Fundamentals of the Veterinary Medical Profession/Fundamentals of Business
VCM 694
Financial Terms
1. Assets-economic resources owned by a person/company and are expected to benefit
future operations
2. Liabilities- present obligations that are owed to others in the future
3. Revenues-increase that result from operating a business
4. Expenses- decreases that result from operating a business
5. Net Income- the difference between all revenues and all expenses
6. Net Worth (Equity)- total assets minus total liabilities
7. Profitability- the ability to earn enough income to attract and hold investments interests
8. Revenue Performance- total dollar revenue minus sales taxes collected and
refunds/discounts
9. Gross Margin (gross profit)- revenue minus cost of professional service
10. Pre-tax profits from operations - gross margin minus operating expenses
11. Depreciation-dividing the “cost” of a long-term asset over the time of its use; accounting
purposes
12. Cash Flow-inflows and outflows of cash in a business; pretax profits plus depreciation
13. Return on Assets- net income divided by total assets; pre-tax profits divided by total
assets; tells you how well the business is doing
14. Return on equity-net income divided by owner’s equity; pretax profits divided by
owner’s equity (Net worth of the practice); tells the owner how much he has earned on
his investment
Assets= Liabilities + Equity
Theory of Compounding says the Future Value= Present Value + Interest
Theory of Discounting says the Present Value of Future $1= ______$1_______
time
(1 + interest)
Fall 2004
Christine Merle, DVM, MBA, CVPM
Fundamentals of the Veterinary Medical Profession/Fundamentals of Business
VCM 694
Economic Terms
1. Gross National Product (GNP)-the total value of all goods and services produced in the
US economy in one year (includes profits from U.S. owned businesses in other
countries).
a. Measured as constant dollar (i.e. current dollar value is converted to a given base
year; referred to frequently as “real”; they are adjusted for inflation)
b. Considered a broad indicator of living standards
2. Inflation- overall general upward price movement of goods and services in an economy.
a. Some believe that a 2-3% a year increase is a natural and unavoidable condition.
3. Interest Rates-price borrowers pay for funds
a. Interest rates tend to rise when economic activity is growing and fall when it is
slow.
4. Supply-How much firms will offer for sale at different prices
5. Demand-How much will consumers want at various prices
6. Elasticity of Demand-Directly related to substitutability
a. Elasticity = (% change in Quantity) divided by (% change in Price)
i. Inelastic if <1, Elastic if >1,Unit elastic if =1
b. Elasticity has an impact on revenue
7. Revenue = Price times Quantity
8. Profit= Revenue minus Expenses
9. Expenses can be seen as total costs
10. Total Cost = Fixed Costs + Variable Costs
11. Fixed Costs=the costs that are incurred regardless of the volume of output
12. Variable Costs=the costs that are based on the volume of output
14. Average Total Cost= Total Cost divided by Quantity
15. Marginal Cost= the incremental increase in total cost that results from a one-unit
increase in output
a. Marginal Cost= (Change in Total Cost) divided by (Change in Q)
16. Opportunity cost = foregone value of next best alternative
17. Economic Profit= Revenues – (Expenses (costs) + Opportunity Cost)
Fall 2004
Christine Merle, DVM, MBA, CVPM