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Finance And Practice Management Workshop:
Economic OverviewMichael R. Dicks, PhD
2018 Northeast Dairy Production Medicine SymposiumSyracuse, New YorkMarch 23-25, 2018
© Copyright 2017. American Veterinary Medical Association. All rights reserved.
• Economy– Drives the consumer expenditures
• Veterinary Education Market– Applicants enter the veterinary pipeline – SUPPLY
• Market for Veterinarians– Meeting of veterinary and services pipeline
• Veterinary Service Market– Animal owners start services pipeline – DEMAND
• Veterinary Practices– Business unit for veterinary medicine
Overview
© Copyright 2017. American Veterinary Medical Association. All rights reserved.
© Copyright 2017. American Veterinary Medical Association. All rights reserved.
The Economy
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© Copyright 2017. American Veterinary Medical Association. All rights reserved.
© Copyright 2017. American Veterinary Medical Association. All rights reserved.
0
500
1,000
1,500
2,000
2,500Th
ousa
nds o
f Uni
tsNew Private Housing Permits
https://alfred.stlouisfed.org/series?seid=PERMIT
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https://www.statista.com/statistics/216998/forecast-of-the-federal-debt-of-the-united-states/
U.S. National Debt Projection
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https://www.ers.usda.gov/webdocs/publications/87459/oce-2018-1.pdf?v=43146
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Macroeconomic Forecast• Continued strong economic growth in developing countries, a
relatively strong dollar, and near-term low oil prices, which are expected to rise in the longer term.
• Nominal prices for beef cattle are projected to decline through most of the next decade as production rises.
• Feed costs have declined, but will begin to moderately increase in the midterm projection and begin to squeeze livestock production net returns.
• The Dollar is expected to remain strong relative to the early years of the decade throughout the projection period, but weaken somewhat in 2018.
• Farm consolidation is expected to continue, leading to economies of scale.
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USDA Agricultural Projections to 2027
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Veterinary Education Market
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Applicant Data
4,038 4,230 4,214 4,227 4,363 4,450
6,769 6,744 6,600 6,667 7,076 7,494
1.7 1.6
1.6 1.6 1.6 1.7
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2013 2014 2015 2016 2017* 2018*
Applicant to Seat RatioAppl
ican
ts &
Firs
t Yea
r Sea
ts
VMCAS Applicants and First Year SeatsUS and International Institutions
AAVMC Internal Reports2013-2018
First Year Seats VMCAS Applicants Applicant to Seat Ratio
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$50,000
$60,000
$70,000
$80,000
$90,000
$100,000
$110,000
Debt and Income:Graduates with Full Time Employment
US Colleges
Real Weighted Income ($2014)
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$50,000
$70,000
$90,000
$110,000
$130,000
$150,000
$170,000
$190,000
Debt and Income:Graduates with Full Time Employment
US Colleges
Real Weighted Income ($2014)
Real Debt
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1.00
1.20
1.40
1.60
1.80
2.00
2.20
$50,000
$70,000
$90,000
$110,000
$130,000
$150,000
$170,000
$190,000
Debt and Income:Graduates with Full Time Employment
US Colleges
Real Weighted Income ($2014)Real DebtReal Debt-to-Income
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0%
5%
10%
15%
20%
25%
30%
35%
40%
0 0-125000 125001-200000 200001-300000 >300000
2015
2016
2017
Increasing Increasing
DIR Trending to Bimodal Distribution
1.64
3.95
2.64
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U.S. Veterinary College Students2015 2016 2017 %Change
Total Debt $408 million $418 million $403 million (1.5%)
Total Costs $673 million $701 million $708 million 5.2%
Tuition and Fees $365 million $403 million $418 million 14.5%
Living Expenses $230 million $238 million $220 million (4.3%)
Interest Expenses $78 million $70 million $70 million (10.3%)
Number of Students 2,882 2,930 2,942 2.0%
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Market for Veterinarians
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Net Present Value of the DVM DegreeN
PV V
alue
Year
-$200,000
-$100,000
$0
$100,000
$200,000
$300,000
$400,000
$500,000
2010 2011 2012 2013 2014 2015 2016 2017
Male Female
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Starting Salaries by Gender and Degree
$68,786 $70,129 $69,248 $69,831 $69,994
$72,527
$75,915
$79,373
$66,339 $64,390
$63,303 $65,350 $66,235
$69,879
$73,330
$76,066
$47,654 $48,776 $49,603
$50,800
$53,938
$56,766 $58,648 $59,544
$38,600 $39,508 $40,178 $41,148
$43,690
$45,981 $47,980
$49,200
$30,000
$35,000
$40,000
$45,000
$50,000
$55,000
$60,000
$65,000
$70,000
$75,000
$80,000
2010 2011 2012 2013 2014 2015 2016 2017
Star
ting
Sala
ry
Year
Male Veterinary Starting Salary
Female Veterinary Starting Salary
Male Bachelor's Starting Salary
Female Bachelor's Starting Salary
Male incomeDifference
