Financial Management & Budgeting Flashcards

A veterinary practice has total revenue of $1,200,000 and cost of goods sold (COGS) of $360,000. What is the gross profit margin?

Answer: 70%

Gross profit margin = (Revenue - COGS) / Revenue = ($1,200,000 - $360,000) / $1,200,000 = 70%.

Which budgeting method starts from zero each period and requires managers to justify every expense?

Answer: Zero-based budgeting

Zero-based budgeting requires all expenses to be justified from scratch each budget cycle rather than using the prior year as a baseline.

What does accounts receivable turnover ratio measure in a veterinary practice?

Answer: How efficiently the practice collects payments from clients

Accounts receivable turnover measures how many times per year the practice collects its average accounts receivable balance.

A practice manager notices that drug and supply costs consistently exceed budget by 15%. Which action is MOST appropriate?

Answer: Investigate purchasing patterns and supplier pricing before adjusting the budget

Before making budget adjustments, the manager should analyze root causes such as waste, theft, or pricing discrepancies.

Which financial statement shows the practice's assets, liabilities, and owner's equity at a specific point in time?

Answer: Balance sheet

The balance sheet (statement of financial position) provides a snapshot of what the practice owns, owes, and the owner's equity at a given date.

In veterinary practice financial analysis, what does the term 'days sales outstanding' (DSO) indicate?

Answer: The average number of days it takes to collect payment after a sale

DSO measures the average collection period, reflecting how quickly clients pay their outstanding balances.

A veterinary practice with annual revenue of $900,000 wants to maintain a net profit margin of 12%. What is the target net profit?

Answer: $108,000

Target net profit = $900,000 × 12% = $108,000.