Annual ReportNovaMed

Kristin CatlinACG2021 Sect. 004

Executive Summary

NovaMed Inc. is a healthcare services company that acquires, develops and operates ambulatory surgery centers

(ASCs) in joint ownership with physicians throughout the United States. NovaMed

currently owns and operates 30 ASCs in 16 states.

NovaMed Annual Report

Part A. IntroductionPart A. Introduction

Chief Executive Officer: Thomas S. Hall Location of home office: Chicago, Illinois Ending date of latest fiscal year: December 31,

2005 NovaMed’s owns and operates ambulatory

surgery centers, optical laboratories, optical products purchasing organization and a marketing products and services business

Main geographic area of activity: United Sates

Part A. Audit ReportPart A. Audit Report

Name of the company’s independent auditors: PricewaterhouseCoopersLLP

In review of NovaMed’s 2005 consolidated financial statements, the auditing committee has declared the statements to be in compliance with the accounting principles generally accepted in the United States.

Part A. Stock Market Information

Part A. Stock Market Information

Most recent price of the company’s stock : $7.30

Twelve month trading range of the company’s stock: $4.10-$7.25

Dividend per share: 0.00 Date of the above information: April 21, 2006 I believe that NovaMed is a good investment.

The company is acquiring more surgery centers and the stock price is steadily increasing.

Part B. Industry Situation and Company Plans

NovaMed is continuing to grow. In 2005 alone, the company acquired four new ambulatory surgery centers. NovaMed plans to acquire and develop

new ASCs, strengthen and build relationships with existing and new physician-partners, and continue to increase revenue and improve operating margins

in their existing ASCs.

http://novamed.com/

http://finance.yahoo.com/q/pr?s=nova

Part C. Income Statement

The format is most like a multi-step

NovaMed has increased in operating and net income, and gross profit since 2004. As the NovaMed acquires more ASCs, their income and

profits increase, respectively.

2005 2004

Gross Profit $61,598 thousand $48,214 thousand

Operating Income $16,357 thousand $10,885 thousand

Net Income $5,589 thousand $2,846 thousand

Part C. Balance Sheet

The stockholders equity account remained relatively stable with a moderate increase from 2004 to 2005. The liabilities account increased fairly dramatically with a $12,521 thousand change.

Assets = Liabilities + Stockholder Equity

2005 $97,162 thousand

$38,487 thousand

$58,675 thousand

2004 $76,787 thousand

$25,966 thousand

$50,821 thousand

Part C. Statement of Cash Flows

Cash flows from operations is significantly more than net income for the past two years ($11,759 thousand vs $5,589 thousand).The company is growing through investing activities (acquisitions, property, equipment, minority interests, securities). The company’s primary source of financing is borrowings under revolving credit agreementOverall, cash has increased significantly over the past two years.

Part D. Accounting PoliciesNovaMed consolidates the accounts of an ASC in which it does not hold a majority ownership interest. NovaMed uses the equity method of accounting for the other ASCs in which it owns a minority interest. The company consolidates two physician practice management (PPM) entities under the guidance of EITF 97-2. Inventory consists of optical products and surgical supplies used in operating the company’s ASCs.

Topics of the Notes to the Financial Statements

Topics of the Notes to the Financial Statements

General Information Restatement Summary of Significant

Accounting Policies Earnings Per Common

Share Statement of Cash Flows-

Supplemental Acquisitions and Sales of

Minority Interests Property and Equipment Goodwill and Other

Intangible Assets Accrued Expenses

Discontinued Operations Income Taxes Long-Term Debt Operating and Capital

Leases Commitments and

Contingents Stockholders’ Equity Employee Benefit Plans Operating Segments Related-Party Transactions Subsequent Events Quarterly Financial Data

Part E. Financial AnalysisLiquidity Ratios

Part E. Financial AnalysisLiquidity Ratios

2005 2004

Working Capital $7,029 thousand $1,928 thousand

Current Ratio 1.65 1.16

Receivable Turnover 7.35 times 5.76 times

Average days’ sales uncollected

49.66 days 63.37 days

Inventory turnover 11.14 times 8.76 times

Average days’ inventory on hand

32.76 days 41.67 days

As the number of ASCs NovaMed acquires increases, so does its working capital, current ratio, receivable, and inventory turnover.

Part E. Financial AnalysisProfitability Ratios

Part E. Financial AnalysisProfitability Ratios

2005 2004

Profit Margin 6.89% 4.47%

Asset Turnover .93 times .73 times

Return on assets 6.43% 3.27%

Return on equity 10.21% 5.20%

The profit margin, asset turnover, return on assets, and return on equity have all increased from 2004 to 2005 due to additional ASCs acquired, thus increasing profits, assets, and stockholders equity.

Part E. Financial AnalysisSolvency Ratio

Part E. Financial AnalysisSolvency Ratio

The debt to equity ratio of 18.44% for 2005 and 24.06% for 2004 means that NovaMed receives the majority of its financing from investors.

2005 2004

Debt to equity 18.44% 24.06%

Part E. Financial AnalysisMarket Strength Ratios

Part E. Financial AnalysisMarket Strength Ratios

2005 2004

Price/earnings per share

29.2 times 47.9 times

Dividend yield _______ _______