Financial insights for CPA practice success.
Dr. Anya Sharma, a successful physician with a thriving practice, wants to understand its true financial potential for future advisory services. Her CPA has historically focused solely on tax preparation and compliance. With significant student loan debt and ambitious financial goals, Dr. Sharma needs a clear picture of her practice's excess earning power beyond simply covering the cost of capital.
By utilizing the Residual Income Calculator, the CPA can quantify the practice's excess earnings, showcasing its true value beyond standard accounting metrics. Inputting Dr. Sharma's practice revenue, expenses, and weighted average cost of capital (WACC), the calculator reveals a residual income of $75,000 after accounting for a $200,000 capital charge on a $2,000,000 practice valuation. This data empowers the CPA to justify higher billing rates for strategic advisory services, ultimately increasing their practice's valuation.
The Residual Income Calculator requires input of revenue, expenses, cost of capital (WACC), and capital invested. Coupled with the Quick Ratio Calculator to ensure short-term financial health, and the Debt Service Coverage Ratio Calculator to manage debt obligations, a holistic view is obtained.
$25,000 increase in annual advisory revenue and a $100,000 increase in the practice's overall valuation.
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