This document discusses financial management concepts through the example of a doctor opening a small clinic. It shows how the balance sheet, profit and loss statement, and cash flow statement evolve over time as the clinic operates. Initially, the doctor contributes Rs. 1000 and borrows Rs. 1000 to purchase Rs. 1500 in assets and Rs. 400 in inventory. One year later, the financial statements capture Rs. 2500 in income, Rs. 2000 in expenses, Rs. 200 profit, and changes in assets and liabilities. The document emphasizes that good financial health requires balancing the information across these three core financial reports, just as personal health requires balancing biology, physics, and chemistry.

1. Biolgy, Physics & Chemistry of Financial Management
Brainstorm - Medicall
NS Viswanathan
September 23, 2018

2. Three Reports that run the entire diagnostics of a Company
Balance Sheet
Profit & Loss Account
Cash Flow

3. An example of opening a Clinic
• A Doctor is planning to start a small clinic he has Rs.1000 with him
• He Borrows Rs.1000 from his Family & Friends
• Buys Assets and Equipment to start the clinic for Rs.1500
• He buys inventory for his Pharmacy for Rs.400
• The Pharmacy Vendor has agreed to take Rs.100 later from the Doctor

4. How the Financial Statements Evolve

5. • A Doctor is planning to start a small clinic
he has Rs.1000 Rs.
Owners Contribution 1,000
Borrowing 1,000
Creditors / Payables 100
Total 2,100
Assets
Fixed Assets 1,500
Inventory 400
Cash 200
Debtors /Receivable -
Total 2,100
Balance sheet as on …

6. • A Doctor is planning to start a small clinic
he has Rs.1000
• He Borrows Rs.1000 from his Family &
Friends
Rs.
Owners Contribution 1,000
Borrowing 1,000
Creditors / Payables 100
Total 2,100
Assets
Fixed Assets 1,500
Inventory 400
Cash 200
Debtors /Receivable -
Total 2,100
Balance sheet as on …

7. • A Doctor is planning to start a small clinic he
has Rs.1000
• He Borrows Rs.1000 from his Family &
Friends
• Buys Assets and Equipment to start the clinic
for Rs.1500
• He buys inventory for his Pharmacy for
Rs.400
• The Pharmacy Vendor has agreed to take
Rs.100 later from the Doctor
Rs.
Owners Contribution 1,000
Borrowing 1,000
Creditors / Payables 100
Total 2,100
Assets
Fixed Assets 1,500
Inventory 400
Cash 200
Debtors /Receivable -
Total 2,100
Balance sheet as on …

8. • A Doctor is planning to start a small clinic he
has Rs.1000
• He Borrows Rs.1000 from his Family &
Friends
• Buys Assets and Equipment to start the clinic
for Rs.1500
• He buys inventory for his Pharmacy for
Rs.400 and
• The Vendor has agreed to take Rs.100 later
from the Doctor
Rs.
Owners Contribution 1,000
Borrowing 1,000
Creditors / Payables 100
Total 2,100
Assets
Fixed Assets 1,500
Inventory 400
Cash 200
Debtors /Receivable -
Total 2,100
Balance sheet as on …
& what is left now …….. Is CASH

9. Components of Cash Flow
Investments
Purchase of
Assets &
Equipment
Operations
Income
Expenditure
Taxes
Financing
Equity
Borrowing
Repayment of
Loans
Cash Flow

10. Coming Back to Story
Rs.
Owners Contribution 1,000
Borrowing 1,000
Creditors / Payables 100
Total 2,100
Assets
Fixed Assets 1,500
Inventory 400
Cash 200
Debtors /Receivable -
Total 2,100
Balance sheet as on …
Operating
Profit Before Taxes
Non Cash Expenses
Working Capital Changes (300)
(300)
Investing (1,500)
Financing
Owners Contribution 1,000
Borrowing 1,000
2,000
Cash in Hand 200
Cash Flow

11. Coming Back to Story
Rs.
Owners Contribution 1,000
Borrowing 1,000
Creditors / Payables 100
Total 2,100
Assets
Fixed Assets 1,500
Inventory 400
Cash 200
Debtors /Receivable -
Total 2,100
Balance sheet as on …
Operating
Profit Before Taxes
Non Cash Expenses
Working Capital Changes (300)
(300)
Investing (1,500)
Financing
Owners Contribution 1,000
Borrowing 1,000
2,000
Cash in Hand 200
Cash Flow

