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41 Cards in this Set
- Front
- Back
strategic plan
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the foundation of the planning process. it contains organizations:
-mission statement -scope of operations -broad strategics -objectives |
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operating or five year plan
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is the "how we expect to meet our objectives" portion of the planning process
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budgets
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detailed plans, often expressed in dollar terms, that specify how resources will be used over some period of time. Levels are:
-aggregate -by department -by service line -by contract -by the nature of expenditure |
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budgets are used for
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-planning
-communication -control |
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statistics budget
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the foundation budget, in that it develops the input data needed for the other budgets. it contains basic forecasts for:
-volume of service provided -resources (labor and capital) needed to provide those services +smaller organizations may not have one |
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revenue budget
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combines volume of data from the statistics budget with reimbursement expectations to forecast revenues.
.. the end result is a revenue forecast: -in the aggregate -by department -by service - by diagnosis (or other clinical basic) |
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expense budget
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combines volume of data from the statistics budget with detailed resource utilization data to forecast expenses. break down into fixed and variable components
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budget timing
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all organizations use annual budgets to set standards for the coming year
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conventional budgets
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traditionally health providers have used the conventional approach to budgeting
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zero based budgets
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each new budget is started from scratch
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top-down budgets
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begin at the finance department with senior management guidance and are sent to the department for review
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bottom-up budgets
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begin at sub-unit (departmental) level. are viewed and complied by the financing department. are approved by senior management
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variance analysis
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the difference between the actual results and the budgeted (standard) value. it is a technique applied to budget data to identify problem areas and enhance control
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static budgets
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is the original budget, unadjusted for realized volume
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realized, or actual budget
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reflects after-the-face results
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flexible budget
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is one that has been adjusted to reflect realized volume, but using all other static budget (initial) assumptions
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time value analysis
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constitutes the techniques that are used to account for the time value of money
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financial risk
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present whenever there is some chance of earning return on an investment that is less than the amount expected
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stand-alone risk
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defined and measured assuming an investment will be held in isolation. can be measured by the degree of "tightness" of the return distribution. common measure is standard deviation
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most investors are risk averse
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this means that higher risk investments require higher rates of return
- it is risk aversion that makes risk concepts so important to financial decision making |
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stockholders rights and privileges
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-first and foremost, stockholders have aclaim on the residual earnings (net income) of the business
-net income"belongs" to shareholders - some portion may be paid out as dividends -control of the firm -preemptive right |
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types of common stock
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most firms issue only one type of common stock but some firms use multiple types, called classified stock.
class A and Class B |
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non-for-profit businesses
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must have "equity" capital, but it is not supplied by the stockholders
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start up equity comes from
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-religious organizations
-governmental entities |
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ongoing equity comes from
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-profits
-contributions -grants |
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FA turnover
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Total Revenue/Net Fixed Assests=? times
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TA turnover
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Total Revenue/Total Assets= ? times
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capital structure decision
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the funds used to finance a business's assets are called capital. Capital structure is the financing mix on the right side of the balance sheet
- is there an optimal mix of debt and equity? -if so, what is it for any given business? |
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project risk
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-stand-alone
-corporate -market -- the risk that is relevant to particular analysis depends on the situation |
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sensitivity analysis
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shows how changes in a cash flow input variable, say, utilization, affect profitability
- each input variable is held at its base case value except one. then the variable being analyzed typically is changed from its base case value by set percentages say + or - 10% |
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scenario analysis
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scenario analysis examines several possible profitability outcomes, usually three:
-worst case -most likely case - best case provides a simple probability distribution of NPV, which then can be used to obtain a quantitative measure of stand-alone risk |
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capital budgeting
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is the analysis of potential additions to a business's fixed assets
Thus, capital budgeting decisions are very important to businesses |
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strengths of payback
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- provides an indication of a project's risk and liquidity
- easy to calculate and understand |
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weaknesses of payback
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- ignores time value.
- ignores all cash flows that occur after the payback period |
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ROI analysis
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ROI analysis focuses on a project's financial return.
as with any investment, returns can be measured either in dollar terms or in rate of return (percentage) terms |
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post audit
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is a formal process for monitoring a project's performance over time. it has several purposes
-improve forecasts -develop historical risk data -improve operations -reduce losses |
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per value
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stated face value of the bond. generally the amount borrowed and repaid at maturity. often 1,000 or 5,000%
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coupon rate
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stated interest rate on the bond. multiply by par value to get dollar coupon payment. usually fixed
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maturity date
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date when the par value will be repaid to investors. note that the effective maturity of a bond declines each year after issue
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new versus seasoned bonds
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when a bond is issued, its coupon rate reflects current conditions. when conditions change, bond values change
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debt service requirements
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issuers are concerned with their total debt service payments, including both interest expense and repayment of principal. many municipal bond issues (serial issues) are structured so that debt service requirements are roughly constant over time
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