Upgrade to remove ads
Terms in this set (83)
what are the profitability ratios?
gross margin percent and net income percent
how do you calculate gross margin %?
(sales - COGS) / sales x100
how do you calculate net income %?
net income / sales x100
what are the performance ratios?
return on equity % and return on assets %
how do you calculate return on equity %?
net income / equity x 100%
how do you calculate return on assets?
net income / total assets x100
What is the best way to increase return on equity?
hold less inventory or accounts receivable
What are the tests of liquidity?
current ratio, quick ratio, and accounts payable period
how do you calculate current ratio?
current assets / current liabilities
how do you calculate the quick ratio?
(current assets - inventory) / current liabilities
how do you calculate accounts payable period?
accounts payable / purchases per day
he would have to give you days or assume it's 365
what is the ARCP?
accounts receivable collection period; estimate of how long it takes pharmacy to collect on an account receivable
how do you calculate ARCP?
accounts receivable / net credit sales per day
assume 365 days
what are the tests of efficiency?
accounts receivable collection period and asset turnover
how do you calculate inventory turnover?
COGS / average inventory at cost
Avg inventory at cost = (beginning inv + ending inv) / 2
What is solvency?
being able to pay long-term debts on continuing basis
what is liquidity?
ability to pay short term debts as they come due
How do you calculate COGS?
beginning inventory + purchases - ending inventory
what is the EOQ?
Economic Order Quantity
how do you calculate EOQ?
D = annual demand in units
S = procurement cost per order
C = acquisition cost per unit
i = carry cost interest rate
what is accounts receivable tracking or aging?
Gauges the financial health of a company by categorizing accounts receivables by the length that they have been outstanding
what is the 340(b) program?
Federal program meant to help Medicare and Medicaid patients get access to healthcare
who is eligible for 340(b)?
hospitals, specialized clinics and health centers (FQHC)
How do you calculate contribution margin?
difference between revenue/unit and variable cost/unit
Total CM = CM/unit * volume
What's the difference between fixed and variable costs? examples?
fixed = you pay same amount regardless of volume (rent, receptionist, insurance)
variable = amount you pay varies directly with volume (supplies, salaries)
What is differential analysis?
used to evaluate the financial effects of alternatives when faced with a choice. Focuses on costs and revenues that differ among the alternatives.
what are the steps to a differential analysis?
1. Identify differential revenues (how many additional scripts the venture will bring in * proposed script fee)
2. Identify differential costs (only variable costs will increase)
3. Calculate contribution margin (DR - DC) -- if positive profit will increase
4. Consider non-quantitative factors
What are the 3 types of out of pocket payments?
deductible, coinsurance, and copayment
What is the actual acquisition cost?
true cost of the product
average wholesale price
cost assigned to the product by the manufacturer (used by third party payers)
wholesale acquisition cost
manufacturer's list price for the drug to wholesalers or direct purchasers NOT including discounts, rebates, etc
maximum allowable cost
measure of the cost of multi-source drugs; max amount third party will reimburse for something available from multiple places
average manufacturer price
average unit price paid to manufacturers by wholesalers for drugs distributed to the retail class of trade minus customary prompt pay discounts
How do you determine dispensing fee?
add up your expenses (salaries, depreciation), divide by # scripts, add profit margin to that
How do you do a demand forecast?
need history of growth and current number of scripts per month
forecasts of how much cash the organization will have on hand and how much it will need to meet expenses
forecasts investments on property, buildings, and major equipment
projects future sales
list the primary activities undertaken by a unit to achieve its goals and allocate a dollar amount to each (measure for resource needs)
combine revenue and expense budgets to determine the units' profit contribution (revenue - expenses = profit)
What is the relationship between strategic plan and budgets?
The budget is used to achieve the goals of the strategic plan (the strategic plan put in numbers).
what are discretionary costs
costs based on management decisions
How do you know if budget variances are favorable or unfavorable?
revenue > budget = favorable
revenue < budget = not favorable
profit > budget = favorable
expenses > budget = not favorable
what is penetration pricing?
new product offered at a low price during initial offering
what is price skimming
Initial high price and then gradually lowers price to target price-sensitive consumers
what is premium pricing?