Female incomeDifference
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$80,000
$90,000
$100,000
$110,000
$120,000
$130,000
$140,000
$150,000Large Animal Excl. Large Animal Pred. Small Animal Excl.Small Animal Pred. Mixed Equine
Real Mean Income for Veterinarians Declining
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5%
10%
15%
20%
25%
30%
35%
40%
2010
- 20
17
2000
- 20
09
1990
- 19
99
1980
- 19
89
2010
- 20
15
2000
- 20
09
1990
- 19
99
1980
- 19
89
2010
-201
5
2000
-200
9
1990
-199
9
1980
-198
9
2010
-201
5
2000
-200
9
1990
-199
9
1980
-198
9
2017 2016 2015 2014
Male Female
Work Preference: Desire to work FEWER hours/ week
1,7131,895
3,3913,330
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
2014 2015 2016 2017
# of
Vet
erin
aria
ns
Year
Negative Underemployment
Number of veterinarians needed toeliminate the negativeunderemployment
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VCC Applicants to Available Jobs Ratio (Supply/Demand)
0
0.5
1
1.5
2
2.5
3
3.5
S/D
Ratio
Year
Job Seekers/Available Jobs
12 per. Mov. Avg. (JobSeekers/Available Jobs)
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Ownership’s Income Effect
40,000
50,000
60,000
70,000
80,000
90,000
100,000
110,000
120,000
130,000
140,000
27 31 35 39 43 47 51 55 59 63 67 71
Real
Mea
n In
com
e (2
016
$)
Age
Non-owner
Owner
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Market for Veterinary Services
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NumberOf
Animals
Animal’sValue
FarmIncome
Demand Drivers
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Beef and Dairy Herd
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Veterinary Practices
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9,279
8,454
7,913
3,729
251 2,146
1 to 4 employees 5 to 9 employees10 to 19 employees 20 to 99 employees100 to 499 employees 500 employees or more
20%
AVMA Veterinarian Data/U.S. Bureau of Census
Number of Firms Market Share
6.5%
16.6%
28.2%28.1%
4.8%15.8%
50%
Concentration is Increasing
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Distribution of Dairy Cows by AABP Region
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Parallel Service Providers
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Source: Idexx/AAHA: 2016
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Most dog owners do not report receiving preventive care or treatment for parasites or weight from veterinarians
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“Who gave preventive care or treated your horse(s) for...?”
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Practice ProfitabilityINCOME STATEMENT
Capital EfficiencyBALANCE SHEET
EARNS TURNS
KPI 1
KPI 2 KPI 3
Key Performance Indicators
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Return on Investment
Earnings as % of Sales
Earnings
SalesCost of Sales
Administrative Labor Building
RentalCost of Goods
Sales
Turnover
Sales Total Investment
Permanent Investment
Working Capital
Inventory Accounts Receivable Cash
Veterinary Practice Financial Health
ݏ݊ݎܽܧ ݏ݊ݎݑܶ
Balance SheetIncome Statement
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Return on Investment
Earnings as % of Sales
Earnings
SalesCost of Sales
Administrative Labor Building
RentalCost of Goods
Sales
Turnover
Sales Total Investment
Permanent Investment
Working Capital
Inventory Accounts Receivable Cash
Income – Wealth Trade-Off
Balance SheetIncome Statement
Living like a King Vs
Cash Poor and Asset Rich
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2015 Financials for Major Corporations(Billions of Dollars)
Ford Motor
Henry Schein Zoetis Merck Colgate Microsoft
Total Revenue $149.60 $10.63 $4.77 $39.50 $16.03 $85.30Gross Income $7.65 $0.73 $0.75 $6.93 $2.79 $20.18
Profit Margin 5.11% 6.90% 15.74% 17.54% 17.39% 23.66%
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2015 Financials for Major Corporations(Billions of Dollars)
Ford Motor
Henry Schein Zoetis Merck Colgate Microsoft
Total Revenue $149.60 $10.63 $4.77 $39.50 $16.03 $85.30Gross Income $7.65 $0.73 $0.75 $6.93 $2.79 $20.18
Profit Margin 5.11% 6.90% 15.74% 17.54% 17.39% 23.66%
Total Assets $224.93 $6.50 $7.91 $101.78 $11.96 $193.69
ATI 0.67 1.64 0.60 0.39 1.34 0.44
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2015 Financials for Major Corporations(Billions of Dollars)
Ford Motor
Henry Schein Zoetis Merck Colgate Microsoft
Total Revenue $149.60 $10.63 $4.77 $39.50 $16.03 $85.30Gross Income $7.65 $0.73 $0.75 $6.93 $2.79 $20.18
Profit Margin 5.11% 6.90% 15.74% 17.54% 17.39% 23.66%
Total Assets $224.93 $6.50 $7.91 $101.78 $11.96 $193.69
ATI 0.67 1.64 0.60 0.39 1.34 0.44
ROA 3.4% 11.3% 9.5% 6.8% 23.3% 10.4%
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Things to Ponder• What if a Spectrum of Care is developed that maximizes animal health
outcomes subject to a cost constraint?
• We can make the system cheaper. We can make it more expansive. We can make it higher in quality. – But we can’t do all 3.
JAMA Forum — The “Iron Triangle” of Health Care: Access, Cost, and Quality, AARON CARROLL, OCTOBER 3, 2012
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