HIA 5220 FINAL PROJECT
Chapter 9: Time Value Analysis
Basic Stock Valuation
General Investment Considerations
Present Value and Future Values
Nominal vs. Effective interest rates, opportunity costs
Chapter 13: Capital Structure and the cost of capital
Chapter 10: Financial Risk and Required Return
Diversification of portfolios
CAPM (capital asset pricing model)
portfolio analysis
Factors related to investment risk
Chapter 11: Long-Term Debt Financing
Short- term vs. Long-term debt
Forms and sources of capital
fixed vs. variable percentage
Annual Yield on bonds
Chapter 14: The Basics of Capital Budgets
Chapter 12: Equity Financing and Securities Markets
Common vs. preferred stock
Financing with stock vs. debt
efficient markets
Expected rate of return on stock
Cost of capital
capital structure
Debt vs. equity Financing
Financial leverage
Chapter 15: Project Risk Analysis
Payback periods
Capital investment analysis
Internal rate of return
Opportunity cost and Net present value
Capital rationing
Project risk analysis
scenario analysis
Sensitivity analysis
Chapter 16: Revenue cycle and current accounts management
Receivables management
short vs. long term securities
Revenue Cycle
Receivable's balance
Inventory management techniques and float rate
Chapter 17: Financial Condition Analysis
KPI (key performance indicators
Common Sizing
Ratio analysis
Profit margin
economic value-added EVA
present value (PV), also known as present discounted value, is the value of an expected income stream determined as of the date of valuation. Future value is the value of an asset at a specific date. It measures the nominal future sum of money that a given sum of money is worth at a specified time in the future assuming a certain interest rate, or more generally, rate of return.
PV = C / (1 + r) n
FV=C0 * (1+r)n
method of calculating theoretical values of companies and their stocks. The main use of these methods is to predict future market prices, or general market prices
Investment returns: The financial performance of an investment measured by its return.
Opportunity cost rate: the discount rate is the opportunity cost rate, it is the rate that could be earned on alternative investments of similar risk, it does not depend on the source of the investment funds.
The nominal interest rate does not take into account the compounding period. The effective interest rate does take the compounding period into account and is a more accurate measure of interest charges.
Financial risk is present whenever there is a chance of earing a return on an investment that is less than the amount expected.
Dollar return= amount to be received - amount invested
Rate of return= Dollar return/ Amount Invested
Portfolio risk and return- standard deviation is an applicable risk measure only when an investment is held in isolation. when investments are held in portfolios, the relevant return, risk is that of the entire portfolio.
CAPM provides investors with rational ways of thinking about the required rates of return
Risk free rate- compensates investors for the time value of money
Risk Premium- compensates investors for the amount of portfolio risk assumed
Stand-alone risk, diversifiable risk, market risk
Term Loan (long term loan) debt that has a maturity greater than one-year, short term- or loan scheduled to be paid back in one year.
YTM on a bond is the expected rate of return assuming the bond is held to maturity and no default occurs.
Discount rate that forces the present value of the cash flows from the bond to equal the bond's price.
debt capital and equity or fund capital
Break Even Sales = Fixed Costs / Contribution Margin Percentage The contribution margin percentage can be computed by dividing the difference between the sales and the variable costs by the sales and expressed in terms of percentage.
Markets for the stocks and bonds of large companies and for treasury securities are efficient.
The only way to obtain higher return is to assume more risk
Common stock: classified stock. or class A and class B- Preferred stock is more stable, common is more volatile.
Debt financing involves borrowing money from investors by issuing corporate bonds. Share financing involves selling ownership rights in the company to investors by issuing stock. Investors are rewarded for financing companies through interest and dividend payments.
Expected dividend yield plus an expected capital gains yield and the expected capital gains yield are constant over time.
Cost of capital is a blend of the costs of a business's permanent financing sources
Benchmark rate of return in the evaluation of proposed projects.
Tax Benefits, historical versus marginal costs
Mix of debt and equity financing used by a business
Measured by the structure of the liabilities and equity section of the business's balance sheet.
ROE: net income divided by the value of equity measures the dollars of equity investment.
The use of fixed cost financing typically debt financing for healthcare providers.
Debt capacity: the amount of debt considered optimal for the business
IRR: is the discount rate that forces the PV of the inflows to equal the cost of the project.
IRR is the projects expected rate of return.
IRR measures ROI in percentage terms
Payback period = Initial Investment or Original Cost of the Asset / Cash Inflows.
Estimate Cash flows, assess projects riskiness, estimate the project cost of capital, measure the financial impact.
Opportunity cost is the forgone benefit that would have been derived from an option not chosen.
Net Present Value is NPV = ∑ (CFn / (1 + i)n) – Initial Investment
Identifies the variables that are most critical to the analysis, if forecasts are wrong , have the most influence on profitability
Disadvantage: does not consider the amount of the input variables could actually change.
Considers more than one variable at a time, provides more information about the worst possible results, provides a quantitative measure of the stand- alone risk.
Only considers a limited number of outcomes, real world is more complex.
under a business has more acceptable projects than it has investment capital
financial perspective: set of projects creates the greatest financial value is chosen.
3 types: Stand-alone, Corporate, Market.
activities associated with billing and collecting for services, creating cash inflows from the provision of services.
monitoring takes places both at the aggregate level and the individual activity level
Information technology and electronic claims processing
Monitoring receivables: average collection period, days in patients accounts, both in aggregate and by specific payor.
shorth term, lower administrative costs, fewer restrictive covenants, lower interest rates
Major sources: Accruals, accounts payable, bank loans
Long-term securities other than shares consist of securities other than shares that have an original maturity of more than one year.
(AR) is the balance of money due to a firm for goods or services delivered or used but not yet paid for by customers.
Current accounts management, cash management, float management. Float rate is = DF-CF
Deposit checks received daily, lockboxes, concentration banking, federal reserve wire system, automated clearinghouses.
Combines values from financial statements to create single numbers: easily interpretable significance, Facilitate Comparisions.
Ratio analysis results: presented in a dashboard format that focuses on KPIs
Common Size Amount = (Analysis Amount / Base Amount) x 100% The base amount will change depending on whether the company is completing its analysis on the balance sheet or the income statement.
The amount by which revenue from sales exceeds costs in a business.
economic value added is an estimate of a firm's economic profit, or the value created in excess of the required return of the company's shareholders.
Knowledge gained from this course
Formulas that will allow me to gain new insight into my organizations financial well being
improved ability to financial access, quality and safety of my organization
understanding of basic healthcare finance terminology
Ability to better prepare for financial audits and monthly reporting.