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41 Cards in this Set

  • Front
  • Back
strategic plan
the foundation of the planning process. it contains organizations:
-mission statement
-scope of operations
-broad strategics
-objectives
operating or five year plan
is the "how we expect to meet our objectives" portion of the planning process
budgets
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
budgets are used for
-planning
-communication
-control
statistics budget
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
revenue budget
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)
expense budget
combines volume of data from the statistics budget with detailed resource utilization data to forecast expenses. break down into fixed and variable components
budget timing
all organizations use annual budgets to set standards for the coming year
conventional budgets
traditionally health providers have used the conventional approach to budgeting
zero based budgets
each new budget is started from scratch
top-down budgets
begin at the finance department with senior management guidance and are sent to the department for review
bottom-up budgets
begin at sub-unit (departmental) level. are viewed and complied by the financing department. are approved by senior management
variance analysis
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
static budgets
is the original budget, unadjusted for realized volume
realized, or actual budget
reflects after-the-face results
flexible budget
is one that has been adjusted to reflect realized volume, but using all other static budget (initial) assumptions
time value analysis
constitutes the techniques that are used to account for the time value of money
financial risk
present whenever there is some chance of earning return on an investment that is less than the amount expected
stand-alone risk
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
most investors are risk averse
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
stockholders rights and privileges
-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
types of common stock
most firms issue only one type of common stock but some firms use multiple types, called classified stock.
class A and Class B
non-for-profit businesses
must have "equity" capital, but it is not supplied by the stockholders
start up equity comes from
-religious organizations
-governmental entities
ongoing equity comes from
-profits
-contributions
-grants
FA turnover
Total Revenue/Net Fixed Assests=? times
TA turnover
Total Revenue/Total Assets= ? times
capital structure decision
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?
project risk
-stand-alone
-corporate
-market
-- the risk that is relevant to particular analysis depends on the situation
sensitivity analysis
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%
scenario analysis
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
capital budgeting
is the analysis of potential additions to a business's fixed assets

Thus, capital budgeting decisions are very important to businesses
strengths of payback
- provides an indication of a project's risk and liquidity
- easy to calculate and understand
weaknesses of payback
- ignores time value.
- ignores all cash flows that occur after the payback period
ROI analysis
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
post audit
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
per value
stated face value of the bond. generally the amount borrowed and repaid at maturity. often 1,000 or 5,000%
coupon rate
stated interest rate on the bond. multiply by par value to get dollar coupon payment. usually fixed
maturity date
date when the par value will be repaid to investors. note that the effective maturity of a bond declines each year after issue
new versus seasoned bonds
when a bond is issued, its coupon rate reflects current conditions. when conditions change, bond values change
debt service requirements
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