Examples of current assets include inventories, which are goods held for sale in the normal course of business, and prepaid expenses, which are payments made in advance for goods or services that will be received in the future. Salaries and wages, on the other hand, are not considered current assets as they are expenses incurred by a company for the services provided by its employees, rather than assets that can be converted into cash. Therefore, the correct answer is (a) and (b).

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  • 5. 

    XYZ Rehabilitation Center borrows $250,000 for three months at a 5 percent annual interest rate. How much interest will XYZ Rehabilitation Center pay for the loan?

    • $3,125    

    • $12,500    

    • $62,500    

    • $4,230

    Correct Answer
    A. $3,125    
    Explanation
    XYZ Rehabilitation Center will pay $3,125 in interest for the loan. This can be calculated by multiplying the loan amount ($250,000) by the annual interest rate (5%) and dividing it by the number of months in a year (12) to get the monthly interest rate. Then, multiply the monthly interest rate by the number of months (3) to get the total interest paid. Therefore, $250,000 * 0.05 / 12 * 3 = $3,125.

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  • 6. 

    Where does initial working capital for for-profit healthcare organizations come from? 

    • The sale of stock

    • Philanthropy or tax exempt bonds

    • The state legislature

    • A governmental entity, in the form of taxes and

    Correct Answer
    A. The sale of stock
    Explanation
    For-profit healthcare organizations typically raise their initial working capital through the sale of stock. This means that they offer shares of ownership in the company to investors in exchange for capital. By selling stock, these organizations can generate funds that can be used to cover their initial expenses and start operating. This method allows them to raise money from external sources without incurring debt or relying on government funding.

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  • 7. 

    What does the term “5-15, net 30” mean? 

    • An organization can receive a 5 percent discount if it pays within 15 days.

    • An organization can receive a 15 percent discount if it pays within 5 days.

    • An organization can receive a 30 percent discount if it pays between days 5 and 15.

    • If an organization pays on day 30, it can receive a discount of 5 to 15 percent.

    Correct Answer
    A. An organization can receive a 5 percent discount if it pays within 15 days.
    Explanation
    The term "5-15, net 30" means that an organization can receive a 5 percent discount if it pays within 15 days. This indicates that the organization has a 30-day payment period, but if they pay within the first 15 days, they will receive a 5 percent discount on their payment.

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  • 8. 

    Vertical analysis is a method of reviewing financial performance by 

    • Computing and showing relationships between important line items    

    • Comparing important line items to a base number    

    • Evaluating line items by looking at percentage changes over time

    • None of the above

    Correct Answer
    A. Comparing important line items to a base number    
    Explanation
    Vertical analysis is a method of reviewing financial performance by comparing important line items to a base number. This means that the financial data is analyzed by expressing each line item as a percentage of a chosen base number. By doing this, it becomes easier to identify trends and patterns in the data, as well as to compare different line items within the same financial statement. This method allows for a more meaningful analysis of financial performance, as it provides a relative perspective rather than just absolute values.

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  • 9. 

    An organization using trade credits to finance temporary working capital is essentially 

    • Borrowing money from a loan company to finance the purchase of the working capital

    • Borrowing money from a vendor by delaying payment to the vendor for goods or services already received

    • Using donated money to finance working capital needs

    • None of the above

    Correct Answer
    A. Borrowing money from a loan company to finance the purchase of the working capital
    Explanation
    An organization using trade credits to finance temporary working capital is essentially borrowing money from a loan company to finance the purchase of the working capital. Trade credits allow the organization to delay payment to the vendor for goods or services already received, effectively providing a short-term loan to cover the working capital needs. This allows the organization to have immediate access to the working capital without having to pay for it upfront.

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  • 10. 

    Where does initial working capital for not-for-profit healthcare organizations come from? 

    • A governmental entity through taxes and bonds

    • Philanthropy or tax-exempt bonds

    • The sale of stock

    • The state legislature

    Correct Answer
    A. Philanthropy or tax-exempt bonds
    Explanation
    Not-for-profit healthcare organizations typically rely on philanthropy or tax-exempt bonds to obtain their initial working capital. Philanthropy refers to donations and contributions from individuals, corporations, or foundations who support the organization's mission and goals. Tax-exempt bonds, on the other hand, are issued by the organization and allow them to borrow money at a lower interest rate because the interest earned by bondholders is exempt from federal income tax. These two sources provide the necessary funds for not-for-profit healthcare organizations to establish and maintain their operations.

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  • 11. 

    Sources of temporary working capital include 

    • Trade credit

    • equity

    • Deb

    • all of the above

    Correct Answer
    A. all of the above
    Explanation
    Temporary working capital refers to the funds required by a business to meet its short-term operational needs. Trade credit refers to the credit extended by suppliers to the business, allowing it to purchase goods or services without immediate payment. Equity refers to the funds invested by the owners or shareholders of the business. Debt refers to the funds borrowed by the business from external sources. All of these sources, trade credit, equity, and debt, can be used to fulfill the temporary working capital requirements of a business.

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  • 12. 

    Compounding is a mechanism used to    

    • Consolidate current assets 

    • Determine the amount of income that investments will generate    

    •  determine the amount of income that trade credits will save organizations    

    • Convert current assets into cash    

    Correct Answer
    A. Determine the amount of income that investments will generate    
    Explanation
    Compounding is a mechanism used to determine the amount of income that investments will generate. This means that when an investment earns a return, that return is added to the original investment, and then the total amount is reinvested to earn even more returns in the future. Over time, compounding can significantly increase the value of an investment as the returns continue to generate more returns.

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  • 13. 

    The cash conversion cycle is 

    • The time is will take a hospital to build a building using cash.

    • The period is takes the CFO to close the financial accounting records.

    • The process of converting resources represented by cash outflows into services and products represented by cash inflows.    

