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, Essentials of Health Care Finance, 9th Edition
William O. Cleverley, James O. Cleverley, Ashley V. Parks
Test Bank
Chapter 1
Chapter 1: Financial Information and the Decision-Making Process
Essay
1. What are the primary responsibilities of the financial manager?
Ans: Students’ answers might vary somewhat, but they should focus around the following themes:
The financial manager’s task is to acquire and use funds so as to maximize the firm’s value. Specific
activities include (1) forecasting and planning, (2) making major investment financing decisions, (3)
coordinating and controlling, (4) dealing with the financial markets, and (5) managing risk.
Complexity: Difficult
Ahead: Information and Decision Making
Subject: Chapter 1
2. What are primary uses of financial information in healthcare organizations? Please list and describe
each use of financial information.
Ans: Students’ answers might vary somewhat, but they should focus around the following themes:
There are five uses of financial information identified in our text that may be important in decision making:
1. Evaluating the financial condition of an entity – This is likely the most common use of financial
information and involves assessing an organization’s viability or capacity to continue pursuing its
stated goals at a consistent level of activity. Both long-run and short-run effects of financial decisions
need to be considered.
2. Evaluating stewardship within an entity – Organizations use financial information to evaluate financial
stewardship and detect any unexpected losses due to employees’ malfeasance or fraud.
3. Assessing the efficiency of operations – Financial information may be used to evaluate efficiency, the
ratio of outputs to inputs. It is common to compare the efficiency of departments and functional units to
benchmarks in order to evaluate the relative efficiency of the unit and prompt any changes required to
increase efficiency.
4. Assessing the effectiveness of operations – The tracking of financial information in order to determine
if organizational goals are met is an important use of financial information. Assessment of the
effectiveness of operations is evaluated through an organization’s ability to meet objectives through
production of outputs, but does not necessary incorporate the relationship of outputs to cost.
5. Determining the compliance of operation with directives – Financial information may be used to
determine whether compliance with directives has taken place. This includes meeting and complying
with internal directives such as an organization’s budget as well adherence to directives imposed by
external organizations such as rate setting or regulatory agencies.
Complexity: Moderate
Ahead: Uses and Users of Financial Information
Subject: Chapter 1
3. What is the difference in the financial management responsibilities between the controller and
treasurer?
Ans: The controller focuses on internal financial management functions such as (1) budgeting, forecasting
and planning; (2) preparation of financial statements and reports; (3) analyzing revenues and expenses;
(4) determining payroll taxes; and (5) determining internal control procedures.
The treasurer focuses on external financial management functions such as (1) managing investment; (2)
managing investor relations with creditors and credit rating agencies; (3) securing short-term and long-
term financing needs; (4) establishing billing, credit, and collection policies; and (5) managing risk.
, Essentials of Health Care Finance, 9th Edition
William O. Cleverley, James O. Cleverley, Ashley V. Parks
Test Bank
Chapter 1
Complexity: Difficult
Ahead: Financial Organization
Subject: Chapter 1
4. What is the objective of investor-owned (for-profit) firms?
Ans: The goal of for-profit, or investor-owned firms, is generally to maximize value for the shareholders or
owners. While value can be determined in many ways, the primary objective is to earn profits that are
then distributed to the investor-owners or reinvested in the firm. Profit maximization is the primary
objective of for-profit firms.
Complexity: Difficult
Ahead: Forms of Business Organization
Subject: Chapter 1
5. Is profit maximization the same thing as shareholder wealth maximization?
Ans: No. Profit maximization does not reflect (1) the timing of profits and (2) the riskiness of different
operating plans. However, both of these factors are reflected in stock price maximization. Thus, profit
maximization would not necessarily lead to stock price maximization.
Think of the extreme case where a company has very valuable assets that are worth far more than their
book value. The company could sell these assets in order to maximize current profits (through the gain on
sale of assets), but in doing so, it would greatly reduce long-term profits and would reduce shareholder
wealth.
A less extreme and more common example is that a firm can defer necessary equipment maintenance.
This would save money (expenses) in the short term but will reduce the productivity of the assets or
reduce their future productivity in the long run.
Complexity: Difficult
Ahead: Forms of Business Organization
Subject: Chapter 1
6. What are the objectives of not-for-profit (NFP) firms?
Ans: There are three primary objectives of the NFP, which are:
• Solvency
• Community well-being
• Other objectives as reflected in the NFP’s mission
Complexity: Difficult
Ahead: Forms of Business Organization
Subject: Chapter 1
7. What are the three primary forms of legal business organization? What are some of the advantages
and disadvantages of each form?
Ans: Sole proprietorship, partnership, and corporation are the three principal forms of business
organization. The advantages of the first two include the ease and low cost of formation. The advantages
of the corporation include limited liability, indefinite life, ease of ownership transfer, and access to capital
markets.
