Finance for non finance managers

By Parama Health Care Private Limited

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Interesting times ahead???

“May you live in interesting times” a old proverb is more a curse than a good wish!!

We are facing interesting times which are unsettling, harsh and often unpleasant with deep recession

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“Haves and Have not”

There is a widening gap between Have and Have Nots in healthcare organizations

Haves do have the size, revenue diversity, generate cash flows and have balance sheet strength to raise capital to meet renewal and expansion

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“Haves and Have not”

The other healthcare organizations including private hospitals struggle to meet critical capital needs

They need to depend on their regular cash flows, bank lines of credits and joint efforts with NGOs and Government to set up the infrastructure

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The service providers

Government

PrivateNGO/Not for profit

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Concepts for the service providers

Government Hospitals - Out of every Rupee, 100 paise will be spent

NGO/Not for Profit Hospitals – Out of every rupee, 90 paise will be spent and 10 paise will be towards administration

The trend now is to make surplus and plough back for maintaining and expanding the unit since donors are difficult to find

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Concepts for the service providers

For Profit Hospitals – Out of every rupee, you spend only 70 paise, setting aside 30 paise towards return on investment or dividends

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Finance Management stages

Projects

Operations

Costing and cost control

FINANCIAL ANALYSIS & INTERPRETATION IN HOSPITALS

Comparative financial statements analysis

Common-size financial statement analysis

Cash flow statement Financial Ratio analysis Hospital Ratio analysis Statistical analysis

ACCOUNTING SYSTEMS FOR HOSPITALS

Conventional Accounting Systems Financial Accounting Cost Accounting Management Accounting

Emerging Trends in Accounting Systems Human Resource Accounting

ACCOUNTING SYSTEMS FOR HOSPITALS

Inflationary Accounting System Current Purchasing Power Method Current Cost Accounting Method Hybrid Method

Financial statements are needed…

Financial statements are needed by many stake holders like Bankers Other Lenders Investors

Financial statements are needed…

Share Holders Government and government

organizations For the owners to control the operations

What are financial statments…..

Financial statements Certain statements on the financial

position of the entity like

Balance Sheet

Profit & loss account

Certain Data to explain important aspects of the above statements

The Balance sheet

The arrangement of assets in a balance sheet

Long term assets

Short term assets or current assets

The Balance sheet

The arrangement of liabilities in a balance sheet Owned funds Loan funds including long term and short

term Long term like term loans Short term like working capital loans and

suppliers balances

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Assets…..

Long Term Assets

These include buildings

All medical equipments

Non medical equipments like furniture

Assets…..

Short term assets or current assets

Materials, Medicines and consumables used in hospital operations

Advances to suppliers and employees

Assets….. Receivable from corporate billing and

TPAs

Deposits made with various authorities

Cash and Bank Balances

Liabilities….

Owned funds or capital

Long Term Loans

Liabilities…. Term Loans

Long term loans from banks and financial institutions

Equipment Credit

Liabilities

Short Term funds or current liabilities

Bankers Credit

Suppliers outstanding

Installments payable within 12 months.

Pending Expenses

Income….

The operating Income

Non Operating Income

Income

Operating Income

Bed Revenue

Department Revenue

Income

OP Revenue

IP Revenue

Pharmacy Collections

Income

Non-Operating Income

F&B collections

Interest Income

Miscellaneous Income like Parking charges…

Expenses

Manpower Cost

Material cost/Consumption

Power & Fuel

Expenses..

Other expenses consisting of maintenance, house keeping & laundry etc.

Depreciation charge

Tax Provisions

Some key issues to remember

Concept of Equity share capital

Reconcile incomes with collections

Co-relate expenses with income

Certain ratios

Year on year, month on month comparisons

Link income & expenses with operating numbers

Debt Equity Ratio

Current Ratio

Certain ratios…

Return on Investment

Return on capital employed

Return on net-worth

Return on investment!!!

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Chandralekha in 1948 compared to hollywood standards costing Rs.30 lakhs gave a collection of Rs.100 lakhs- a return of 70%

Chandramukhi in 1993 costing Rs.19 crores gave a collections of Rs.62 crores – a return of 70% again….

Gold price in 1948 was Rs.89 and today it is at Rs.29000

The return of Chandraleka is equal to Rs.228 crores as against Rs.43 crores in Chandramukhi

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An Investment and return analysis….!!!

INVESTMENT DECISIONS IN HOSPITALS

Capital Budgeting Appraisal methods Accounting Rate of Return (ARR)

Pay Back Period (PBP)

Net Present Value (NPV)

Internal Rate of Return (IRR)

Profitability Index (PI)

INVESTMENT DECISIONS IN HOSPITALS

Capital Budgeting Appraisal Methods under Risk and uncertainty Capital Rationing

Risk Adjusted Method

Probability Assignment

Decision Tree Analysis

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Certain ratios…

Asset Turn over Ratio

Working Capital Turn Over Ratio

Earning Per Share

S.Manivannan FCAManaging Director

Parama Health Care P Ltdsmvchary@gmail.com