This document provides an introduction to financial management for pharmacists. It discusses the importance of financial management skills for pharmacy managers. The document outlines the objectives of understanding financial statements, goals of financial management, accounting and bookkeeping processes, and limitations of financial information. It also describes different types of business organizations like sole proprietorships, partnerships, and corporations.

1. Introduction to Financial
Management

2. Chapter Objectives
After completing this chapter, the students should
be able to:
1. Discuss the importance of financial
management to pharmacists
2. Explain the goals of financial management and
why they are relevant for pharmacist.
3. List and briefly describe the four most common
financial statements.
4. Discuss the limitations of financial
managements.

3. The Pharmacist as a Manager
• Managers are responsible for planning,
organizing and controlling resources
• Pharmacy Managers
1. Owners of drugstores
2. Directors of hospital pharmacies
3. Managers of chain drugstores
4. Clinical coordinators
5. Sales district managers
6. Plant Managers

4. The Pharmacist as a Manager
• Changes in the profession of pharmacy- increase
need for pharmacy managers who will coordinate and direct the
activities of hospital pharmacies, managed-care pharmacies, and
chain pharmacies.
• Pharmacy managers are to supervise increasing
number of technicians and manage use of
dispensing technology.
Pharmacists have also found management and ownership positions in
home health care, long term care consulting organization, disease
management companies, pharmacy benefit managers, insurance
companies and pharmaceutical care training companies.

5. Financial Management
• Managers make decisions including
financial decisions
• Need for skills to make intelligent financial
decisions
• Financial management focuses on making
wise decisions about obtaining and using
financial resources.
• Financial resources include invested
capital and borrowed funds-

6. Financial Management
• Financial decisions confronted by
pharmacist
1. How much inventory to carry
2. Which sources of supply to use
3. How to set prices
4. Rent or buy an equipment
5. To avail of discount or buy in cash

7. Goals of Financial Management
• Financial management is necessary and
appropriate for both non-profit and for
profit making firms.
• Both have limited resources and both face
competition
• Using resources efficiently maximizes the
value and effectiveness of organizations

8. Accounting
• Accounting is the language of business-it
provides information to managers, investors,
government agencies, and others inside and
outside the organization.
• Accounting is the process that analyzes,
records, classifies, summarizes, reports, and
interprets financial information to decision
makers in a timely fashion .
• It is important to know the why’s of the
accounting process not just the mechanics.

9. Bookkeeping
• Is the recording (record keeping)
function of the accounting
process.
• A bookkeeper enters accounting
information in the company’s
books.
• An accountant takes the
information and prepares the
financial statements that are
used to analyze the company’s
financial position

10. Types of Accounting Information
• Financial Accounting: refers to information
describing the financial resources , obligations, and
activities of an economic entity (either an
organization or an individual). Financial accounting
information assists investors and creditors where to
place their investments. Data generated is used to
manage the firm and for income tax purposes.
• Management Accounting: Involves the development
of accounting information intended to assists
management in operating the business.
• Tax Accounting: Financial accounting information
reorganized to conform with income tax reporting
requirements.

11. Accounting and Financial
Management
• Accounting data and the financial statements
developed from them are maintained because
they aid decision making.
• Financial statements facilitate decision making
in three areas
1. Financial statements provide information to decision makers.
2. Aid decision makers by reporting the results of past decisions.
3. Keep track of a range of financial items such as cash, debts and
assets.

12. Users of Accounting Information
• Internal Users
Board of Directors
Chief Executive Officer
Chief Financial Officer
Vice Presidents
Business Unit Mgrs.
Plant Managers
Store Managers
Line Supervisors
• External Users
Owners
Creditors
Labor Unions
Government agencies
Suppliers
Customers
Trade Associations
General Public

13. Financial Statements
1. The Balance Sheet or Statement of
Financial Position indicates what a
business owns and what it owes at one
point in time.(See Fig. 1 and 2)
2. Profit and Loss Statement indicates
whether the business made a profit or
suffered a loss over some period of
time. (See Fig. 3)

14. Financial Statements
3. Cash Flow statement or Statement of
changes in financial position indicates
where the business is getting its cash
and how it is spending it.
4. Statement of Capital or Statement of
Retained Earnings indicates how the
owner’s investment in the business has
changed over some period of time. (See
Fig. 3)

15. Limitations of Financial
Management
• Not all decisions made are financial in nature.
• Higher goals supersedes financial concerns.
• Financial statements do not contain all the
information needed by the business. Some
things are not measured in monetary terms e.g.
loyalty of employee, health of business owners,
extent and nature of competition.

16. Bookkeeping
• Computers are used today for routine
bookkeeping operations that takes
months or weeks to complete
• Basic accounting knowledge is needed
eventhough computers can do routine
tasks.
• Quickbooks and Peachtree popular
software packages in use today.

17. Financial Management
• Involves ensuring the financial viability of
the organization by making sound
business decisions and actions.
• Involves the integration of the manager’s
knowledge in accounting, economics,
statistics, and general business
management in running the organization.

18. Accounting Process
• Analyzing: looking at what happened and how the
business was affected.
• Recording: Putting the information into the accounting
system.
• Classifying: Grouping all the same activities (e.g. all
purchases) together
• Summarizing: Explaining the results.
• Reporting: Issuing the statements that tell the results of
the previous functions.
• Interpreting: Examining the statements to determine
how the various pieces of information they contain relate
to each other.

19. Accounting Process
• The system communicates the reports and
financial statements to people who are
interested in the information, such as business
decision makers, investors, creditors, and
government agencies (e.g. the IRS or BIR)
• Generally accepted accounting principles
(GAAP) a set of procedures and guidelines
developed to make sure that everyone prepares
and interprets financial reports.

20. Types of Business Organization
• Sole Proprietorship
>Ownership Business owned by one
person. The owner is also
the manager
Formation Easy to form
 Liability Owner could lose personal
assets to meet obligations of
business
 Closing Ends with death of owner or
closing of business

21. Types of Business Organization
• Partnership
Ownership Business owned by more
than one person
Formation Easy to form. Bigger
capitalization.
Liability Partners couldlose personal
assets to meet obligations of
partnerships
Closing Ends with death of partner or
exit of partner

22. Types of Business Organization
• Corporation
Ownership Business owned
stockholders
Formation More difficult to form
Liability Limited personal risk.
Stockholder’s loss is limited
to their investment in the
company.
Closing Can continue indefinitely

23. Sole Proprietorship
Owner’s Equity
Michael McBryan, Capital $80,800

24. Partnership
Partner’s Equity
MichaelMcBryan,Capital $40,400
Rebecca McBryan, Capital $40,400
Total partner’s equity $80,800

25. Corporation
Owner’s Equity
Capital Stock $80,000
Retained Earnings 800
Total Shareholder’s equity $80,800