Blackwell Chapter 7

Question 1

What are the steps in ratio analysis?

Answer 1

convert cash basis financial statement to accrual basis include A/ R, inventory value, all equipment, and tangible property capitalize purchase leases by including the asset (equipment) value recording the remaining liability (the present value of future lease payment obligations).

Ackerman, Lowell. Blackwell’s Five-Minute Veterinary Practice Management Consult (Blackwell’s Five-Minute Veterinary Consult) (p. 740). Wiley. Kindle Edition.

Question 2

Acid Test

Answer 2

More severe test of immediate liquidity – ability to react to sudden demands on current assets, especially cash.

Ackerman, Lowell. Blackwell’s Five-Minute Veterinary Practice Management Consult (Blackwell’s Five-Minute Veterinary Consult) (p. 740). Wiley. Kindle Edition.

Question 3

Inventory Turnover Ratio

Answer 3

Measures effectiveness and efficiency of inventory purchases and use:
Example: Inventory purchased in one year ($150,000)/ Average Inventory on hand ($20,000)= 7.5 turn over of inventory in 1 year

Ackerman, Lowell. Blackwell’s Five-Minute Veterinary Practice Management Consult (Blackwell’s Five-Minute Veterinary Consult) (p. 742). Wiley. Kindle Edition.

Question 4

Days a supply is in inventory

Answer 4

365 days in one year/7.5 (inventory turn over in a year)=Days a supply is in inventory

Question 5

Working Capital Turnover: Indicates effectiveness with which average working capital was used to generate sales:

Ackerman, Lowell. Blackwell’s Five-Minute Veterinary Practice Management Consult (Blackwell’s Five-Minute Veterinary Consult) (p. 742). Wiley. Kindle Edition.

Answer 5

Working Capital Turnover (20) = Net Sales (1,000,000)/Average work capital ($50,000)

Question 6

Gross Profit

Answer 6

Gross Profit=Gross Revenue-Expenses

Question 7

Gross Profit Percentage

Answer 7

Gross Profit Percentage=Gross Profit/ Gross Revenue

Question 8

EBIDTA Formula

Answer 8

EBIDTA=Profit after expenses+interest expense+income taxes+depreciation+amortization

Question 9

Lost Clients Per year

Answer 9

Lost Clients=Active clients for last year + new clients-active clients this year

Vogel Example
348= 3637+733-4022

Question 10

Net Operating Profit

Answer 10

The dollar amount left over after all normal and necessary operating expenses calculated at fair market value rates are subtracted from the revenue of the practice.
Ackerman, Lowell. Blackwell’s Five-Minute Veterinary Practice Management Consult (Blackwell’s Five-Minute Veterinary Consult) (p. 788). Wiley. Kindle Edition.

Question 11

No-LoSM Practice:

Answer 11

A term coined by the Veterinary Valuation Council of VetPartners describing a practice with no profit– low profit or no value– low value.

Ackerman, Lowell. Blackwell’s Five-Minute Veterinary Practice Management Consult (Blackwell’s Five-Minute Veterinary Consult) (p. 788). Wiley. Kindle Edition.

Question 12

Profit Margin

Answer 12

The dollar amount of profits divided by the gross revenue of the practice and expressed as a percentage.

Ackerman, Lowell. Blackwell’s Five-Minute Veterinary Practice Management Consult (Blackwell’s Five-Minute Veterinary Consult) (p. 788). Wiley. Kindle Edition.

Question 13

Acquisition Cost

Answer 13

The wholesale price at which a good or service can be acquired for re-sale.

Ackerman, Lowell. Blackwell’s Five-Minute Veterinary Practice Management Consult (Blackwell’s Five-Minute Veterinary Consult) (p. 796). Wiley. Kindle Edition.

Question 14

Community Pricing

Answer 14

Establishing a price for a good or service based on the prices charged by others.

