Unlocking practice potential with financial insights.
Dr. Sharma’s practice has relatively high fixed costs (rent, equipment leases, staff salaries) compared to variable costs (medical supplies, billing services). She is considering adding a new, expensive piece of diagnostic equipment to attract more patients and increase revenue. However, she’s unsure if the increased revenue will offset the higher fixed costs, especially given her existing $280,000 student loan burden, and she wants to understand the potential impact on her overall profitability before making such a significant investment.
Using Golden Door Asset's Degree of Operating Leverage Calculator, we analyzed Dr. Sharma’s current cost structure. The calculator revealed that a 10% increase in revenue would lead to a disproportionately larger increase in operating income due to her high degree of operating leverage. By forecasting potential revenue increases from the new equipment, we demonstrated that a $50,000 revenue boost would significantly improve her practice’s profitability, making the investment worthwhile, despite adding $15,000 annually to her fixed costs.
The Degree of Operating Leverage Calculator helped us quantify the relationship between revenue, fixed costs, variable costs, and operating income, providing a clear and actionable insight for Dr. Sharma. The Times Interest Earned Ratio Calculator was then used to ensure debt service coverage would remain healthy.
$30,000 increase in annual profit after accounting for new equipment costs and increased volume.
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