1. ES S EN TI A L S I N
F I N A N CI A L
M A N A GEM EN T
Executive Course H OS PI TA L
F OR in Hospital Administration
EXECU TI VES
Organized by the College of Public Health
University of the Philippines
Presented by: Manuel Eduardo B. Lunas

2. I. Introduction to Financial Management
a. Overview
b. Looking at a Corporation’s Finances
c. Analysis of Financial Status
II. Fundamental Concepts
a. Risks and Rates of Return
b. Time Value
VIII. Financial Assets
a. Bonds
b. Stocks
c. Accounts Receivable
XII. Capital Budgeting : Investing in Long-Term Assets
a. Cost of Capital
b. Basics of Capital Budgeting
XV. Capital Structure / Dividend Policy
a. Equity vs Leverage
b. Dividend Declaration
vi. Working Capital
a. Managing Current Assets
b. Financing Current Assts
vii. Financial Planning and Forecasting

3. simply is the science of the
handling of money
Financial Management
-involves the planning, directing,
monitoring, organizing and
controlling of the monetary
resources of an organization

4.  Survive
 Avoid Distress and Bankruptcy
 Beat the Competition
 Maximize Sales or Market Share
 Minimize Costs
 Increase Profits
 Maintain Steady Earnings Growth
Classifiable into Two Groups
•Profitability
•Risk Control

5. Type of Organization Private Company Private / Government
Profit Oriented Non Profit
Objective Profit Service Provision
Financial Viability Financial Viability (?)
Shareholders Satisfaction
Stakeholders Investors / Shareholders General Public
Defined Sector
Borrowings Subsidies
Other Sources •Loans •Loans
•Bond float •Grants
•Leasing •Industrial partnership
•Public offering
Joint venture agreements common for both
Organizational Structure Traditional Bureaucratic By service lines or major grouping
Responsibility centers
•(Cardio Vascular- Section
(Profit or cost center) •Radiology Department-
•Diagnostics Center

6. Financial Management is Centered on a
strategic vision
Defined as:
-w h a t w e w a n t t o
h ap p e n
-w h c etn w r i on e e d t o
-a s a a e
-a es e t o f t a r g e t s
b
-b a s i c a lly a m o d e l
The essence of financial management focuses on
the transformation of the current situation to a
desired paradigm shift

7. Planning establishing goals and developing strategies for these
goals --Budget preparation is the major activity in this
element
Controlling involves assuring that the established plans or
strategies are being followed -- monitoring of operation
results vs target
Organizing and Directing
relates to using resources to the best advantage.
Resources: In this case may also apply to staff, space,
supply and equipment
Decision Making
the analysis and evaluation of critical issues to select
the best alternatives for action

8. B a la n c e S h e e t
R e v e n u e &
E xp e n se
S ta te m e n t
C h a n g e s i n F u n d
B a la n c e /N e t

9. is the declaration of the organizational assets and
Balance Sheet liabilities
Revenue and Expense Statement
-covers a time period (i.e. a year and shows the
summary of revenues generated vs. expenses
incurred
Changes in Fund Balance/Net Worth
-reflects whether an organizations is moving in a
positive direction via its value appreciation or in a
negative way through its decline in value
-this translates a variety of accounting elements
Cash Flows where cash has yet to be received along with
depreciation of appropriate assets and converts them
in a cash flow for a designated period.
Note: The first two are often considered the most critical in determining an entity’s over-all
well being. As a normal operating expectation, revenue must exceed expenses to attain
financial viability

10. Riskand Rate of Return
Time Value of Money
Parameters

11. Type of Organization Private Company Private / Government
Profit Oriented Non Profit
Objective Profit Service Provision
Financial Viability Financial Viability (?)
Shareholders Satisfaction
Stakeholders Investors / Shareholders General Public
Defined Sector
Borrowings Joint Venture Agreement
Other Sources •Loans •Loans
•Bond float •Grants
•Leasing •Industrial partnership
•Public offering
Joint venture agreements common for both
Organizational Structure Traditional Bureaucratic By service lines or major grouping
Responsibility centers
•(Cardio Vascular-Radiology
(Profit or cost center) Department- Diagnostics Center)
•Subsidiary section