Ackerman, Lowell. Blackwell’s Five-Minute Veterinary Practice Management Consult (Blackwell’s Five-Minute Veterinary Consult) (p. 796). Wiley. Kindle Edition.

Question 15

Direct Labor Hours

Answer 15

Costs associated with providing staffing for a service.

Ackerman, Lowell. Blackwell’s Five-Minute Veterinary Practice Management Consult (Blackwell’s Five-Minute Veterinary Consult) (p. 796). Wiley. Kindle Edition.

Question 16

Margin Pricing

Answer 16

Also known as cost-plus pricing, this involves taking all the direct and indirect costs in providing a good or service and adding a set amount or percentage that corresponds to a gross profit margin to arrive at a retail price.

Ackerman, Lowell. Blackwell’s Five-Minute Veterinary Practice Management Consult (Blackwell’s Five-Minute Veterinary Consult) (p. 796). Wiley. Kindle Edition.

Question 17

Mark Up Pricing

Answer 17

Pricing based on taking the acquisition cost and increasing it by percentage or factor to arrive at a retail price.

Ackerman, Lowell. Blackwell’s Five-Minute Veterinary Practice Management Consult (Blackwell’s Five-Minute Veterinary Consult) (p. 796). Wiley. Kindle Edition.

Question 18

Materials

Answer 18

Costs associated with providing products used for a service, including both direct and indirect costs.

Ackerman, Lowell. Blackwell’s Five-Minute Veterinary Practice Management Consult (Blackwell’s Five-Minute Veterinary Consult) (p. 796). Wiley. Kindle Edition.

Question 19

Overhead

Answer 19

Costs of operating a business, even if no clients avail themselves of any services.

Ackerman, Lowell. Blackwell’s Five-Minute Veterinary Practice Management Consult (Blackwell’s Five-Minute Veterinary Consult) (p. 796). Wiley. Kindle Edition.

Question 20

Break Even Point

Answer 20

The level of sales that will just cover all costs, both fixed and variable. It can be expressed in dollars or units sold (or, in a veterinary practice, the number of patients seen).

Ackerman, Lowell. Blackwell’s Five-Minute Veterinary Practice Management Consult (Blackwell’s Five-Minute Veterinary Consult) (p. 803). Wiley. Kindle Edition.

Question 21

Fixed Cost

Answer 21

Costs that do not fluctuate with revenue. For example, the rent paid to lease the building in which the veterinary practice is located is a fixed cost. Even if no clients come in the door and no revenue is generated by the practice, the business still has to pay rent.

Ackerman, Lowell. Blackwell’s Five-Minute Veterinary Practice Management Consult (Blackwell’s Five-Minute Veterinary Consult) (p. 803). Wiley. Kindle Edition.

Question 22

Semivariable Costs

Answer 22

Costs that do not fluctuate directly with revenue, but still do not stay fixed in the sense that rent does. Staff salaries are an example. Often these costs increase in a step-wise fashion. Staff salaries may be fixed over a certain range of revenue but increase once the high end of that range is reached.

Ackerman, Lowell. Blackwell’s Five-Minute Veterinary Practice Management Consult (Blackwell’s Five-Minute Veterinary Consult) (p. 803). Wiley. Kindle Edition.

Question 23

Variable Costs

Answer 23

Costs that fluctuate directly with revenue. For example, variable costs in a veterinary practice would include anesthesia, drugs, and supplies. If no patients are seen, none of these items is used and there is no procedure-associated procedure-associated cost (other than the original cost of the existing supplies).

Ackerman, Lowell. Blackwell’s Five-Minute Veterinary Practice Management Consult (Blackwell’s Five-Minute Veterinary Consult) (p. 803). Wiley. Kindle Edition.

Question 24

Breakeven Point

Answer 24

Revenue=Fixed cost+variable costs

Question 25

Calculation for how many clients required to break even

Answer 25

of client visits=Fixed costs/(average charge less average variable cost per clients)
2443=336,079/(180-36(%20 of 180))
-Can be used for breakeven on equipment

Question 26

Cost-Drivers

Answer 26

Quantifiable measure used to assign costs to activities; reflects the consumption of costs by activities; for example, labor, supplies, equipment, and associated depreciation.

