Christian Debt Recovery

Long Term Debt Equity Ratio Formula

August 27th, 2010 |

Author: Gavin

Pharmacy Industry: Regulations and Expenses in Nevada

Pharmacy Profit Ratios:

There are a number of components that need to be considered when deriving a pharmacy’s realistic business value. Two of those components are the sales and profit ratios. We know that because of the aging population and the introduction of new drugs that, in general, most Nevada pharmacies are seeing an increase in sales. However, because of imposed federal regulations and other market conditions, net profit ratios are typically experiencing decline even though sales are increasing.

Reimbursements:

Reimbursements have been reduced and this is negatively impacting the pharmacy owner’s profit. Additional cuts in pharmacy reimbursements are expected. On top of that, some states have become slower in paying the reimbursements. With many states getting into financial difficulties themselves, Nevada pharmacy owners will need to plan for the possibility of slower cash flow, or even an interruption of the reimbursement payments.

Medicare/Medicaid:

When a pharmacy business has a larger portion of prescription sales in Medicare/Medicaid then the cuts in reimbursements, and slower payments, will have a more profound effect on the pharmacy owner’s net profits. Some owners, out of necessity, will require the use of funds from accounts receivable financing, or some other type of financing.

Taxes:

Higher or new taxes, for personal income, business income, capital gains, consumption (VAT), and others are being considered by the government. Fewer dollars in the hands of the consumer will mean fewer purchases at their local pharmacy, while at the same time business expenses will increase. Due to higher expected taxes, Nevada pharmacy buyers will adjust their acquisition offers to meet Return on Investments requirements.

Mail Order:

Some insurance companies are designating a noticeable amount of pharmacy patients as “long-term medications” and require they only purchase the medications from mail order pharmacy companies who provide products at lower prices. This results in local pharmacies not only missing out on prescription sales, but front-end sales will also decline since the customer is not entering the store. Pharmacy mail order sales have now surpassed sales from independent retail pharmacies in Nevada.

Health Care Costs:

With the rising costs of healthcare companies all around the U.S. have stated that health care costs have become a major concern and have either cut benefits, or proposed other ways to hold down their healthcare costs. These decisions will affect a pharmacy’s gross sales and net profits.

Local demographics:

The process of valuation also takes local market conditions and local demographics into account. Smaller communities have reduced growth potential and due to declining profits, buyers will need to start purchasing at lower values because they will need to service any debt from business loans while still making a living. This is also true for communities who have lost some population due to economic conditions, or communities that have a high rate of unemployment. Less people or fewer customers with purchasing ability also means reduced sales and a smaller chance of substantial near-term improvement. The result of these conditions, are lower pharmacy values in Nevada.

Consult a company that provides pharmacy business valuations using real market conditions and not simple formulas when calculating the values of Nevada pharmacies. Complex, industry-specific methods are used to derive the values of pharmacies, and national companies that specialize in the pharmacy industry have current, extensive industry data. These are some of the reasons that the largest financial institutions, several national chain pharmacies and regional pharmacy chains, various independently-owned drug stores, and pharmacy equity investment groups in Nevada prefer to use services provided by specialized pharmacy valuation businesses.

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Nevada pharmacy owners can contact www.WashburnAndAssociates.com to learn how current pharmacy market conditions have affected their store values.

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