The disadvantages of a sole proprietorship are (1) difficulty in obtaining large sums of capital, (2)
unlimited personal liability for business debts, and (3) limited life. The disadvantages of a partnership are
(1) unlimited liability, (2) limited life, (3) difficulty of transferring ownership, and (4) difficulty of raising large
, Essentials of Health Care Finance, 9th Edition
William O. Cleverley, James O. Cleverley, Ashley V. Parks
Test Bank
Chapter 1
amounts of capital. The disadvantages of a corporation are (1) double taxation of earnings and (2)
requirements to file state and federal reports for registration, which are expensive, complex and time-
consuming.
Complexity: Difficult
Ahead: Forms of Business Organization
Subject: Chapter 1
8. Why is there a tendency in healthcare financial management to place more emphasis on efficiency
over effectiveness? Please provide an example.
Ans: Students’ answers might vary somewhat, but they should focus on the following themes: Measuring
organizational effectiveness may not be prioritized since it more difficult than measuring efficiency. This
difficulty may be due in part to most organizations’ objectives or goals not being measurable or including
clear quantitative targets. Measuring efficiency, the ratio of inputs to outputs, is more straight forward and
less ambiguous than trying to measure the attainment of specific goals and objectives that may be tied to
big ideas such as “growth” or “increasing competitive advantage.” Because measurement of effectiveness
can be more difficult and requires clear goals at the outset, there can be a tendency by financial
measures to place less emphasis on effectiveness and more on efficiency. Given it is easier to measure
an organization’s ability to do things efficiently over their ability to do the right things, this could result in
the delivery of unnecessary services at an efficient cost. For example, the hospital lab may be running
very efficiently as far as staffing hours and the number of tests performed. However, the necessity of
those tests, most of which would not be reimbursed separately for inpatient encounters, may still be
questionable.
Complexity: Moderate
Ahead: Uses and Users of Financial Information
Subject: Chapter 1
Multiple Choice
1. Which of the following is not one of the five uses of financial information discussed in the chapter?
A) Assessing the efficiency of operations
B) Assessing the effectiveness of operations
C) Reducing stewardship within an entity
D) Determining the compliance of operation with directives
E) All of these represent the five uses of financial information.
Ans: C
Complexity: Easy
Ahead: Information and Decision Making
Subject: Chapter 1
2. Which of the following is a way in which not-for-profit organizations are expected to provide community
benefit?
A) Setting lower prices
B) Providing higher amounts of uncompensated care
C) Offering services that meet a community need but may not be financially advantageous
D) Setting lower prices, providing higher amounts of uncompensated care, and offering services that
meet a community need but may not be financially advantageous
E) None of these is correct.
We have all what you need with best price,
Only find what you need and make payment and get your order, Or email us with full name
with your request.
Our email:
Our websites:
Nursing-pub.com
testbanks-store.com
, Essentials of Health Care Finance, 9th Edition
William O. Cleverley, James O. Cleverley, Ashley V. Parks
Test Bank
Chapter 1
Chapter 1: Financial Information and the Decision-Making Process
Essay
1. What are the primary responsibilities of the financial manager?
Ans: Students’ answers might vary somewhat, but they should focus around the following themes:
The financial manager’s task is to acquire and use funds so as to maximize the firm’s value. Specific
activities include (1) forecasting and planning, (2) making major investment financing decisions, (3)
coordinating and controlling, (4) dealing with the financial markets, and (5) managing risk.
Complexity: Difficult
Ahead: Information and Decision Making
Subject: Chapter 1
2. What are primary uses of financial information in healthcare organizations? Please list and describe
each use of financial information.
Ans: Students’ answers might vary somewhat, but they should focus around the following themes:
There are five uses of financial information identified in our text that may be important in decision making:
1. Evaluating the financial condition of an entity – This is likely the most common use of financial
information and involves assessing an organization’s viability or capacity to continue pursuing its
stated goals at a consistent level of activity. Both long-run and short-run effects of financial decisions
need to be considered.
2. Evaluating stewardship within an entity – Organizations use financial information to evaluate financial
stewardship and detect any unexpected losses due to employees’ malfeasance or fraud.
3. Assessing the efficiency of operations – Financial information may be used to evaluate efficiency, the
ratio of outputs to inputs. It is common to compare the efficiency of departments and functional units to
benchmarks in order to evaluate the relative efficiency of the unit and prompt any changes required to
increase efficiency.
4. Assessing the effectiveness of operations – The tracking of financial information in order to determine
if organizational goals are met is an important use of financial information. Assessment of the
effectiveness of operations is evaluated through an organization’s ability to meet objectives through
production of outputs, but does not necessary incorporate the relationship of outputs to cost.
5. Determining the compliance of operation with directives – Financial information may be used to
determine whether compliance with directives has taken place. This includes meeting and complying
with internal directives such as an organization’s budget as well adherence to directives imposed by
external organizations such as rate setting or regulatory agencies.
Complexity: Moderate
Ahead: Uses and Users of Financial Information
Subject: Chapter 1
3. What is the difference in the financial management responsibilities between the controller and
treasurer?
Ans: The controller focuses on internal financial management functions such as (1) budgeting, forecasting
and planning; (2) preparation of financial statements and reports; (3) analyzing revenues and expenses;
(4) determining payroll taxes; and (5) determining internal control procedures.