12. -t h e p r o c e s s b y w h i c h
c a p i ta l e x p e n d i tu re s a re
d e c i d e d u s i n g va ri o u s
c r i t e r i a fo r p r o je c t
s e le c t i o n
Tools for Capital Budgeting
• N e t P r e s e n t V a lu e
• I n te rn a l R a te o f R e tu rn
• P r o fi t a b i li t y I n d e x
• P a y b a c k P e ri o d
• R e t u r n o n B o o k V a lu e

13. A capital expenditure normally requires a huge
cash outlay for a project that is supposed to
produce a cash inflow over a period of time
exceeding one year. E.g. acquisition of a new
CT-Scan machine, setting up a Medical Arts
bldg, Land acquisition

14. G o a l o f e v e r y fi r m i s to m ax im ize
p re s e n t s h a r e h o ld e r v a lu e . Th i s
i m p li e s t h a t p r o je c t s t o b e u n d e rta k e n
s h o u ld r e s u lt i n a p o s i t i v e n e t p re s e n t
v a lu e , t h a t i s t h e p r e s e n t v a lu e o f th e
e x p e c t e d c a s h i n flo w s le s s t h e p re s e n t
v a lu e of th e need ed c a p i ta l
e x p e n d i tu re s .
T h e r e i s a w i d e a r r a y o f c r i t e r i a fo r
s e le c t i n g p r o je c t s . S o m e s t a k e h o ld e r s
w a n t p r o je c t s w i t h i m m e d i a t e s u r g e s
i n c a s h flo w w h i le o t h e r s e m p h a s i z e o n
lo n g t e r m g r o w t h w i t h li t t le s h o r t t e r m
p e r fo r m a n c e . T h i s d i ffi c u lt y a r i s e s i n
s a t i s fy i n g d i ffe r e n t i n te re s ts of
s t a k e h o ld e r s .

15. -takes the form of a loan or other borrowings (debt) proceeds of which are invested
or used with the intent of earning a higher return than the cost of interest on the
borrowing.
If the firm’s ROA is higher than the rate of interest on the loan then ROE will be
higher that if it did not borrow. But if the ROA is lower than the cost of borrowing
then the ROE will be lower. Borrowing is not recommended
A corporation without borrowings is an all equity firm whereas a leverage firm is one
with a mix of ownership equity and debt. The higher the debt means the firm is more
leveraged. The extent of leveraging can show the potential positive returns a
company may attain and the optimum levels that must be maintained to assure
positive financial viability. Over leveraging in turn can cause the reverse.

16. Components of Working Capital
•Cash
•Marketable Securities
•Inventory
•A/R’s

17. Inventory and receivables are financed by trade suppliers
(Just In Time Concept)
It decreases working capital requirements and increases
profits as working capital has costs
(-) Negative Working Capital
Cash is already received even prior to actual sales
delivery and more so prior to payment to supplier
•Credit card transactions
e.g. Amazon (books), Dell (cellphone)
Globe (prepaid cards)
•HMO’s

18. Working Capital Policy
Type o sho rm de
s f rt-te bt
•Short-term bank loans
•trade credits
•Commercial paper (iou’s)
•Accrued liabilities
A dvantages
•Speed
•flexibility
D isadvantages
•High costs
•Short-term dependability

19. Short-Term Loans
•Bank Loans
•Commercial Paper
•Trade Credit
•Revolving Credit Line
•A/R Financing
--Sale / Factoring / Discounting of A/R’s
Long-Term Loans / Borrowing
•Mortgage Loans - on Real Assets
•Chattel Mortgage
•Leasing
--operating lease
--financial lease
•Bond floatation

20.  High A/R levels
 Mounting Promissory Notes
 Cash Flows (Erratic behavior)
 Pressures on A/P’s
 Need for CAPEX
 Huge debt Burden
 Decreasing Profit Margins
Opportunity Areas
• Savings
• Efficiencies
• Corporate Social Responsibility
• Ecological Support

21. Thank you for your time and
participation!