Business Valuations: Pharmacy

Mon, 14 April 2008 AEST

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Medici Capital Staff Writers

Different circumstances require different business valuations. In pharmacy, re-financing, new partner acquisition and purchases require different methods of valuation to account for changes in style of the operation of the business. Medici Capital takes these factors into account when valuing a pharmacy.

Medici Capital is the industry leader in pharmacy valuations and accredited to conduct pharmacy valuations for all the major banks and lending institutions Australia-wide. The following article was prepares by Medici Capital to discuss some issues surrounding the valuation of a pharmacy.

Pharmacy valuations are commonly conducted using the capitalisation of future maintainable earnings approach. The capitalisation rate appropriate for a pharmacy reflects its desirability and:

• Gross profit margin;
• Rent terms and costs;
• Pharmacy characteristics;
  (Inc. Location, Product Mix, Presentation, SWOT)
• Prevailing interest rates (overdraft) plus allowance for risk.

Capitalisation rates vary over time. Exceptional pharmacies with unusually high growth outlooks may attract a lower capitalisation. For more information about current capitalisation rates for pharmacy, please contact Medici Capital at www.medici.com.au.

It is important to note that the asking price is not related to turnover. Rather, it's a function of the expected maintainable income to the buyer. Value assumes a willing buyer exists and there is sufficient time to market the pharmacy properly.

Medici Capital provides 5 different versions of our valuation:
(The following list is ordered by the complexity of the valuations.)

• Indicative Valuation
• Market Appraisal of Value
• Comprehensive Valuation
• Brownfield Valuation
• Greenfield Valuation

Indicative Valuation:

Medici Capital provides Indicative Valuations on-line through Medici Express. Through this system, you can process a valuation within 24 hours (or faster if urgent) to provide you with an indication of what value the pharmacy will be.

Market Appraisal of Value (MAV):

A MAV is essentially an accountant's/broker's valuation. It is primarily provided from the analysis of a trading statement/profit & loss statement and provides a slightly more detailed perspective of the value of the pharmacy.

Full Valuation:

Medici Capital's Full Valuation provides full comprehensive analysis of a pharmacy and produces a financially and economically robust value for the pharmacy based on statistical and analytical evidence. The capitalisation rates are generated based on a risk assessment model ensuring that market verifiable rates are applied for valuation purposes.

Brownfield Valuation:

An extension on the full valuation, Brownfield Valuations are based on significant changes to the operational environment of the pharmacy that would cause a significant shift in the income of the business - ie location change or significant resizing of business. These valuations take into account the effects of the changes to the operations and resultant financials of the business. Medici Capital with it's analytical background is in a unique position to be able to calculate these valuations.

Greenfield Valuation:

The next step from a Brownfield Valuation is a Greenfield Valuation: the case in which a business is newly established from scratch. Medici Capital can accurately forecast the operating capacity of the pharmacy and past clients have contacted us to claim that forecasts of our Greenfield Valuations have accurately matched the actual operating performance of the business as time elapsed.


It is important to note that Medici Capital are not accountants. We are analysts and researchers with specific focus on valuations, finance and management consulting in the health sector. Our products and services are based on statistical research and each report/assurance we provide is based on financial, verifiable evidence.

All our valuations have been accredited with the major banks and lending institutions Australia-wide. And, when full disclosure is received, all our valuations can be completed within 5 working days - sooner if the valuation is urgent.

As an expert witness, our analysis are accepted by courts throughout Australia because of the mathematical nature of our work - we do not estimate, guess or compare figures. We logically, methodically and mathematically determine the true values of pharmacy.

To discuss a pharmacy valuation; or to determine which valuation suits your requirements, contact Medici Capital on (03) 9853 7933.