Black-hawk Urology Harvard Case Solution & Analysis

Black-hawk Urology Case Solution

Question 1

In order to calculate the cash flows, the income statement has been projected for a period of three years from 2015 to 2017. The sales are expected to grow by 20% (as mentionedin case) and the practice is not able to grow its sales beyond 20%, so the sales are assumed to be constant on wards. All of the expense items are taken as a percentage of sales, on the basis of percentages in the fiscal year 2014. The expenses are subtracted from revenues, which resulted in profits of $898.6 in 2015, $878.6 in 2016 and $853.6 in 2017.

The capital expenditures related to the equipment were $150,000, and the working capital is calculated by taking the average of the percentage change in working capital, in terms of sales during 2013 and 2014. The change in working capital and capital expenditures are subtracted from the profits, which has resulted in the cash flows of $511.192 in 2015, $641.176 in 2016 and $616.1557 in 2017. The doctors’ aim was to have a salary of $37500,with an inclusion of an additional salary expense of the physician assistants, i.e. $120,000. However, the cash flows are declining as the result of stagnant sales and an increasing operating costs. The doctors would not meet the objective of getting personal salaries alongside the cost of PA.

Question 2

A scenario analysis has been performed, whereby the best and the worst scenarios are analysed. In the best scenario; the projected sales (as given in question 1) are increased by 10%, and the overall expenses are decreased by 10%. On the other side, the projected sales are decreased by 10% and the projected expenses are increased by 10% in the worst case.

Best Case

The best case shows a strong positive impact on profitability and cash flows as, the cash flows generated by the practice are quite higher as compared to cash flows in the normal case (See Question 1).

Worst Case

The worst case scenario shows that the decrease in sales and the increase in expenses by 10% will reduce the company’s profitability.In fact, it can be seen that the company is generating very low cash flows as compared to the normal scenario in the question 1........................

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