    • The process of converting accounts receivable into money in the bank. 

    Correct Answer
    A. The process of converting resources represented by cash outflows into services and products represented by cash inflows.    
    Explanation
    The correct answer is the process of converting resources represented by cash outflows into services and products represented by cash inflows. This refers to the time it takes for a company to convert its cash outflows (such as payments for raw materials or labor) into cash inflows (such as sales revenue from the products or services it sells). This metric is important for assessing a company's efficiency in managing its working capital and generating cash flow.

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  • 14. 

    Working capital is defined as the   

    • total amount of functioning equipment in a healthcare organization

    • total amount of equipment dedicated to providing patient care

    • Sum of a healthcare organization's investment in current assets

    • Sum of a healthcare organization's investment in outside endeavors

    Correct Answer
    A. Sum of a healthcare organization's investment in current assets
    Explanation
    Working capital refers to the amount of funds that a healthcare organization has invested in its current assets, which are the assets that can be easily converted into cash within a year. These assets include cash, accounts receivable, inventory, and short-term investments. By summing up the investment in these current assets, the organization can determine its working capital, which is crucial for its day-to-day operations and financial stability. Therefore, the correct answer is "sum of a healthcare organization's investment in current assets".

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  • 15. 

    What are the advantages of having sufficient working capital on hand? 

    • Organizations are able to pay their employees and vendors on time, thereby maintaining a positive relationship.

    • Organizations have sufficient resources to repay loans and are therefore creditworthy.

    • Both of the above

    • None of the above

    Correct Answer
    A. Both of the above
    Explanation
    Having sufficient working capital on hand provides organizations with several advantages. Firstly, it allows them to pay their employees and vendors on time, which helps maintain a positive relationship with them. This timely payment ensures that employees are motivated and vendors continue to provide goods and services. Secondly, organizations with sufficient working capital are able to repay their loans, making them creditworthy. This enhances their reputation and makes it easier for them to secure future financing if needed. Therefore, both of these factors contribute to the advantages of having sufficient working capital.

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  • 16. 

    The average payment period ratio indicates

    • How long an organization could meet its obligations if cash receipts were discontinued    

    • an organization's ability to meet its financial obligations    

    • the average amount of time that passes before a current liability is paid    

    • The average amount of time an insurance company takes to pay a claim

    Correct Answer
    A. the average amount of time that passes before a current liability is paid    
    Explanation
    The average payment period ratio indicates the average amount of time that passes before a current liability is paid. This ratio is used to assess the efficiency of a company's accounts payable management and its ability to meet its short-term financial obligations. By calculating this ratio, a company can determine how quickly it pays its suppliers and creditors, which can provide insights into its cash flow management and financial health.

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  • 17. 

    What are cash flows? 

    • The difference between the amount of money used internally and the amount of money used for external endeavors

    • The difference between liabilities paid in cash and liabilities financed with equity

    • The difference between cash receipts and cash disbursements

    • None of the above

    Correct Answer
    A. The difference between cash receipts and cash disbursements
    Explanation
    Cash flows refer to the movement of money into and out of a business or individual. It represents the difference between cash receipts, which are the inflows of cash, and cash disbursements, which are the outflows of cash. This includes all the cash that is received from sales, investments, loans, and other sources, as well as all the cash that is paid out for expenses, debts, and other obligations. By calculating and analyzing cash flows, businesses can assess their financial health, liquidity, and ability to meet their financial obligations.

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  • 18. 

    Why do healthcare organizations keep cash on hand? 

    • For the expected demand to pay employees and vendors in cash    

    • For emergencies and unexpected purchases

    • For the unexpected demand for cash when a vendor offers a price reduction the organization does not want to pass up    

    •  All of the above

    Correct Answer
    A. For the unexpected demand for cash when a vendor offers a price reduction the organization does not want to pass up    
    Explanation
    Healthcare organizations keep cash on hand for the unexpected demand for cash when a vendor offers a price reduction the organization does not want to pass up. This allows them to take advantage of cost-saving opportunities and negotiate better deals with vendors. By having cash readily available, they can quickly make the necessary payments to secure these discounts and improve their financial position. Additionally, keeping cash on hand also helps in emergencies and unexpected purchases, as well as meeting the regular demand to pay employees and vendors in cash.

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  • 19. 

    ABC Physical Therapy Clinic wants to invest $500,000. What is the future value of the investment compounded annually at 9 percent for ten years? 

    • $545,000.00

    • $2,082,205.50

    • $776,485.15

    • $1,296,871.23 

    Correct Answer
    A. $1,296,871.23 
    Explanation
    The future value of an investment compounded annually can be calculated using the formula: FV = PV × (1 + r)^n, where FV is the future value, PV is the present value, r is the interest rate, and n is the number of years. In this case, the present value is $500,000, the interest rate is 9%, and the number of years is 10. Plugging these values into the formula, we get: FV = $500,000 × (1 + 0.09)^10 = $1,296,871.23. Therefore, the correct answer is $1,296,871.23.

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  • 20. 

    The current ratio indicates

    • the average amount of time an insurance company takes to pay a claim    

    • The average amount of time that passes before a current liability is paid    

    • how long an organization could meet its obligations if cash receipts were discontinued

    • an organization's ability to meet its financial obligations

    Correct Answer
    A. an organization's ability to meet its financial obligations
    Explanation
    The current ratio is a financial ratio that measures an organization's ability to meet its financial obligations. It is calculated by dividing current assets by current liabilities. A higher current ratio indicates a stronger ability to pay off short-term debts and meet financial obligations. Therefore, the given answer accurately describes the meaning of the current ratio.

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  • Current Version
  • Mar 21, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • Apr 05, 2016
    Quiz Created by
    Millerthomas2008
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