Menotomy Home Health Services Case Solution

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 Balance Sheet