ABSTRACT
Introduction .................................................................................................................................... 146 Medical Practice as an Asset Class ................................................................................................ 146
Income Statement ...................................................................................................................... 147 Balance Sheet (Statement of Financial Position) ...................................................................... 147 Statement of Cash Flows ........................................................................................................... 147 Statement of Changes in Owner’s Equity ................................................................................. 148
Cash Flow Analysis ........................................................................................................................ 148 Accountable Care Organization Example ...................................................................................... 149
Given Cash Flow Model ............................................................................................................ 149 Costs of Medical Services Provided ......................................................................................... 150 Assumptions .............................................................................................................................. 150 Physician Reactions .................................................................................................................. 150
Extend Accounts Payable ..................................................................................................... 150 Reduce Accounts Receivable ............................................................................................... 150 Borrow with Short-Term Bridge Loans ................................................................................ 150 Cut Expenses ........................................................................................................................ 151 Reduce Supply Inventories ................................................................................................... 151 Taxes ..................................................................................................................................... 151
Hyper-Growth Model ................................................................................................................ 151 Benchmark a Medical Practice with Financial Ratios ................................................................... 151 Liquidity and Solvency Financial Ratios ....................................................................................... 151
Current Ratio ............................................................................................................................. 151 Current Liabilities to Net Worth ................................................................................................ 152
Asset Management Financial Ratios .............................................................................................. 152 Average Collection Period ........................................................................................................ 152 Fixed Assets Utilization ............................................................................................................ 153 Fixed Assets to Net Worth ......................................................................................................... 153 Total Assets Utilization ............................................................................................................. 153
Debt Management Ratios ............................................................................................................... 153 Total Debt to Total Assets ......................................................................................................... 153 Total Liabilities to Net Worth .................................................................................................... 153
Financial statements report medical practice (any business) activity for a specific accounting period through horizontal or linear analysis. Showing changes in this fashion forms a perspective for variances that have taken place.