Ackerman, Lowell. Blackwell’s Five-Minute Veterinary Practice Management Consult (Blackwell’s Five-Minute Veterinary Consult) (p. 805). Wiley. Kindle Edition.

Question 27

Cost Object

Answer 27

Any activity for which a separate measurement of costs is desired; for example, services, service lines, products, product lines, processes, and responsibility centers (surgery, pharmacy).

Ackerman, Lowell. Blackwell’s Five-Minute Veterinary Practice Management Consult (Blackwell’s Five-Minute Veterinary Consult) (pp. 805-808). Wiley. Kindle Edition.

Ackerman, Lowell. Blackwell’s Five-Minute Veterinary Practice Management Consult (Blackwell’s Five-Minute Veterinary Consult) (p. 805). Wiley. Kindle Edition.

Question 28

Activity Based Costing and Cost Allocation

Answer 28

1.Step 1. Develop a Flowchart of Activities (Figure 7.14.1) and Draw Up a Detailed List of Activities (Column 1)
2. Identify Cost Drivers (ex. labor as applied to surgery)
3. Develop Rates for Applying Costs to the Cost Drivers
4. Calculate the Cost Associated with the General Activity (Column 4)
5. Calculate Remaining Overhead

Question 29

Situational Pressures

Answer 29

Employees may be attempting to deal with overwhelming factors such as compounding debt and financial pressures, their own or family medical problems, alcoholism, drug abuse, or even psychological problems, and they may feel that they are unable to share these problems with employee assistance personnel (EAP), if available, family, friends, or coworkers.

Ackerman, Lowell. Blackwell’s Five-Minute Veterinary Practice Management Consult (Blackwell’s Five-Minute Veterinary Consult) (p. 812). Wiley. Kindle Edition.

Question 30

Opportunity

Answer 30

The opportunity for an employee to commit fraud generally increases as their job roles and responsibilities increase and/ or poor internal controls are inherent in the job place.

Ackerman, Lowell. Blackwell’s Five-Minute Veterinary Practice Management Consult (Blackwell’s Five-Minute Veterinary Consult) (p. 812). Wiley. Kindle Edition.

Question 31

Personal Integrity

Answer 31

This is probably the single most important factor in determining whether a person will commit fraud. Employees who are intent on doing so may often be successful in perpetrating fraud in a well-managed organization. However, given high personal integrity, an employee driven by strong moral values will probably not commit fraud even when faced by situational pressures or an opportunity to commit fraud.

Ackerman, Lowell. Blackwell’s Five-Minute Veterinary Practice Management Consult (Blackwell’s Five-Minute Veterinary Consult) (p. 812). Wiley. Kindle Edition.

Question 32

Defalcation

Answer 32

Misappropriation of money or funds by someone entrusted with their care or management.

Ackerman, Lowell. Blackwell’s Five-Minute Veterinary Practice Management Consult (Blackwell’s Five-Minute Veterinary Consult) (p. 812). Wiley. Kindle Edition.

Question 33

Embezzlement

Answer 33

The fraudulent appropriation of funds or property entrusted to your care, but actually owned by someone else.

Ackerman, Lowell. Blackwell’s Five-Minute Veterinary Practice Management Consult (Blackwell’s Five-Minute Veterinary Consult) (p. 812). Wiley. Kindle Edition.

Question 34

Prevent Controls

Answer 34

Are procedures designed to prevent an error or fraud at the individual transaction level

Question 35

Detect Controls

Answer 35

are policies and procedures designed to monitor the attainment of relevant processes (disbursement, recording, custody), including identifying errors or fraud applied to groups of transactions. Without prevent controls, a high error rate can render detect controls ineffective in finding and correcting intentional or unintentional errors in a timely fashion. In a practice with a high patient volume, a lack of prevent controls significantly increases the risk of errors and increases the need for sensitive detect controls.

