HMGT 3311 FINAL EXAM 2025 UPDATE COMPREHENSIVE
QUESTIONS AND VERIFIED ANSWERS (COMPLETE
SOLUTIONS) EXAM GRADE A+
What is the purpose of Ratio Analysis? - answers-Provide information about the financial
performance of an organization which goes beyond that which is available from analyzing
only one line item at a time.
What are the 4 Categories of Ratios? - answers-Liquidity; Revenue, Expense, and
Profitability; Activity; and Capital Structure.
Liquidity answers? - answers-How well is the organization positioned to meet its short-term
obligations?
Revenue, Expense and Profitability ratios answer? - answers-How profitable is an
organization?" and 2) "How effective is it in controlling its operating costs and increasing its
operating revenues?
Activity ratios answers? - answers-How efficiently is the organization using its assets to
produce revenues?
Capital structure ratios answers? - answers-How are the organization's assets financed?";
and 2) "How able is the organization to take on new debt?
How capital structure ratios help? - answers-Analyze the organization's ability to pay off its
long-term debts.
How Liquidity ratios help? - answers-Analyze the organization's ability to pay off its short-
term obligations
,What is the function of working Capital - answers-That a health care organization collects its
funds, pays its employees, buys its supplies, and pays its creditors. Although non-current
assets provide the capacity to provide service, current assets and current liabilities are used
to turn that capacity into service
What is Horizontal Analysis? - answers-Compares changes in a given line item between two
consecutive periods (i.e., Cash in 20X0 vs. 20X1).
What is Vertical Analysis? - answers-Relative weight of various line items to a base (i.e.,
current assets as a percent of total assets)
What is Trend Analysis? - answers-Trend analysis extends the concept of horizontal analysis
over multiple time periods, using the first year as the base year.
What are the stages of working capital? - answers-1) Obtaining cash; 2) Turning cash into
resources and paying bills; 3) Using the resources to provide services; and 4) Billing and
collecting revenues earned so that the cycle can be continued. It is important to manage the
working capital cycle to ensure that cash is available when needed.
What is aggressive asset mix strategies? - answers-Approach the health care organization
attempts to maximize its returns by investing its funds in non-liquid assets such as buildings
and equipment. By minimizing its working capital in this way, the organization faces
increased risk of inventory stock-outs, lost customers from stringent credit policies, and lack
of cash to pay employees and suppliers.
What is conservative asset mix strategies? - answers-A health care organization accepts
lower returns with higher liquidity (typically earned on shorter-term investments) to
minimize its risk of not having sufficient funds to pay current obligations.
What does "1.5/15 net 25" mean? - answers-That a 1.5% discount will be given if payment is
made within 15 days. "Net 25" means that if the discount is not taken, then the full amount
is due within 25 days. The time between day 15 and day 25 is called the "net period."
Revenue cycle management. - answers-Are to accelerate cash receipts and to maximize the
ultimate
,collectable amount of the accounts receivable.
What is the major obstacle that health care providers face in receiving their payments
electronically? - answers-Is reconciling payments with the Electronic Remittance Advice
(ERA), which provides details on how the claims were paid by the third-party payer, and/or
why they were denied.
Describe the lockbox technique for managing collection float. - answers-To decrease mail
and processing time by having the health care organization's customers send their checks to
a PO box near an affiliated bank. The bank clears the payments from the box at different
times during the day
List three ways to measure accounts receivable performance. - answers-An aging of
receivables; measuring days in accounts receivable; and computation of receivables as a
percent of net patient revenues.
Horizontal Analysis Equation - answers-(Current Year - Previous Year/Previous Year) * 100
Current Ratio - answers-How well is the company positioned to meet current obligations
with its current resources
Quick Ratio - answers-More stringent than Current Ratio; used in industries where net A/R is
relatively liquid (not typically used with healthcare providers)
Acid Test Ratio - answers-Most stringent test of liquidity. How much cash is available to pay
off all current obligations
Days in Accounts Receivable meaning - answers-How quickly a hospital is converting its
receivables into cash
Days Cash on Hand ratio meaning - answers-Number of days worth of expenses an
organization can cover with its most liquid assets
, Average Payment Period meaning - answers-How long on average it takes an organization to
pay its bills
Three basic rules to working capital financing - answers-1.Finance short-term WC needs with
short-term debt
2.Finance long-term WC needs with long-term financing
3.Finance fluctuating needs for WC by employing a mixed strategy
3 major reasons to hold cash - answers-Daily operational purposes (e.g. payroll, utility, rent,
etc.)
Precautionary purposes (e.g. repairs & maintenance)
Speculative purposes (e.g. buying a competing hospital or medical practice)
Lines Of Credit (LOC) - answers-Normal - agreement with bank to lend "UP TO" an agreed
amount, but bank is not legally obligated
Revolving - same as Normal, but obligates bank to fulfill borrower's request
LOC cost - answers-Interest expense on borrowed funds
Commitment Fees - negotiable % of unused portion of LOC
Compensating Balance - obligates borrower to maintain a designated amount on deposit
with the LOC bank
Transaction Notes - answers-S-T unsecured bank loan for a specific purpose
Usually have compensating balance requirements
Trade credit on accounts payable - answers-Payable-extension of credit from vendors
QUESTIONS AND VERIFIED ANSWERS (COMPLETE
SOLUTIONS) EXAM GRADE A+
What is the purpose of Ratio Analysis? - answers-Provide information about the financial
performance of an organization which goes beyond that which is available from analyzing
only one line item at a time.
