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Menotomy Home Health Services Case Solution

Solution Id Length Case Author Case Publisher
1645 1284 Words (6 Pages) David W. Young The Crimson Group : TCG119
This solution includes: A Word File A Word File

To prepare the cash flows of the company, the expenditures are estimated as per the information given in the case study. The cash inflows are determined which are primarily the positive cash flows which are supposed to reduce the cash needs of the company. The cash inflows are the revenue which the company receives from the patients. It is important to mention that these revenues are net revenues. The net revenues are the revenues which are excluded from all the direct patient cost. The reason for using the net revenue instead of total revenue are that net revenue are already excluded from the cost of goods sold and this method does not require the cost of goods sold deduct from it.

Following questions are answered in this case study solution

  1. Prepare the cash flow worksheet contained in Exhibit 4. What does this tell you about the operations of MHHS?

  2. Prepare pro forma financial statements for FY 2011. What do these tell you about the operations of MHHS? How can you reconcile the information in the cash flow worksheet with that in the financial statement?

  3. What is the cause of MHHS’s cash flow problems? What solutions are available to Ms. Ringer?

  4. What recommendations would you make to Ms. Ringer?

Case Analysis for Menotomy Home Health Services

The other inflows are depreciation which is a non-cash charge. Depreciation is an inflow because of the fact that it increases the operating expense of the company. As a result the taxable income of the company is understated and hence the company has to pay fewer taxes because of it. It is apparently provides tax shield to the company. In this case, $33,000 is the initial depreciation expense which is added in the month of October. Moreover, the company purchased Vans costing $18,000 which will be paid off in four equal instalments. The depreciation will be charge from the next month of the purchase. Hence this is another cash inflow.

The cash outflows of the company include various expenses such as salaries and benefits, overhead & admin, payment of accounts, contract service, Misc. expense, Vehicle expense, equipment lease, mortgage principal and third party payable. All these expenses depend upon the terms of the payments and incur accordingly. For example salaries & benefits are same in every month except for July. This is because of the fact that most of the employees go on the vocation in June and therefore the Salaries of July are reduced. Overhead & admin payments are same in all the months amounting to $15,000 per month. 
The different lease and loan payments are also cash out flows of the firm which are expensed in the month of maturity. By aggregating the total outflow and inflow, the result is net cash flow of the company which is positive in few months and negative in others. The cash flows are positive in most of the period which shows that the operations of the company are very effective and the efficient use of resources is the strategy. 

2. Prepare pro forma financial statements for FY 2011. What do these tell you about the operations of MHHS? How can you reconcile the information in the cash flow worksheet with that in the financial statement?

Performa Income Statement 
 

 

$

 

 

Performa Financial Statement

 

FY 2010

%

FY2011

Gross Patient Revenue

 

838,524

 

810,000

Less: Contractual Allowance & Uncollectable Accounts

 

140,034

16.70%

135,270

 

 

 

 

               -  

Operating Expense

 

 

 

               -  

Salaries & Benefits

 

421,200

50.23%

406,872

Overhead & Admin

 

136,310

16.26%

131,673

Cost of Medical Supplies

 

34,471

4.11%

33,298

Contract Services

 

10,230

1.22%

9,882

Equipment Rental

 

19,650

2.34%

18,982

Depreciation

 

33,000

3.94%

31,877

Interest

 

14,935

1.78%

14,427

Other Expenses

 

14,332

1.71%

13,844

Total operating Expenses

 

684,128

 

660,856

 

 

 

 

 

Net Profit

 

14,362

 

13,873

Performa Balance Sheet
 

FY 2010

%

FY2011

 Cash 

         22,860

3.47%

     25,146.00

 Accounts Receivables

         68,100

10.35%

     74,910.00

 Inventory

         39,960

6.07%

     43,956.00

 Prepaid Expense

         41,585

6.32%

     45,743.50

 Total Current Assets

      172,505

26.21%

   189,755.50

 Property & Equipment

      468,946

71.26%

   515,840.60

 Other Assets

         16,650

2.53%

     18,315.00

 Total Assets

      658,101

 

         723,911

 

 

 

 

 Liabilities & Net Worth 

 

 

 

 Line of Credit

         65,400

9.94%

           71,940

 Accounts Payable

           2,925

0.44%

             3,218

 Salaries & Benefits Payable

         35,100

5.33%

           38,610

 Due to Third Party

         14,086

2.14%

           15,495

 Note Payable Current

         29,070

4.42%

           31,977

 Mortgage Current

         11,250

1.71%

           12,375

 Total Current Liabilities

      157,831

23.98%

         173,614

 

 

 

                    -  

 Mortgage Payable

      146,250

22.22%

         160,875

 Other Long Term Debt

      270,000

41.03%

         297,000

 Total Liabilities

      574,081

87.23%

         631,489

 Unrestricted Net Assets

         84,020

12.77%

           92,422

 Total Liabilities & Net Assets

      658,101

100.00%

         723,911

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