Menotomy Home Health Services Harvard Case Solution & Analysis

Menotomy Home Health Services Case Solution

Introduction:

Menotomy Home Health Service is a private nonprofit organization. Established in 1982, each of its founders has more than 30 years experience in treating unhealthy and disable patients. The nurses stated their agency to treat the patients because they knew the patients did not need any hospitalization and started to provide services in their homes. The demand for home health services increased. Therefore, they decided to employ more founders as the social worker and volunteers. Then in 2011, the office decided to increase its space due to the increase in demand and to change the objective and organizational structure. Because of this, the demand is increasing at a steady rate of 10% every year.

MHHS has increased its staff by 30% and decided to take a loan from the Norten Municipal Bank in order to finance its operations. Ms. Ringer discussed with the board members to increase the services and to collect the funds for additional revenue for the new staff. She believes without this, MHHS cannot have required cash at the end of the month to pay salaries. Therefore, she requested for loan and Norten Bank demanded to see the financial position and performance of the next fiscal year 2011.

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

The cash flow shows the cash inflows and outflows at the end of each month. Ms. Ringer wants to measure the operations of each month in order to fulfill the bank’s requirement, so that they issue them the loan of $ 200,000. Moreover, the bank is demanding the line of credit that is $ 65,400. The MHHS measured the operations for the fiscal year of 2011 from October to September, as shown in Exhibit 3 that show the receivables' amount and revenue generated from a net patient at $ 810,000; this amount increased by 16% as compared to previously due to an increase in demand. MHHS decided to increase its employees in order to serve more patients, which cost salaries and benefits of $ 483,750, overhead expenses of $ 180,000, and increased the cost of everything due to the increase in its operations.

The cash flows measures the set of operations for each month in the fiscal year 2011. Cash flow is the best indicator for every financial analyst or any bank that provides a clear picture of business operations. The cash flow show cash generation as inflow of cash and cash paid off as outflow of cash in payment of leases, miscellaneous expenses, administration expenses, and loan etc. The operations of MHHS show that the company is generating enough cash for preceding the office place and increase its employees by looking at the increase in demands.

 2.      Prepare pro forma financial statements for FY2011. What do these tell you about the operations of MHHS?

The Pro-forma income statement is calculated by estimating the gross patient revenue by MHHS that is $987000, which resulted in a gross profit of $ 814,419.

The proforma balance sheet shows the position of the company, which shows assets, cash, liabilities, and capital of the business with the detail of company’s income and expenditure. The balance sheet of the company is calculated by taking the average percentages of the vertical analysis and used in forecasting the balance sheet...............

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