Narayana T and Ramiah V*
Most private dentists are faced with the decision to purchase a dental practice at some point in their career, and are usually ill equipped to undertake the necessary capital budgeting decisions, including the valuing of the practice. Valuations of dental practices are usually done according to industry rules of thumb by the dentists themselves or according to accounting principles by accountants who often have little knowledge of the industry. These traditional techniques tend to value practices as a sum of their tangible and intangible assets, rather than in terms of what a prospective buyer is interested in: the potential to generate an income stream. Finance principles can be used to value a practice according to its cash flow potential and to help decide whether the investment in a particular practice should be undertaken. This paper proposes the use of net present value analysis to calculate the value of a dental practice using recent developed asset pricing models, and to evaluate its potential as a future investment, and also examines trends in the Australian market through a finance perspective.
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