Finance And Practice Management Workshop: Economic Overview

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



The Economy





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

https://alfred.stlouisfed.org/series?seid=PERMIT


https://www.statista.com/statistics/216998/forecast-of-the-federal-debt-of-the-united-states/

U.S. National Debt Projection

https://www.statista.com/statistics/216998/forecast-of-the-federal-debt-of-the-united-states/


https://www.ers.usda.gov/webdocs/publications/87459/oce-2018-1.pdf?v=43146

https://www.ers.usda.gov/webdocs/publications/87459/oce-2018-


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.


USDA Agricultural Projections to 2027







Veterinary Education Market


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


$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)


$50,000

$70,000

$90,000

$110,000

$130,000

$150,000

$170,000

$190,000


US Colleges

Real Weighted Income ($2014)

Real Debt


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


US Colleges

Real Weighted Income ($2014)Real DebtReal Debt-to-Income


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


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%


Market for Veterinarians


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


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


$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


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


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)


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


Market for Veterinary Services


NumberOf

Animals

Animal’sValue

FarmIncome

Demand Drivers


Beef and Dairy Herd




Veterinary Practices


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




Distribution of Dairy Cows by AABP Region




Parallel Service Providers



Source: Idexx/AAHA: 2016


Most dog owners do not report receiving preventive care or treatment for parasites or weight from veterinarians


“Who gave preventive care or treated your horse(s) for...?”


Practice ProfitabilityINCOME STATEMENT

Capital EfficiencyBALANCE SHEET

EARNS TURNS

KPI 1

KPI 2 KPI 3

Key Performance Indicators


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


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


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%



Ford Motor



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



Ford Motor



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%


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

Documents

Finance And Practice Management Workshop: Economic Overview