The treasurer focuses on external financial management functions such as (1) managing investment; (2)
managing investor relations with creditors and credit rating agencies; (3) securing short-term and long-
term financing needs; (4) establishing billing, credit, and collection policies; and (5) managing risk.
, Essentials of Health Care Finance, 9th Edition
William O. Cleverley, James O. Cleverley, Ashley V. Parks
Test Bank
Chapter 1
Complexity: Difficult
Ahead: Financial Organization
Subject: Chapter 1
4. What is the objective of investor-owned (for-profit) firms?
Ans: The goal of for-profit, or investor-owned firms, is generally to maximize value for the shareholders or
owners. While value can be determined in many ways, the primary objective is to earn profits that are
then distributed to the investor-owners or reinvested in the firm. Profit maximization is the primary
objective of for-profit firms.
Complexity: Difficult
Ahead: Forms of Business Organization
Subject: Chapter 1
5. Is profit maximization the same thing as shareholder wealth maximization?
Ans: No. Profit maximization does not reflect (1) the timing of profits and (2) the riskiness of different
operating plans. However, both of these factors are reflected in stock price maximization. Thus, profit
maximization would not necessarily lead to stock price maximization.
Think of the extreme case where a company has very valuable assets that are worth far more than their
book value. The company could sell these assets in order to maximize current profits (through the gain on
sale of assets), but in doing so, it would greatly reduce long-term profits and would reduce shareholder
wealth.
A less extreme and more common example is that a firm can defer necessary equipment maintenance.
This would save money (expenses) in the short term but will reduce the productivity of the assets or
reduce their future productivity in the long run.
Complexity: Difficult
Ahead: Forms of Business Organization
Subject: Chapter 1
6. What are the objectives of not-for-profit (NFP) firms?
Ans: There are three primary objectives of the NFP, which are:
• Solvency
• Community well-being
• Other objectives as reflected in the NFP’s mission
Complexity: Difficult
Ahead: Forms of Business Organization
Subject: Chapter 1
7. What are the three primary forms of legal business organization? What are some of the advantages
and disadvantages of each form?
Ans: Sole proprietorship, partnership, and corporation are the three principal forms of business
organization. The advantages of the first two include the ease and low cost of formation. The advantages
of the corporation include limited liability, indefinite life, ease of ownership transfer, and access to capital
markets.
The disadvantages of a sole proprietorship are (1) difficulty in obtaining large sums of capital, (2)
unlimited personal liability for business debts, and (3) limited life. The disadvantages of a partnership are
(1) unlimited liability, (2) limited life, (3) difficulty of transferring ownership, and (4) difficulty of raising large
, Essentials of Health Care Finance, 9th Edition
William O. Cleverley, James O. Cleverley, Ashley V. Parks
Test Bank
Chapter 1
amounts of capital. The disadvantages of a corporation are (1) double taxation of earnings and (2)
requirements to file state and federal reports for registration, which are expensive, complex and time-
consuming.
Complexity: Difficult
Ahead: Forms of Business Organization
Subject: Chapter 1
8. Why is there a tendency in healthcare financial management to place more emphasis on efficiency
over effectiveness? Please provide an example.
Ans: Students’ answers might vary somewhat, but they should focus on the following themes: Measuring
organizational effectiveness may not be prioritized since it more difficult than measuring efficiency. This
difficulty may be due in part to most organizations’ objectives or goals not being measurable or including
clear quantitative targets. Measuring efficiency, the ratio of inputs to outputs, is more straight forward and
less ambiguous than trying to measure the attainment of specific goals and objectives that may be tied to
big ideas such as “growth” or “increasing competitive advantage.” Because measurement of effectiveness
can be more difficult and requires clear goals at the outset, there can be a tendency by financial
measures to place less emphasis on effectiveness and more on efficiency. Given it is easier to measure
an organization’s ability to do things efficiently over their ability to do the right things, this could result in
the delivery of unnecessary services at an efficient cost. For example, the hospital lab may be running
very efficiently as far as staffing hours and the number of tests performed. However, the necessity of
those tests, most of which would not be reimbursed separately for inpatient encounters, may still be
questionable.
Complexity: Moderate
Ahead: Uses and Users of Financial Information
Subject: Chapter 1
Multiple Choice
1. Which of the following is not one of the five uses of financial information discussed in the chapter?
A) Assessing the efficiency of operations
B) Assessing the effectiveness of operations
C) Reducing stewardship within an entity
D) Determining the compliance of operation with directives
E) All of these represent the five uses of financial information.
Ans: C
Complexity: Easy
Ahead: Information and Decision Making
Subject: Chapter 1
2. Which of the following is a way in which not-for-profit organizations are expected to provide community
benefit?
A) Setting lower prices
B) Providing higher amounts of uncompensated care
C) Offering services that meet a community need but may not be financially advantageous
D) Setting lower prices, providing higher amounts of uncompensated care, and offering services that
meet a community need but may not be financially advantageous
E) None of these is correct.