12. Coming Back to Story
Rs.
Owners Contribution 1,000
Borrowing 1,000
Creditors / Payables 100
Total 2,100
Assets
Fixed Assets 1,500
Inventory 400
Cash 200
Debtors /Receivable -
Total 2,100
Balance sheet as on …
Operating
Profit Before Taxes
Non Cash Expenses
Working Capital Changes (300)
(300)
Investing (1,500)
Financing
Owners Contribution 1,000
Borrowing 1,000
2,000
Cash in Hand 200
Cash Flow

13. Coming Back to Story
Rs.
Owners Contribution 1,000
Borrowing 1,000
Creditors / Payables 100
Total 2,100
Assets
Fixed Assets 1,500
Inventory 400
Cash 200
Debtors /Receivable -
Total 2,100
Balance sheet as on …
Operating
Profit Before Taxes
Non Cash Expenses
Working Capital Changes (300)
(300)
Investing (1,500)
Financing
Owners Contribution 1,000
Borrowing 1,000
2,000
Cash in Hand 200
Cash Flow
So now we have built Balance Sheet & Cash Flow , What about Profit & Loss Account

14. On commencement of Clinic there are no values in the P&L Account
Income Rs.
Income from Operations
Other Income
Total Income
Expenditure
Material Costs
Professional Fees
Employee Costs
Power & Fuel Expenses
Rent
Repairs & Maintenance
Administration Costs
Sales & Marketing Costs
Total Expenditure
EBIDTA*
Interest
Depreciation
Profit Before Taxes
Income Tax
Profit After Tax
Profit & Loss Account
Rs.
Owners Contribution 1,000
Borrowing 1,000
Creditors / Payables 100
Total 2,100
Assets
Fixed Assets 1,500
Inventory 400
Cash 200
Debtors /Receivable -
Total 2,100
Balance sheet as on …

15. One year later…..
Rs.
Owners Contribution 1,000
Borrowing 1,000
Creditors / Payables 100
Total 2,100
Assets
Fixed Assets 1,500
Inventory 400
Cash 200
Debtors /Receivable -
Total 2,100
Opening Balance Sheet
Profit is not equal to
Cash
Income Rs.
Income from Operations 2,500
Other Income 50
Total Income 2,550
Expenditure
Material Costs 1,000
Professional Fees 300
Employee Costs 250
Power & Fuel Expenses 125
Rent 125
Repairs & Maintenance 50
Administration Costs 75
Sales & Marketing Costs 75
Total Expenditure 2,000
EBIDTA* 550
Interest 100
Depreciation 150
Profit Before Taxes 300
Income Tax 100
Profit After Tax 200
Profit & Loss Account
Rs.
Owners Contribution 1,200
Borrowing 750
Creditors / Payables 50
Total 2,000
Assets
Fixed Assets 1,350
Inventory 500
Cash 100
Debtors /Receivable 50
Total 2,000
Closing Balance Sheet Changes
200
(250)
(50)
(100)
(150)
100
(100)
50
(100)
Operating
Profit Before Taxes 300
Non Cash Expenses 150
Income Tax (100)
Working Capital Changes -
350
Investing -
Financing
Owners Contribution
Borrowing (250)
(250)
Cash in Hand 100
Cash Flow

16. Now that we have understood the Linkages – Some Key Indicators
Total Outside Liabilities : Total Net-
worth
Total Debt : Total Equity
Receivable Days
Payable Days
EBIDTA to Debt Ratio
EBIDTA % to Revenue
Asset Turnover
Return on Capital Employed
Free Cash Flow
Expenses Ratio to Income

17. Conclusion
As much we need the right Balance of
Biology , Physics and Chemistry for
Good Personal Health
We need the right Balance in
Balance Sheet, Profit & Loss Account and Cash Flow for
Good Financial Health
BPC = BPC

18. Over to the Audience
NS Viswanathan
Chief Financial Officer
Sunshine Hospitals
vishy@sunshinehospitals.com