Getwell Clinic Performance Evaluation

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Table of Contents

Introduction
Financial Performance Measures
Return on Investment (ROI)
Return on Investment
Comments on Financial Performance
References

Introduction

Performance Evaluation

Performance evaluation can be based on the study of the actual financial performance with the budgets.

Calculation of breakeven volume and some key financial ratios including Economic Value Added (EVA) will also indicate the level of performance of the entity.

Financial Performance Measures

Breakeven Volume

“Number of Units Sold at which sales revenue equals total costs” (Business Directory)

In the case of Getwell Clinic it is number of patients with which the revenue equals total cost which is 29, 565 patients

Sales 1,344,000

Less: Variable Expenses

Physician Salary 552,000

Nurses Salary 195,000

Medical Supplies 159,000

Service Bureau 28,000

Other Expenses 88,000

Total Variable Expenses 1,022,000

Contribution Margin 322,000

Per patient $ 11.50

Fixed Expenses

Administrative Salary 198,000

Rent 48,000

Service Bureau 24,000

Other Expenses 70,000

Total Fixed Expenses 340,000

Breakeven Volume = Fixed Expenses ÷ Contribution Margin per Patient = $ 340,000 ÷ $ 11.50 = 29,565 patients

Return on Investment (ROI)

“A performance measure used to evaluate the efficiency of an investment” (Investopedia)

ROI for GetWell Clinic = – 8.26%

Economic Value Added (EVA)

“Economic Value Added is a performance measurement that links directly with the intrinsic value of the business.” (Balance Sheet Walk)

EVA for GetWell Clinic = ($ 44,136)

Return on Investment

ROI = Operating Income/Total Equity

Operating income = Net Income + Depreciation

= (34,000) + 16,000 = (18,000)

ROI = (18,000)/217,800 = (8.26) %

Economic Value Added

Economic Value Added (EVA) = Net Operating Profit after Taxes – (Capital * Cost of Capital)

Cost of Capital in this case is assumed at 12% being a fair and reasonable return that can be expected from the investment.

Capital Invested = Equity = $ 217,800

EVA = (18,000) – (217,800*0.12)

= (18,000) – (26,136) = (44,136)

Comments on Financial Performance

The Revenue has not met the budgeted level
The variable costs have behaved mostly in the way anticipated
There are no major changes in the fixed costs than budgeted
Lesser number of patients than budgeted has resulted in lesser revenue and ultimate net operating loss from the clinic
The ROI and EVA are negative because of lesser number of patients and the revenue has not met the breakeven level.

References

Balance Sheet Walk Economic Value Added | Economic Profit.

Business Directory Breakeven Volume. 2010. Web.

Investopedia Return On Investment – ROI. 2010. Web.

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