What are the 4 Categories of Ratios? - answers-Liquidity; Revenue, Expense, and
Profitability; Activity; and Capital Structure.
Liquidity answers? - answers-How well is the organization positioned to meet its short-term
obligations?
Revenue, Expense and Profitability ratios answer? - answers-How profitable is an
organization?" and 2) "How effective is it in controlling its operating costs and increasing its
operating revenues?
Activity ratios answers? - answers-How efficiently is the organization using its assets to
produce revenues?
Capital structure ratios answers? - answers-How are the organization's assets financed?";
and 2) "How able is the organization to take on new debt?
How capital structure ratios help? - answers-Analyze the organization's ability to pay off its
long-term debts.
How Liquidity ratios help? - answers-Analyze the organization's ability to pay off its short-
term obligations
,What is the function of working Capital - answers-That a health care organization collects its
funds, pays its employees, buys its supplies, and pays its creditors. Although non-current
assets provide the capacity to provide service, current assets and current liabilities are used
to turn that capacity into service
What is Horizontal Analysis? - answers-Compares changes in a given line item between two
consecutive periods (i.e., Cash in 20X0 vs. 20X1).
What is Vertical Analysis? - answers-Relative weight of various line items to a base (i.e.,
current assets as a percent of total assets)
What is Trend Analysis? - answers-Trend analysis extends the concept of horizontal analysis
over multiple time periods, using the first year as the base year.
What are the stages of working capital? - answers-1) Obtaining cash; 2) Turning cash into
resources and paying bills; 3) Using the resources to provide services; and 4) Billing and
collecting revenues earned so that the cycle can be continued. It is important to manage the
working capital cycle to ensure that cash is available when needed.
What is aggressive asset mix strategies? - answers-Approach the health care organization
attempts to maximize its returns by investing its funds in non-liquid assets such as buildings
and equipment. By minimizing its working capital in this way, the organization faces
increased risk of inventory stock-outs, lost customers from stringent credit policies, and lack
of cash to pay employees and suppliers.
What is conservative asset mix strategies? - answers-A health care organization accepts
lower returns with higher liquidity (typically earned on shorter-term investments) to
minimize its risk of not having sufficient funds to pay current obligations.
What does "1.5/15 net 25" mean? - answers-That a 1.5% discount will be given if payment is
made within 15 days. "Net 25" means that if the discount is not taken, then the full amount
is due within 25 days. The time between day 15 and day 25 is called the "net period."
Revenue cycle management. - answers-Are to accelerate cash receipts and to maximize the
ultimate
,collectable amount of the accounts receivable.
What is the major obstacle that health care providers face in receiving their payments
electronically? - answers-Is reconciling payments with the Electronic Remittance Advice
(ERA), which provides details on how the claims were paid by the third-party payer, and/or
why they were denied.
Describe the lockbox technique for managing collection float. - answers-To decrease mail
and processing time by having the health care organization's customers send their checks to
a PO box near an affiliated bank. The bank clears the payments from the box at different
times during the day
List three ways to measure accounts receivable performance. - answers-An aging of
receivables; measuring days in accounts receivable; and computation of receivables as a
percent of net patient revenues.
Horizontal Analysis Equation - answers-(Current Year - Previous Year/Previous Year) * 100
Current Ratio - answers-How well is the company positioned to meet current obligations
with its current resources
Quick Ratio - answers-More stringent than Current Ratio; used in industries where net A/R is
relatively liquid (not typically used with healthcare providers)
Acid Test Ratio - answers-Most stringent test of liquidity. How much cash is available to pay
off all current obligations
Days in Accounts Receivable meaning - answers-How quickly a hospital is converting its
receivables into cash
Days Cash on Hand ratio meaning - answers-Number of days worth of expenses an
organization can cover with its most liquid assets
, Average Payment Period meaning - answers-How long on average it takes an organization to
pay its bills
Three basic rules to working capital financing - answers-1.Finance short-term WC needs with
short-term debt
2.Finance long-term WC needs with long-term financing
3.Finance fluctuating needs for WC by employing a mixed strategy
3 major reasons to hold cash - answers-Daily operational purposes (e.g. payroll, utility, rent,
etc.)
Precautionary purposes (e.g. repairs & maintenance)
Speculative purposes (e.g. buying a competing hospital or medical practice)
Lines Of Credit (LOC) - answers-Normal - agreement with bank to lend "UP TO" an agreed
amount, but bank is not legally obligated
Revolving - same as Normal, but obligates bank to fulfill borrower's request
LOC cost - answers-Interest expense on borrowed funds
Commitment Fees - negotiable % of unused portion of LOC
Compensating Balance - obligates borrower to maintain a designated amount on deposit
with the LOC bank
Transaction Notes - answers-S-T unsecured bank loan for a specific purpose
Usually have compensating balance requirements
Trade credit on accounts payable - answers-Payable-extension of credit from vendors