Keeping price artificially high to encourage favorable perceptions due to price
what is economy pricing?
keeping prices low to attract price-conscious customers
what are some advantages of penetration pricing?
quick inventory turnover, customers more likely to buy
disadvantages of penetration pricing?
lowers brand perception and customers will begin to expect that price
advantages of price skimming?
higher perceived quality, greater profitability
disadvantages of price skimming?
low inventory turnover, can't last long
advantages to premium pricing?
competitor advantage, improved perception
disadvantages of premium pricing?
strong barriers to entry, can only target people that can spend some serious mula
advantages of economy pricing
good for low economic stability, quick inventory turnover
disadvantages of economy pricing
lower profits (have to sell larger volume), customer base isn't loyal
Direct vs indirect costs and examples
direct costs are involved in dispensing the product (salary, labels, bags)
indirect costs would be there regardless of services offered (rent, utilities)
How do you allocate indirect costs?
based on a causal relationship (rent can be allocated to each department based on the % of total square feet that dept takes up)
calculate cost to dispense
total expenses related to dispensing Rx / total Rx dispensed
this is really divided into separate sections of salary, rent, etc that is "prorated" based on how much of that is direct pharmacy stuff
What are some ways you can improve cash flow?
-proper inventory control
-maintain gross margin (increase prices, decrease costs)
-invest idle cash
-control of accounts receivable
-delay payments until you have to pay them
-minimize operating expenses (cut salary, reduce advertising)
how do you calculate NPV?
FV / (1 + i)^n
where n = number of years and i is interest rate. You'll do this 3 times in a row and add them all up and that's the PV cash inflow. PV outflow is how much you're investing right NOW. Want what you're investing to be less than what you calculate.
what is the net present value?
difference between the present value of inflows and the present value of outflows. if >0 you should do the investment.
Calculate a break even volume of services
fixed cost / CM/unit
calculate stay even volume
(fixed cost + income) / CM/unit
calculate the impact of a discount on profitability
1. multiply the discount by how many people will get to use it (10% discount applies to 25% of sales = 2.5% decrease overall in revenue)
2. Calculate CM%: 1-(variable costs / [sales - 2.5%])
3. Find new BEP or SEP by doing (fixed cost +/- income) / CM%
one way vs two way sensitivity analysis
One way: change one variable above and below the initial assumption and see what happens
Two way: same thing but change two variables
consequences that measure direct effects on patients' health, wellbeing, or productivity (lives saved, QOL improvement)
outcomes that are necessary steps in achieving the desired final outcome (reduced BP)
direct non-medical cost
expenses that result from patient not being able to perform services for themselves (transportation to appts, caregivers time)
indirect costs (in relation to pharmacoeconomic analysis)
productivity losses incurred as a result of disease or disability
cost minimization analysis
compares cost of therapies that are equally effective; cheapest option is preferred
cost effectiveness analysis
compares treatments to find the least cost and most effective treatment to achieve the same outcome
Measured in natural or physical units
how to calculate an ICER
(cost new - cost standard) / (effect new - effect standard)
health outcome measured used considers changes in both quantity AND quality of life
multiply utility value by number of years of life gained = QALY -- use that in the ICER equation
what is the accounting identity
Assets = Liabilities + Equity
what is an income statement
summarizes revenues, expenses, and income for an organization over a SPECIFIED PERIOD OF TIME
what is the income statement formula
what is a balance sheet
a snapshot of financial position AT A GIVEN DATE; lists assets, liabilities, and net assets
general vs limited partners
general = unlimited liability but all the control
limited = limited liability but not a lot of control
cash basis of accounting
records revenue when it's received/deposited to bank and then expenses when a payment is made
Doesn't follow matching principle
accrual basis of accounting
based on the matching principle
Revenues earned in a given time period should be matched with expenses incurred to earn the revenue in that time period
calculate straight line depreciation
(acquisition cost - residual value) / useful life
what are sources of cash?
decrease in accounts receivable
increase in accounts payable or liabilities
what are uses of cash?
increase in accounts receivable
decrease in accounts payable or liabilities
YOU MIGHT ALSO LIKE...
Actg rest 4
All about Accounting, LU8 Ratio Analysis, LU10 F&B…
Accounting II: Chapters 12-13
Accounting 202 Test 1 Burney
OTHER SETS BY THIS CREATOR
Adv Cardio Dosing and stuff
OTHER QUIZLET SETS
Endocrine/Thyroid Pharm Quiz
AP HUG Varsity Tutors practice test #1
Compendium Study Guide Test 1 - Accounting