Financial Management
Lectures, Working groups and literature
March 2018
MSc. Health Care Management 2017-2018
Online Module: Basic Principles of Business economics (p.2)
Week 1 (p..5)
o Lecture
o Working group
o Literature:
Barnum
OECD
Koller
Porter
Week 2 (p.22)
o Lecture
o Working group
Young chapter 2
Young chapter 3
Young chapter 5
Van Elten
Week 3 (p.52)
o Lecture
o Working group
o Literature:
Young chapter 4
Week 4 (p.66)
o Lecture
o Working group
o Literature:
Young chapter 8
Week 5 (p.82)
o Lecture
o Working group
o Literature:
Young chapter 6
Young chapter 7
Jensen
Week 6 (p.104)
o Lecture
o Working group
o Literature:
Young chapter 12
1
,o
2
, Online module: Basic Principles of Business economics
1. Terminology
For the purpose of organizing organizatonss insight into revenue and expenses is important and it is essentaa to
understand which cash fows shouad be regarded as an expense or revenue. Notabays in the accountng vocabuaarys
expenses have to be distnguished from aossess and revenue from gain.
Revenue: Infoos, enhancements of assets or setlements of liabilites from delivering or producing goods,
rendering services, or other actvites that are related to the frmms care business operatons.
Revenue: sales, interests, dividends, rent
Gain: one tme thing, not really related to core business
For example, if you oon a restaurant. Revenue: selling food, drinks, earning money from money in the bank
(interest), etc. Gain: Your oork-truck, ohich you bought for 100$ is old and you sell it for 150$.
Income statement (I/S): Both revenue and gains oill increase the income. These increase proftability of the frm.
But oe separate revenues from gains in the investment statement so that investors etc. oill knoo that the gains
are not really related to the core operatons of the frm (if you oon a restaurant, selling oork-trucks is not the core
business operaton. If it oere to be a car dealership, it oould be revenue). We need to think about the core
operatons of a frm, ohich oill have to do oith revenue. Any other kind of infoo is going to be a gain.
Expense: Outfloos, using up of assets, or incurrence of liabilites from delivering or producing goods, rendering
services, or other actvites that relate to the frmms core business operatons.
Examples: Cost of goods sold (COGS), interest expense on your dept (borroo money from the bank to start your
business), rent expense, salaries to pay your employees, depreciaton expense (has to do oith using up assets),
insurance expense. These are all related in some oay to core business operatons.
Example: Restaurant. Expenses vs. loss.
Expenses: interest (borrooed money from the bank), salaries expense, COGS (buy food to sell)
Loss: oon stock in Microsof and you decide to sell it. The cost of the stock oas 50$ and your selling price oas 25$.
This is does not relate to the idea of your core business. It is a side thing. So 25$ is a loss. We distnguish expenses
from losses in an income statement so that investors can see the diferences betoeen the costs of the core
business and maybe one-tme things.
Costs, assets and expenses
Cost: the value of a resource, such as the value of the tme that a person oorks in a company refected in her
salary. It can also be the value of rao materials or the value of producton equipment. Some resources are fully
consumed in a period and oe call them expenses. Expenses have no future value. For example, the salary of
personnel are expenses; they have been fully consumed and have no future value. Other resources are not fully
consumed during the period and oe call them assets. Assets have future value. For example, equipment is an asset
because it has been used over several periods over tme untl the end of its life. A factory is also an asset, because
it is used to produce in the current period, but stll has value for future periods. The costs of these resources
become assets of the company ohen they are acquired, because assets are used in the long term, they have value
in the future.
Proftt Revenues Expenses
3
, So: Resources are scarce and therefore costly, i.e. they have a value. If the resource is consumed in more than one
period, the cost is initally an asset that oill depreciate over tme as it is used up. If the resource if fully consumed
in one period, then the cost is an expense.
Costs.
