Financial Reports

Question 1

Essential for pharmacy managers to understand the flow of money by interpreting financial report are prepared by

Answer 1

GAAP

Question 2

What is the language of business?

Answer 2

Accounting

Question 3

What is the accounting equation?

Answer 3

assets = owner’s equity + liabilities
* Investment in asset (i.e., car) is financed by owner’s equity and liability.

Question 4

What are the fundamental activities of pharmacies?

Answer 4

1. Obtaining financing
2. Making investments
3. COnducting a profitable operation

Question 5

When owners fund the activites of a pharmacy they become ____?

Answer 5

Shareholders

Question 6

What are dividends?

Answer 6

Regular distribution from company to owner

Question 7

What are the financial statements essential for profitable operations?

Answer 7

1. Balance sheet
2. Income statement
3. Statement of cash flows

Question 8

Snapshot of the pharmacy’s investments (assets) and how they are financed (liabilities and owner’s equity)?

Answer 8

Balance sheet

Question 9

Connects the beginning and ending balance sheets in a given period by providing details of perating activities?

Answer 9

Income statement

Question 10

Connects the beginning and ending balance sheets by indicating the impact of pharmacy’s investments, financing, and operation of money?

Answer 10

Statement of cash flow

Question 11

What is a fiscal year?

Answer 11

Unit of time that a specific business uses to record its financial interactions

Question 12

What should a balance sheet include?

Answer 12

1. Total assets = total liabilities + shareholder equity
2. Retained earnings and dividends

Question 13

What are included in an income statement?

Answer 13

Provides information about money coming into the pharmacy (income) and money necessary to obtain that income (expenses)
1. Net income

Question 14

What are categories for recorded values on statement of cash flows?

Answer 14

1. Operating
2. Investing
3. Financing

Question 15

What is the purpose of financial ratios?

Answer 15

Used to examine a pharmacy’s financial performance

Question 16

What should the last line of the statement of cash flows equal?

Answer 16

The amount of cash reported on the balance sheet for the beginning of the following fiscal year

Question 17

What is profitability ratios?

Answer 17

Enables managers to evaluate a pharmacy’s levels of success in generating profits

Question 18

What are the most common profability ratios?

Answer 18

1. Gross profit margin
2. Net profit margin

Question 19

What are the factors that affect profability ratios (esopecially gross profit margin)?

Answer 19

1. Drug prices
2. Reimbursement formulas in third part contracts

Question 20

Gross Profit Margin (%)

Answer 20

Question 21

How do you interpret gross profit margins?

Answer 21

High = preferable and pharmacy has available funds to cover other expenses
* Normal range is between 20-25%

Question 22

What is net profit margin? How do you interpret it?

Answer 22

High = preferrable
Normal range is between 2-5%

Question 23

Purpose for net profit margin?

Answer 23

1. Determines how well a pharmacy manages expenses
2. Compare the performacy of pharmacy locations
3. Compare pharmacy’s performace to industry standard

Question 24

Return On Assets (%)

Answer 24

1. Provides information about the pharmacy’s ability to generate profits from the pharmacy’s assets

Question 25

How do you interpret ROA?

Answer 25

High ratio = effective
Normal value: 5%

Question 26

Return On Equity (ROE)

Answer 26

Return on investment: provides info about how well a pharmacy can generate profits from funds provided by investors

Question 27

What is a liquidity ratio?

Answer 27

Provide date on a pharmacy’s ability to meet its short-term financial obligations

Question 28

Most common liquiditiy ratios?

Answer 28

1. Current
2. Quic

Question 29

What is current ratio? How do you interpret it?

Answer 29

High = taking less risks in meeting its financial obligation
* Desirable, but too high shows concerns of conservatism (>5: no signs of investing in future growth)

Low: <2 is not desirable and inability to pay current liabilities

Question 30

What is quick ratio? How do you interpret it?

Answer 30

Acid test:
Standard: 1.0
> 1.0: more quick assets than current liabilities
<1.0: Cash on hand would be insufficient to pay liabilities

Question 31

What is a quick assets?

Answer 31

Assets easily converted to cash

Question 32

What is not apart of assets calculations?

Answer 32

Inventories and prepaid expenses

Question 33

What is turnover ratio?

Answer 33

Evaluate the efficiency with which a pharmacy uses its assets

Question 34

Types of turnover rates?

Answer 34

1. Inventory turnover
2. Recievable turnover

Question 35

What is inventory turnover? How do you interpret it?

Answer 35

Evaluate how quickly a pharmacy’s inventories are sold
* Inventory turnover ratios < 6.0: benefit from spending money elsewhere
* High = desirable, pharmacy can replace and sell inventory with high efficieny -> higher revenues and profit
* But it can also mean very small inventories

Question 36

Inventory Turnover Ratio are calculated by?

Answer 36

COGS on income statement (AND)
Average inventory on balance sheet.

Question 37

days inventory on hand and how do you interpret it?

Answer 37

Dividing 365 by the inventory turnover ratio
Low: more effective inventory management
High: less effective inventory managemtn

Question 38

What is recievable turnover ratio?

Answer 38

Evaluates how quickly receivables (money owed to the pharmacy) can be turned into cash

Question 39

What is average collection period?

Answer 39

Calculates the number of days (on average) that credit sales remain in accounts receivable before being collected by the pharmacy.

Dividing 365 by the receivables turnover ratio

Question 40

What kind of data is in a daily plan payment report?

Answer 40

1. Number of scripts filled
2. Total amount paid by each third-party payer
3. Total copayments made by patients
4. Total costs of drug products