Return on Practice Investment Calculations
[Managerial Concepts for Physician Executives]
When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact – Warren Buffet
By David Edward Marcinko
Return On Investment (ROI), Residual Income (RI) and Medical Enterprise Value Added (MEVA) calculations are important managerial accounting concepts for physician executives.
These three key parameters must be high enough to warrant continued existence of the medical office, or the practice will eventually cease as capital flows to profitable business endeavors, and away from unprofitable ones.
To enhance understanding of this concept, as well as facilitate its pragmatic use, the Return on Investment (ROI) equation may be decomposed into its three individual component parts as listed below:
- Net Operating Income
- Practice Revenue
- Average Operating Assets
And mathematically stated as follows:
Net Operating Income Practice Revenues
__________________ X _______________ = Office ROI
Practice Revenues Avg. Operating Assets
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