Finance for non finance managers who work in an hospital.

1. Finance for non finance
managers
By Parama Health Care Private
Limited

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
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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
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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
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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

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. ACCOUNTING SYSTEMS FOR HOSPITALS
 Conventional Accounting Systems
 Financial Accounting
 Cost Accounting
 Management Accounting
 Emerging Trends in Accounting
Systems
 Human Resource Accounting

11. ACCOUNTING SYSTEMS FOR HOSPITALS
 Inflationary Accounting System
 Current Purchasing Power Method
 Current Cost Accounting Method
 Hybrid Method

12. Financial statements are
needed…
 Financial statements are needed by
many stake holders like
 Bankers
 Other Lenders
 Investors

13. Financial statements are
needed…
 Share Holders
 Government and government
organizations
 For the owners to control the operations

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. The Balance sheet
 The arrangement of assets in a
balance sheet
 Long term assets
 Short term assets or current assets

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
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17. Assets…..
 Long Term Assets
 These include buildings
 All medical equipments
 Non medical equipments like furniture

18. Assets…..
 Short term assets or current assets
 Materials, Medicines and consumables
used in hospital operations
 Advances to suppliers and employees

19. Assets…..
 Receivable from corporate billing and
TPAs
 Deposits made with various authorities
 Cash and Bank Balances

20. Liabilities….
 Owned funds or capital
 Long Term Loans

21. Liabilities….
 Term Loans
 Long term loans from banks and financial
institutions
 Equipment Credit

22. Liabilities
 Short Term funds or current liabilities
 Bankers Credit
 Suppliers outstanding
 Installments payable within 12 months.
 Pending Expenses

23. Income….
 The operating Income
 Non Operating Income

24. Income
 Operating Income
 Bed Revenue
 Department Revenue

25. Income
 OP Revenue
 IP Revenue
 Pharmacy Collections

26. Income
 Non-Operating Income
 F&B collections
 Interest Income
 Miscellaneous Income like Parking
charges…

27. Expenses
 Manpower Cost
 Material cost/Consumption
 Power & Fuel

28. Expenses..
 Other expenses consisting of
maintenance, house keeping &
laundry etc.
 Depreciation charge
 Tax Provisions

29. Some key issues to remember
 Concept of Equity share capital
 Reconcile incomes with collections
 Co-relate expenses with income

30. Certain ratios
 Year on year, month on month
comparisons
 Link income & expenses with operating
numbers
 Debt Equity Ratio
 Current Ratio

31. Certain ratios…
 Return on Investment
 Return on capital employed
 Return on net-worth

32. Return on investment!!!
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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
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An Investment and return
analysis….!!!

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. 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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36. Certain ratios…
 Asset Turn over Ratio
 Working Capital Turn Over Ratio
 Earning Per Share

38. S.Manivannan FCA
Managing Director
Parama Health Care P Ltd
smvchary@gmail.com