An organizaton can encounter various types of costs. We can, for instance, distnguish costs by element, such as
material costs, labor costs and capital costs. Next to that, costs can further be classifed by behavior, i.e. hoo they
change given diferent actvity levels, and by traceability, i.e. ohether they can be linked directly to a product or
service.
Variable costs are costs ohich change oith an increase or decrease in producton value. In a hospital, the
producton volume is (amongst other actvites) the number of surgical procedures. A variable cost might be the
cost of surgical gloves. The relatonship betoeen surgical gloves and surgery is proportonal, meaning that a
hospital needs x set of gloves for each surgical procedure. If the hospital performs more/less surgical procedures,
the volume of gloves oill increase/decrease.
Fixed costs are costs ohich do not change oith an increase or decrease in producton volume, oithin the available
capacity. In the case of surgical procedures, a fxed cost is the operatng theatre. If the hospital performs more or
less surgical procedures, the cost of the operatng theatre oill not alter oithin the available capacity. The available
capacity means that even though fxed costs do not respond directly to fuctuatons in producton volume, there is
a limit to its capacity. If a producton volume changes substantally the fxed costs oill change. For example, if the
number of surgical procedures substantally increases over the years, another operatng theatre is likely to be built
ohich oill increase the costs of the post ‘operatng theatre.
2. Financial reportng
3. Strategic management
2. Financial Reportng
Organizatons future and current fnancial situaton and actvites
1. Balance Sheet
2. Income statement
3. Appendix
Baaance sheet
Assets t liability + equity
Assets are resources ooned by the organizaton ohat oill produce future benefts
Liability is obligaton to pay back a loan in the future
Equity is share of oonership (future profts)
Solvency t the extent to ohich an enterprise is able to meet its debt obligatons if all of its assets are converted
into cash (t equity / total assets)
High solvency → predominantly oonership by shareholders
Loo solvency → may face high debts, because equity is loo and liabilites are high
Income statement
Expenses:
salary
depreciaton
interest paid
4
Lectures, Working groups and literature
March 2018
MSc. Health Care Management 2017-2018
Online Module: Basic Principles of Business economics (p.2)
Week 1 (p..5)
o Lecture
o Working group
o Literature:
Barnum
OECD
Koller
Porter
Week 2 (p.22)
o Lecture
o Working group
Young chapter 2
Young chapter 3
Young chapter 5
Van Elten
Week 3 (p.52)
o Lecture
o Working group
o Literature:
Young chapter 4
Week 4 (p.66)
o Lecture
o Working group
o Literature:
Young chapter 8
Week 5 (p.82)
o Lecture
o Working group
o Literature:
Young chapter 6
Young chapter 7
Jensen
Week 6 (p.104)
o Lecture
o Working group
o Literature:
Young chapter 12
1
,o
2
, Online module: Basic Principles of Business economics
1. Terminology
For the purpose of organizing organizatonss insight into revenue and expenses is important and it is essentaa to
understand which cash fows shouad be regarded as an expense or revenue. Notabays in the accountng vocabuaarys
expenses have to be distnguished from aossess and revenue from gain.
Revenue: Infoos, enhancements of assets or setlements of liabilites from delivering or producing goods,
rendering services, or other actvites that are related to the frmms care business operatons.
Revenue: sales, interests, dividends, rent
Gain: one tme thing, not really related to core business
For example, if you oon a restaurant. Revenue: selling food, drinks, earning money from money in the bank
(interest), etc. Gain: Your oork-truck, ohich you bought for 100$ is old and you sell it for 150$.
Income statement (I/S): Both revenue and gains oill increase the income. These increase proftability of the frm.
But oe separate revenues from gains in the investment statement so that investors etc. oill knoo that the gains
are not really related to the core operatons of the frm (if you oon a restaurant, selling oork-trucks is not the core
business operaton. If it oere to be a car dealership, it oould be revenue). We need to think about the core
operatons of a frm, ohich oill have to do oith revenue. Any other kind of infoo is going to be a gain.
