Financial Management of healthcare organizations
HPI4007
Case 3 Renovation or contracting out?
Some keywords:
Capital assets: Assets with lifetimes of more than one year.
Capital budget planning: The process of planning for the purchase of capital assets. A capital
budget is prepared as a separate document, which becomes part of
the organization’s master budget. One concern in the capital budget
process is that adequate attention be paid to the timing of cash
payments and receipts. Often large amounts of money are paid to
acquire capital items well in advance of the collection of cash
receipts earned form the use of those items.
Time value for money: Paying €1000 today cannot be equated with receiving €1000 several
years from now. One would only give up €1000 today, if the benefit
to be realized from doing so was worth at least the €1000 plus the
interest that could be earned. TVM can be used to calculate the
appropriateness of an investment.
One monetary unit received tomorrow is worth less than one
monetary unit received today. Compounding inters and discounting.
Capital assets: Are often so costly that they cannot be paid for using just money
generated from current operating activities. Instead, many
organizations use long-term financing to pay for the purchase of a
building or major pieces of equipment
Long term financing: Refers to the various alternatives available to the organization to get
the money needed to acquire capital assets. Among the more
common alternatives available to public service organizations are
fund-raising campaigns, unsecured loans, mortgages, bonds, leases,
and equity financing.
Average rate of return: A measure of profitability allowing investments with different capital
outlays to be compared. The average rate of return is calculated as
the ratio of the average cash inflow to the amount invested.
Discounted cash flow: A method of comparing the profitability of alternative investments
which takes the time value of money into account.
Discounting: A method for adjusting the value of costs and outcomes which occur
in different time periods into a common time period, usually the
present.
Discount rate: The rate at which future costs and outcomes are discounted to
account for time preference. The discount rate is the required rate of
return to compensate for: risk of the investment, temporary loss of
funds.
, Financial Management of healthcare organizations
HPI4007
Internal rate of return: The discount rate where the net present value is zero.
Net present value: The present value minus the initial capital outlay. If it is negative it is
not worth pursuing the project.
Payback method: An appraisal technique evaluating how long it will take to repay the
initial investment.
Present value: The amount of money that a stream of cash inflows receivable in the
future is currently worth. Future cash flows are multiplied by a
defined discount factor to obtain the present value.
HPI4007
Case 3 Renovation or contracting out?
Some keywords:
Capital assets: Assets with lifetimes of more than one year.
Capital budget planning: The process of planning for the purchase of capital assets. A capital
budget is prepared as a separate document, which becomes part of
the organization’s master budget. One concern in the capital budget
process is that adequate attention be paid to the timing of cash
payments and receipts. Often large amounts of money are paid to
acquire capital items well in advance of the collection of cash
receipts earned form the use of those items.
Time value for money: Paying €1000 today cannot be equated with receiving €1000 several
years from now. One would only give up €1000 today, if the benefit
to be realized from doing so was worth at least the €1000 plus the
interest that could be earned. TVM can be used to calculate the
appropriateness of an investment.
One monetary unit received tomorrow is worth less than one
monetary unit received today. Compounding inters and discounting.
Capital assets: Are often so costly that they cannot be paid for using just money
generated from current operating activities. Instead, many
organizations use long-term financing to pay for the purchase of a
building or major pieces of equipment
Long term financing: Refers to the various alternatives available to the organization to get
the money needed to acquire capital assets. Among the more
common alternatives available to public service organizations are
fund-raising campaigns, unsecured loans, mortgages, bonds, leases,
and equity financing.
Average rate of return: A measure of profitability allowing investments with different capital
outlays to be compared. The average rate of return is calculated as
the ratio of the average cash inflow to the amount invested.
Discounted cash flow: A method of comparing the profitability of alternative investments
which takes the time value of money into account.
Discounting: A method for adjusting the value of costs and outcomes which occur
in different time periods into a common time period, usually the
present.
Discount rate: The rate at which future costs and outcomes are discounted to
account for time preference. The discount rate is the required rate of
return to compensate for: risk of the investment, temporary loss of
funds.
, Financial Management of healthcare organizations
HPI4007
Internal rate of return: The discount rate where the net present value is zero.
Net present value: The present value minus the initial capital outlay. If it is negative it is
not worth pursuing the project.
Payback method: An appraisal technique evaluating how long it will take to repay the
initial investment.
Present value: The amount of money that a stream of cash inflows receivable in the
future is currently worth. Future cash flows are multiplied by a
defined discount factor to obtain the present value.
