As the veterinary industry changes and evolves, it is becoming more difficult for veterinarians to be successful in private practice on the basis of their medical knowledge alone. Increasing corporate consolidation has put financial pressure on independently owned practices,1 and some research suggests that the supply of veterinarians may have outpaced the demand, at least in locations where there are high densities of veterinarians.2,3
At the same time, concerns about the need to increase veterinarian income have taken center stage, and substantial research has been dedicated to understanding barriers to increasing veterinarian income.4–6 However, whereas previous research sought to explain income gaps and quantify market-level effects of supply and demand on income, we propose that improving financial management may increase the income of veterinarians currently engaged in private practice.7–9
Efforts to improve the financial acumen of veterinarians have been promoted by Veterinary Management Groups, professional consultants, and the AVMA Veterinary Economics Division through financial research studies and financial education workshops for veterinarians. However, focusing on profitability alone ignores the roles that asset and debt management play in earnings potential. Profitability measures the short-term management of revenues and expenses, whereas asset and debt management determine the resource base and long-term financial position.
Understanding financial statements and how the information included in them reflects the overall success of a veterinary practice creates an opportunity to identify financial management factors that may contribute to the long-term success of independently owned practices. For the present study, ratio analysis of financial statements from companion and mixed animal practices was performed with the DuPont Model, and practices were grouped on the basis of ROE. Liquidity and solvency ratios and debt management and asset investment practices were then compared among financial performance groups to identify differences that could potentially account for the differences in financial performance among groups.
Funded by a grant from the AVMA and completed through a collaborative agreement between the AVMA and the Colorado State University Department of Agricultural and Resource Economics.
Ms. Dodge was a graduate research assistant and Dr. Hadrich was an associate professor in the Colorado State University Department of Agricultural and Resource Economics when this research was completed.
Private financial statements were collected by the University of Georgia College of Veterinary Medicine through practice management rotations. The authors thank Jeff Sanford, program director for the University of Georgia Small Business Development Center, for supplying context on how veterinary practice financial statements were generated and used.
Return on equity
Dodge LE. A Dupont Model approach to financial management: a case study of veterinary practices. MS thesis, Department of Agricultural and Resource Economics, Colorado State University, Fort Collins, Colo, 2017.
2. Neill CL, Holcomb RB, Brorsen BW. Current market conditions for veterinary services in the US. Appl Econ 2018;50:6501–6511.
3. Neill CL, Holcomb RB, Raper KC, et al. Effects of spatial density on veterinarian income: where are all of the veterinarians? Appl Econ 2019;51:1532–1540.
4. Brown JP, Silverman JD. The current and future market for veterinarians and veterinary medical services in the United States. J Am Vet Med Assoc 1999;215:161–183.
6. Neill CL, Holcomb RB, Brorsen BW. Starting on the right foot: does school choice affect veterinarian starting salaries? J Agric Appl Econ 2017;49:120–138.
8. Cron WL, Slocum JV Jr, Goodnight DO, et al. Executive summary of the Brakke management and behavior study. J Am Vet Med Assoc 2000;217:332–338.
9. Volk JO, Felsted KE, Cummings RF, et al. Executive summary of the AVMA-Pfizer business practices study. J Am Vet Med Assoc 2005;226:212–218.
Equations for calculation of DuPont Model, liquidity, and solvency ratios for assessing financial performance of veterinary practices.
|Financial ratio||Calculation||Financial indicator|
|DuPont Model ratios|
|ROE||= Operating profit ÷ equity||Value|
|Operating profit margin||= Operating profit ÷ total revenue||Profitability (operations)|
|Asset turnover ratio||= Total revenue ÷ total assets||Efficiency (investment)|
|Return on assets||= Operating profit ÷ total assets||Efficiency and profitability|
|Leverage multiplier||= Total assets ÷ equity||Leverage (financing)|
|Current ratio||= Current assets ÷ current liabilities||Liquidity|
|Debt coverage ratio||= Operating profit ÷ debt service||Liquidity|
|Debt-to-asset ratio||= Total liabilities ÷ total assets||Solvency|
|Debt-to-equity ratio||= Total liabilities ÷ equity||Leverage|