Financial
Management for
NonProfit
Organizations
10.04.2020
FMNO | Financial Management for NonProfit Organizations | © http://michalskig.com/

Financial Management for NonProfit Organizations
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E-mail: ERASMUS.michalski@GoogleMail.com
www: HTTP://MICHALSKIG.UE.WROC.PL/
Mobile: 48.503452860
5 meetings + 1 exam (test)
Next meeting: . . . .
 Reading material: http://skroc.pl/fmno1 | http://skroc.pl/fmno2
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Zietlow J., J.A. Hankin, A.G. Seidner, Financial Management for Nonprofit Organizations:
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Policies and Practices, Wiley 2007.
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Herman M.L., G.L. Head, P.M. Jackson, T.E. Fogarty, Managing Risk in Nonprofit Organizations: A
Comprehensive Guide, Wiley 2003.
 Bryce H.J., Financial and Strategic Management for Nonprofit Organizations: A Comprehensive
Reference to Legal, Financial, Management, and Operations Rules and Guidelines for Nonprofits, Wiley
2000.
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Hankin J.A., A.G. Seidner, J. Zietlow, Financial Management for Nonprofit Organizations, Wiley 1998.
 Maddox D.C., Budgeting for Not-for-Profit Organizations, Wiley 1999.
 Zietlow J.T., A. Seidner, Cash and Investment Management for Nonprofit Organizations, John Wiley &
Sons, New York 2007.
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PDF1: http://www.swlearning.com/finance/brigham/theory11e/web_chapters/bri59689_ch30_web.pdf
 PDF2: http://www.swlearning.com/finance/brigham/theory10e/resources/brig-fm10-WebCh30-r1.pdf
2
FMNO | Financial Management for NonProfit Organizations | © http://michalskig.com/

The financial aim of nonprofit financial management?
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The best realization of the mission measured by maximization of stakeholders profits (both social and financial):
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V
 

1
FCF n

CC
 n
 

1

SV n
CC
 n

First: how we calculate realization of the general aim in for-profit financial management?
FMNO | Financial Management for NonProfit Organizations | © http://michalskig.com/
3

10 steps to Value
1)
2)
3)
4)
5)
6)
7)
CR
Operating Cycle
Assets
AP
Capital invested
Capital structure
FCF forecasting
8)
9)
IRR
Cost of Capital (CC)
10) ∆ V
FMNO | Financial Management for NonProfit Organizations | © http://michalskig.com/
4

NonProfit Finance cases:
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Hospital / Medical service
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School (of something: primary, cooking, musical etc.)
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Religion based home of help (ex-drunks, exaddicts, orphanages, etc.)
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Donation based WOŚP etc.
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Commune businesses: water-supply institutions
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….
FMNO | Financial Management for NonProfit Organizations | © http://michalskig.com/
5

Financial
Management for
NonProfit
Organizations
10.04.2020
FMNO | Financial Management for NonProfit Organizations | © http://michalskig.com/


Financial Management for NonProfit Organizations
E-mail: erasmus .MICHALSKI@ gmail.com
 www: HTTP://MICHALSKIG.UE.WROC.PL/

Mobile: 48.503452860

5 meetings + 1 exam (test)

Next meeting: . . . .

Reading material: http://skroc.pl/fmno1 | http://skroc.pl/fmno2
FMNO | Financial Management for NonProfit Organizations | © http://michalskig.com/
7

The financial aim of nonprofit financial management?

The best realization of the mission measured by maximization of stakeholders profits (both social and financial):

V
 

1
FCF n

CC
 n
 

1

SV n
CC
 n

First: how we calculate realization of the general aim in for-profit financial management?
FMNO | Financial Management for NonProfit Organizations | © http://michalskig.com/
8

10 steps to Value
1)
2)
3)
4)
5)
CR
Operating Cycle
Assets
AP
Capital invested
6)
7)
8)
Capital structure
FCF forecasting
IRR
9) Cost of Capital (CC)
10) ∆ V
FMNO | Financial Management for NonProfit Organizations | © http://michalskig.com/
9

NonProfit Finance cases:

Hospital / Medical service
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School (of something: primary, cooking, musical etc.)

Religion based home of help (ex-drunks, ex-addicts, orphanages, etc.)

Donation based WOŚP etc.