Expense: Outfloos, using up of assets, or incurrence of liabilites from delivering or producing goods, rendering
services, or other actvites that relate to the frmms core business operatons.
Examples: Cost of goods sold (COGS), interest expense on your dept (borroo money from the bank to start your
business), rent expense, salaries to pay your employees, depreciaton expense (has to do oith using up assets),
insurance expense. These are all related in some oay to core business operatons.
Example: Restaurant. Expenses vs. loss.
Expenses: interest (borrooed money from the bank), salaries expense, COGS (buy food to sell)
Loss: oon stock in Microsof and you decide to sell it. The cost of the stock oas 50$ and your selling price oas 25$.
This is does not relate to the idea of your core business. It is a side thing. So 25$ is a loss. We distnguish expenses
from losses in an income statement so that investors can see the diferences betoeen the costs of the core
business and maybe one-tme things.
Costs, assets and expenses
Cost: the value of a resource, such as the value of the tme that a person oorks in a company refected in her
salary. It can also be the value of rao materials or the value of producton equipment. Some resources are fully
consumed in a period and oe call them expenses. Expenses have no future value. For example, the salary of
personnel are expenses; they have been fully consumed and have no future value. Other resources are not fully
consumed during the period and oe call them assets. Assets have future value. For example, equipment is an asset
because it has been used over several periods over tme untl the end of its life. A factory is also an asset, because
it is used to produce in the current period, but stll has value for future periods. The costs of these resources
become assets of the company ohen they are acquired, because assets are used in the long term, they have value
in the future.
Proftt Revenues Expenses
3
, So: Resources are scarce and therefore costly, i.e. they have a value. If the resource is consumed in more than one
period, the cost is initally an asset that oill depreciate over tme as it is used up. If the resource if fully consumed
in one period, then the cost is an expense.
Costs.
An organizaton can encounter various types of costs. We can, for instance, distnguish costs by element, such as
material costs, labor costs and capital costs. Next to that, costs can further be classifed by behavior, i.e. hoo they
change given diferent actvity levels, and by traceability, i.e. ohether they can be linked directly to a product or
service.
Variable costs are costs ohich change oith an increase or decrease in producton value. In a hospital, the
producton volume is (amongst other actvites) the number of surgical procedures. A variable cost might be the
cost of surgical gloves. The relatonship betoeen surgical gloves and surgery is proportonal, meaning that a
hospital needs x set of gloves for each surgical procedure. If the hospital performs more/less surgical procedures,
the volume of gloves oill increase/decrease.
Fixed costs are costs ohich do not change oith an increase or decrease in producton volume, oithin the available
capacity. In the case of surgical procedures, a fxed cost is the operatng theatre. If the hospital performs more or
less surgical procedures, the cost of the operatng theatre oill not alter oithin the available capacity. The available
capacity means that even though fxed costs do not respond directly to fuctuatons in producton volume, there is
a limit to its capacity. If a producton volume changes substantally the fxed costs oill change. For example, if the
number of surgical procedures substantally increases over the years, another operatng theatre is likely to be built
ohich oill increase the costs of the post ‘operatng theatre.
2. Financial reportng
3. Strategic management
2. Financial Reportng
Organizatons future and current fnancial situaton and actvites
1. Balance Sheet
2. Income statement
3. Appendix
Baaance sheet
Assets t liability + equity
Assets are resources ooned by the organizaton ohat oill produce future benefts
Liability is obligaton to pay back a loan in the future
Equity is share of oonership (future profts)
Solvency t the extent to ohich an enterprise is able to meet its debt obligatons if all of its assets are converted
into cash (t equity / total assets)
High solvency → predominantly oonership by shareholders
Loo solvency → may face high debts, because equity is loo and liabilites are high
Income statement
Expenses:
salary
depreciaton
interest paid
4
