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Summary Literature from Financial Management
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Financial Management Literature C. Walsh: - Chapter 1 to 11 - Chapter 19 - Appendix 1: EBITDA
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Financial Management Literature2021-2022
Health Care Management
Erasmus University
Merel21
Index
Index............................................................................................................................................................1
Key management ratios, by C. Walsh (2006)...............................................................................................2
Chapter 1: Background............................................................................................................................2
Chapter 2 Financial statements...............................................................................................................2
Chapter 3 Balance sheet terms................................................................................................................4
Chapter 4 Profit and loss account............................................................................................................5
Chapter 5: Measures of performance......................................................................................................6
Chapter 6: Operating performance..........................................................................................................8
Chapter 7: Performance drivers...............................................................................................................8
Chapter 8: Cash flow cycle.....................................................................................................................12
Chapter 9: Liquidity................................................................................................................................14
Chapter 10: Financial strength...............................................................................................................16
Chapter 11: Cash flow............................................................................................................................19
Chapter 19: Integrity of accounting statements....................................................................................22
Appendix 1: EBITDA...............................................................................................................................26
Contemporary performance measurement systems: A review of their consequences and a framework
for research, by Franco-Santos (2012).......................................................................................................26
,Key management ratios, by C. Walsh (2006)
Chapter 1: Background
Business ratios provide targets and standards for businesses. They are helpful to managers in directing
them towards the most beneficial long-term strategies as well as towards effective short-term decision-
making. This is because, ratios show the connections that exist between different parts of the business.
All commercial enterprises use money as a raw material which they must pay for. Accordingly, they have
to earn a return sufficient to meet these payments. Enterprises that continue to earn a return sufficient
to pay the market rate for funds usually prosper. Those enterprises that fail over a considerable period to
meet this going market rate usually do not survive – at least in the same form and under the same
ownership.
Assets
Profits
Growth
Cash flow
A balance between these variables will lead to corporate value, which is the reason for most business
activity.
Chapter 2 Financial statements
To understand how a business performs, you need to know the functioning of the vital component
parts.
3 documents from which we retain raw data in finance:
The balance sheet:
The profit and loss account: gains or losses from both normal and abnormal operations over a
period of time. It measures total income and deducts total cost. It uses balance sheets.
The cash flow statement: cash flows in when cheques are received, cash flows out when
cheques are issued. It is needed to know what causes these flows. It depends on the balance
sheets and the profit and loss account.
, The 3 documents together show the entire financial situation of a business.
The balance sheet
Instant snapshot of the used assets and funds related to those assets (mass). It is about one point in
time. Therefore, repeated snapshots are usually taken.
Assests: values owned by the business
1. Current assets (CA): short-term assets. In <12 months, these assets will convert back into cash.
o Inventories
o Accounts receivable (trade debtors = customers that still need to pay)
o Cash
o Miscellaneous current assets
2. Fixed assets (FA): long investment.
o Intangibles - assets that do not have a physical presence, such as goodwill
o Net fixed assets - large, expensive, long-lasting, physical items required for the
operations
o Investments - long-term holdings of shares in other companies
Liabilities/funds: amounts due to parties external to the company
1. Owners’ funds (OF): owner's capital
o Issued common stock – nominal value, book value, market value
o Capital reserves – surpluses from sources other than normal trading that belong to the
shareholder. They cannot easily be paid out as dividends.
o Revaluation of fixed assets
o Premiums on shared issues at a price in excess of nominal value
o Currency gains on balance sheet items, some non-trading profits
o Revenue reserves – surpluses generated by trading. Other names: general reserve,
retained earnings. Items belong to stakeholders, and they can be distributed as
dividends.
2. Current liabilities (CL): short-term liabilities to be paid within 1 year
o Accounts payable – creditors
o Short-term loans
o Miscellaneous
3. Long-term loans (LTL): mortgages, debentures, term loans, bonds, that have repayment terms
longer than 1 year.
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