Commune businesses: water-supply institutions

….
FMNO | Financial Management for NonProfit Organizations | © http://michalskig.com/
10

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CASE1: Hospital / Medical service
Small nonprofit anticancer service want to buy X-ray machine (48ooo Euros) for mammography.
Economical time of life for such kinds of engines is 6 years.
According to forecasts it could serve up to 2100 patients monthly, and they will pay 4 Euros for one scan.
The rest of the payment (10 Euros for one scan) will be paid by local government.
Fixed Costs: room with one clerc (300 euros/month), diagnostician (2ooo Euros monthly), service/repair: 2 times by year (350 Euros)| Variable Costs: Energy, plates and other materials (1Euro per scan).
20ooo will be covered by debt (k d
=8%), the rest: equity (unleveraged beta = 0.72) [ http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/Betas.html
]
NWC: 20% of CR
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Number of patients:
Year: 200X | 200X+1 | 200X+2 | 200X+3 | 200X+4 | 200X+5 | 200X+6 | 200X+7 | 200X+8..n |
Q: 20ooo | 18ooo | 20ooo | 23ooo | 245oo | 24ooo | 252oo | 25ooo | 25ooo |
FMNO | Financial Management for NonProfit Organizations | © http://michalskig.com/
11

Financial
Management for
NonProfit
Organizations
10.04.2020
FMNO | Financial Management for NonProfit Organizations | © http://michalskig.com/


Financial Management for NonProfit Organizations
E-mail: erasmus.MICHALSKI@gmail.PL
 www: HTTP://MICHALSKIG.UE.WROC.PL/

Mobile: 48.503452860


Next meeting: . . . .
Reading material: http://skroc.pl/fmno1 | http://skroc.pl/fmno2
FMNO | Financial Management for NonProfit Organizations | © http://michalskig.com/
13

NonProfit Finance cases:

Hospital / Medical service

School (of something: primary, cooking, musical etc.)

Religion based home of help (ex-drunks, ex-addicts, orphanages, etc.)

Donation based WOŚP etc.

Commune businesses: water-supply institutions

….
FMNO | Financial Management for NonProfit Organizations | © http://michalskig.com/
14

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CASE2: School
Nonprofit charity decide to start three year one-class school. One class population is average 16 childreen.
The school will work for 6 hours daily. Fee is 25o€ monthly per one child, paid by the parents. The educational dotation paid by local government is 70ooo€ in every year.
Fixed Costs: 5 teachers with 1 clerc (teacher 1600€/month, clerc 900 €/month), energy and water: (450€ / month), rent for building: 1200€ / month| Variable Costs: 0€.
School equipment 30ooo€ will be covered by debt (k d
=7%) and equity (unleveraged beta for educational services = 0.82) [ http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/Betas.html
]
NWC: 300€
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Number of pupils:
Year: 200X | 200X+1 | 200X+2 | 200X+3 | 200X+4 | 200X+5 | 200X+6 | 200X+7 | 200X+8..n |
Q: 45 | 48 | 46 | 44 | 43 | 42 | 46 | 38 | 39 |
FMNO | Financial Management for NonProfit Organizations | © http://michalskig.com/
15

Financial
Management for
NonProfit
Organizations
10.04.2020
FMNO | Financial Management for NonProfit Organizations | © http://michalskig.com/


Financial Management for NonProfit Organizations
E-mail: erasmus.MICHALSKI@ gmail.com
 www: HTTP://MICHALSKIG.UE.WROC.PL/

Mobile: 48.503452860

Next meeting: . . . . [EXAM].
 Reading material: http://skroc.pl/fmno1 | http://skroc.pl/fmno2
FMNO | Financial Management for NonProfit Organizations | © http://michalskig.com/
17

NonProfit Finance cases:

Hospital / Medical service

School (of something: primary, cooking, musical etc.)

Religion based home of help (ex-drunks, ex-addicts, orphanages, etc.)

Donation based WOŚP etc.

Commune businesses: water-supply institutions

….
FMNO | Financial Management for NonProfit Organizations | © http://michalskig.com/
18

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CASE3: water-supply institution
Nonprofit water-supply institution.
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People will paid 4€ for 1m 3 , in 40ooo town. Average water demand is 8m 3 monthly per one person.
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Fixed Costs: 600ooo monthly, | Variable Costs: 2,3 € per every customer and 3,6 per every m 3 .
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Waterworks equipment cost 148ooooo€ will be covered in 40% by debt (k d
=7%) and the rest 60% by equity
(unleveraged beta for water utility = 0.51) [ http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/Betas.html
].
Economic time of life is 8 years.
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NWC: 10ooo
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Number of customers (in 000):
Year: 200X | 200X+1 | 200X+2 | 200X+3 | 200X+4 | 200X+5 | 200X+6 | 200X+7 | 200X+8..n |
Q: 37 | 38 | 36 | 34 | 33 | 32 | 36 | 38 | 39 |
What level should reach the local government donation for: every year or for start only to have NPV = 0
FMNO | Financial Management for NonProfit Organizations | © http://michalskig.com/
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