Ackerman, Lowell. Blackwell’s Five-Minute Veterinary Practice Management Consult (Blackwell’s Five-Minute Veterinary Consult) (p. 812). Wiley. Kindle Edition.

Question 36

ROI

Answer 36

Income that an investment generates compared to the cost of the investment. ROI is a measure of how effectively a firm uses its assets to generate profit.

ROI=net income/(average operating assetsX100)

Ackerman, Lowell. Blackwell’s Five-Minute Veterinary Practice Management Consult (Blackwell’s Five-Minute Veterinary Consult) (p. 815). Wiley. Kindle Edition.

Question 37

What is the average cost of losing an employee?

Answer 37

1/3-2/3 the employee’s annual salary

Question 38

Section 179 Depreciation

Answer 38

Allows small businesses to take a deduction for the entire purchase of an asset under $500,000
-must be tangible property
-must be new
-must not be a building or property
-

Question 39

Adjusted Gross Income

Answer 39

The total of an individual’s income (wages, salaries, interest, dividends, etc.) on a tax return after all allowable deductions have been subtracted.

Ackerman, Lowell. Blackwell’s Five-Minute Veterinary Practice Management Consult (Blackwell’s Five-Minute Veterinary Consult) (p. 832). Wiley. Kindle Edition.

Question 40

Employee Stock Ownership Plan

Answer 40

A program that allows an organization’s employees to have an ownership interest in the organization.

Ackerman, Lowell. Blackwell’s Five-Minute Veterinary Practice Management Consult (Blackwell’s Five-Minute Veterinary Consult) (p. 837). Wiley. Kindle Edition.

Question 41

Due Dilligence

Answer 41

The process by which persons conduct inquiries for the purposes of timely, sufficient, and accurate disclosure of all material statements/ information or documents that may influence the outcome of the transaction.

Ackerman, Lowell. Blackwell’s Five-Minute Veterinary Practice Management Consult (Blackwell’s Five-Minute Veterinary Consult) (p. 840). Wiley. Kindle Edition.

Question 42

Financial Feasibility Analysis

Answer 42

-If there is positive cash flow after paying the debt and the taxes, then the purchase price is at least theoretically reasonable and you can move forward with your goal of considering purchase of the practice.
-If there is not positive cash flow, then either the price is not reasonable or your personal budget requires a practice that is capable of providing a greater cash flow.
-If there is not positive cash flow and you believe that the price is not reasonable, then the negotiations on the price can be based on the facts instead of another appraiser’s opinion of value.

Ackerman, Lowell. Blackwell’s Five-Minute Veterinary Practice Management Consult (Blackwell’s Five-Minute Veterinary Consult) (p. 842). Wiley. Kindle Edition.

Question 43

4 Steps to Determining Financial Feasibility

Answer 43

-Adjust the Financial Statements
-Forecast Future Cash Flow
-Debt and Taxes
-Decision

Question 44

Alternative Minimum Tax

Answer 44

Special tax system calculated on tax returns of itemized filers. Typically applicable to taxpayers with significant deductions or preferences, passive losses, or capital gains.

Ackerman, Lowell. Blackwell’s Five-Minute Veterinary Practice Management Consult (Blackwell’s Five-Minute Veterinary Consult) (p. 848). Wiley. Kindle Edition.

Question 45

IRS Section 1031

Answer 45

“No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held for productive use in a trade or business or for investment.” This technique is used primarily in real estate sales to roll over the seller’s cost basis from a relinquished property into a replacement property with no current tax due if rules are followed for complete tax deferral.

Ackerman, Lowell. Blackwell’s Five-Minute Veterinary Practice Management Consult (Blackwell’s Five-Minute Veterinary Consult) (p. 848). Wiley. Kindle Edition.