Healthcare Finance
What to know
Healthcare finance covers how organizations raise, allocate, and control capital. Candidates must understand the core financial statements - balance sheet, income statement, and statement of cash flows - and the ratios derived from them: liquidity (current ratio), solvency (debt-to-equity), profitability (operating margin), and efficiency (days in accounts receivable, asset turnover). Know the difference between operating margin and total margin, and why a positive operating margin matters for sustainability.
Budgeting concepts are heavily tested: operating vs. capital budgets, static vs. flexible budgets, zero-based budgeting, and variance analysis (favorable vs. unfavorable). Understand cost behavior - fixed, variable, semi-fixed, and step costs - and contribution margin, break-even analysis, and the difference between direct and indirect costs, including overhead allocation.
Capital planning appears: net present value, payback period, and cost of capital. Know that projects with positive NPV and payback within policy thresholds are generally favored.
Traps
A common trap is treating a favorable expense variance as always good - it may signal underinvestment or deferred maintenance. Another is confusing revenue variance with volume vs. rate effects. Questions may mislabel depreciation as a cash expense; it is non-cash. Watch for break-even problems where fixed costs are mistakenly treated as variable.
Worked example / rule of thumb
Break-even volume = Fixed costs ÷ (Price − Variable cost per unit). If fixed costs are $500,000, price is $200, and variable cost is $120, contribution margin is $80, so break-even = 6,250 units. Rule of thumb: only contribution margin covers fixed costs and profit.