Posted Sept. 17, 2014
A symposium on veterinary economics July 27 at the AVMA Annual Convention provided a basic grounding in macroeconomics and microeconomics for veterinarians and offered tips for practitioners on using financial ratios to improve financial performance.
Michael Dicks, PhD, director of the AVMA Veterinary Economics Division, spoke about “How the economy affects you—And, what you can do about it.” He emphasized a need for veterinarians to comprehend and respond to the business cycle.
“You’re not powerless,” Dr. Dicks said. “You can understand what is happening to that macroeconomy and where it’s going and understand what you should do to prepare yourself for where that economy is going.”
Employment is a driver of consumer spending, Dr. Dicks said. He showed maps of unemployment by county over recent years to illustrate how unemployment increased and then decreased, although the rebound did not translate to every county.
Dr. Dicks described factors in the peaks and troughs of the business cycle. He said veterinarians can follow economic
indicators to help anticipate upturns and downturns and position themselves accordingly. Right now, he said, there is no sign the country is heading toward a recession.
Bridgette Bain, PhD, statistical data analyst in the AVMA economics division, spoke about “The 3 vertically related
veterinary service markets.” Dr. Bain said there are three veterinary industry markets: the market for veterinary education, the market for veterinarians, and the market for veterinary services. These markets interact via prices.
Dr. Bain said the market for veterinary services has two unique characteristics: pet owners with more money will spend more on veterinary services, and owners’ varying views of pets affect their willingness to spend.
The question-and-answer period focused largely on the painfulness of market adjustments to balance the supply of and demand for veterinary education, veterinarians, and veterinary services.
“How to improve financial performance” was the title of the talk by Ekaterina Vorotnikova, PhD, an assistant professor in the Department of Agricultural Economics and Rural Sociology at the University of Idaho College of Agricultural and Life
Sciences. According to the presentation, financial ratios describing the flow of capital provide simple diagnostics to
identify the causes of poor financial performance.
One key financial ratio is return on equity, which is net income divided by equity. This ratio encompasses three components: operating efficiency, asset use efficiency, and financial leverage.
Operating efficiency is measured by profit margin, which is net income divided by sales. Asset use efficiency is measured by asset turnover, which is sales divided by the cost of investment. Financial leverage is assets divided by equity.