AAHA Financial Management of a Veterinary Practice

Question 1

Net Profit Margin

Answer 1

Net profit margin=practice profit/practice revenue

Question 2

Gross Profit Margin

Answer 2

Gross Profit Margin=Gross Profit/Revenue

Question 3

Average Transaction Charge

Answer 3

Average Transaction Charge=Practice Revenue/Practice Transactions

Question 4

Revenue per FTE Veterinarian

Answer 4

Revenue per FTE Veterinarian=Practice Revenue/FTE Veterinarians

Question 5

Accounts Receivable Turnover

Answer 5

AR Turnover=Credit Sales/Average Accounts Receivable

Question 6

Average Accounts Receivable

Answer 6

Average Accounts=Beginning AR+Ending AR/2

Question 7

Days in Accounts Receivable

Answer 7

Days in Accounts Receivable=# of days in a period/AR Turnover

Question 8

Personnel Costs as a % of Revenue

Answer 8

Personnel Costs as % of Revenue=Personnel Costs/Practice Revenue

Question 9

Expenses per Patient

Answer 9

Expenses per Patient=Practice Expenses/Practice Patients

Question 10

Expenses per FTE Veterinarians

Answer 10

Expenses per FTE Veterinarians=Practice expenses/FTE Veterinarian

Question 11

Debt Service Coverage

Answer 11

This ratio provides insight on how well the practice covers (or could cover) its debt obligations.
Debt Service Coverage=net operating income (after veterinarian comp)/Principal & Interest payments

Question 12

Debt to Capital

Answer 12

This ratio considers the portion of debt as a % of total capital, which includes both debt and equity.
Debt to Capital=Total Debt (including leases)/Total debt +Equity

Question 13

Return on Equity

Answer 13

The return on equity ratio compares the practice’s net income with equity.
Return on Equity=net income/average equity
Higher number the better

Question 14

Current Ratio

Answer 14

The current ratio is widely used to quickly shed light on the viability of an organization.
Current Ration=Current Assets/Current liabilities
Demonstrates organization’s liquidity
The higher the better

Question 15

Days Cash on Hand

Answer 15

This ratio indicates how many days of overhead the current level of cash could cover. (Best to have 20 to 30 days on hand)
Days Cash on Hand=Cash/(annual operating expenses/260)

Question 16

What are the steps to ensure revenue maximization?

Answer 16

1. Analyze the practice revenue cycle
2. Document Financial Policies and Procedures
3. Review the financial tools
4. Review the Practice’s Current Fee Schedule

Question 17

Pro Forma Statements

Answer 17

Pro Forma Statements are financial statements (including income statement, cash flow statement, and balance sheet).