Finance for non finance hospital managers

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Finance for non finance managers who work in an hospital.

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Finance for non finance hospital managers

  1. 1. Finance for non finance managers By Parama Health Care Private Limited
  2. 2. 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 8/31/2013 Parama Healthcare P Ltd 2
  3. 3. “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 8/31/2013 Parama Healthcare P Ltd 3
  4. 4. “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 8/31/2013 Parama Healthcare P Ltd 4
  5. 5. 8/31/2013 Parama Healthcare P Ltd 5 The service providers Government PrivateNGO/Not for profit
  6. 6. 8/31/2013 Parama Healthcare P Ltd 6 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
  7. 7. 8/31/2013 Parama Healthcare P Ltd 7 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
  8. 8. 8/31/2013 Parama Healthcare P Ltd 8 Finance Management stages  Projects  Operations  Costing and cost control
  9. 9. 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
  10. 10. ACCOUNTING SYSTEMS FOR HOSPITALS  Conventional Accounting Systems  Financial Accounting  Cost Accounting  Management Accounting  Emerging Trends in Accounting Systems  Human Resource Accounting
  11. 11. ACCOUNTING SYSTEMS FOR HOSPITALS  Inflationary Accounting System  Current Purchasing Power Method  Current Cost Accounting Method  Hybrid Method
  12. 12. Financial statements are needed…  Financial statements are needed by many stake holders like  Bankers  Other Lenders  Investors
  13. 13. Financial statements are needed…  Share Holders  Government and government organizations  For the owners to control the operations
  14. 14. 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
  15. 15. The Balance sheet  The arrangement of assets in a balance sheet  Long term assets  Short term assets or current assets
  16. 16. 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 8/31/2013 Parama Healthcare P Ltd 16
  17. 17. Assets…..  Long Term Assets  These include buildings  All medical equipments  Non medical equipments like furniture
  18. 18. Assets…..  Short term assets or current assets  Materials, Medicines and consumables used in hospital operations  Advances to suppliers and employees
  19. 19. Assets…..  Receivable from corporate billing and TPAs  Deposits made with various authorities  Cash and Bank Balances
  20. 20. Liabilities….  Owned funds or capital  Long Term Loans
  21. 21. Liabilities….  Term Loans  Long term loans from banks and financial institutions  Equipment Credit
  22. 22. Liabilities  Short Term funds or current liabilities  Bankers Credit  Suppliers outstanding  Installments payable within 12 months.  Pending Expenses
  23. 23. Income….  The operating Income  Non Operating Income
  24. 24. Income  Operating Income  Bed Revenue  Department Revenue
  25. 25. Income  OP Revenue  IP Revenue  Pharmacy Collections
  26. 26. Income  Non-Operating Income  F&B collections  Interest Income  Miscellaneous Income like Parking charges…
  27. 27. Expenses  Manpower Cost  Material cost/Consumption  Power & Fuel
  28. 28. Expenses..  Other expenses consisting of maintenance, house keeping & laundry etc.  Depreciation charge  Tax Provisions
  29. 29. Some key issues to remember  Concept of Equity share capital  Reconcile incomes with collections  Co-relate expenses with income
  30. 30. Certain ratios  Year on year, month on month comparisons  Link income & expenses with operating numbers  Debt Equity Ratio  Current Ratio
  31. 31. Certain ratios…  Return on Investment  Return on capital employed  Return on net-worth
  32. 32. Return on investment!!! 8/31/2013 Parama Healthcare P Ltd 32
  33. 33.  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 8/31/2013 Parama Healthcare P Ltd 33 An Investment and return analysis….!!!
  34. 34. 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)
  35. 35. INVESTMENT DECISIONS IN HOSPITALS  Capital Budgeting Appraisal Methods under Risk and uncertainty  Capital Rationing  Risk Adjusted Method  Probability Assignment  Decision Tree Analysis 8/31/2013 Parama Healthcare P Ltd 35
  36. 36. Certain ratios…  Asset Turn over Ratio  Working Capital Turn Over Ratio  Earning Per Share
  37. 37. S.Manivannan FCA Managing Director Parama Health Care P Ltd smvchary@gmail.com

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