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Mangpu Central Hospital (A)
Author(s):
Young, David W.
Functional Area(s):
   Finance/Financial Management
   Financial Accounting
Setting(s):
   Healthcare Management
Difficulty Level: Beginner
Pages: 4
Teaching Note: Available. 
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First Page and the Assignment Questions:

In November 2003, Zhigang Deng, M.D., President of Mangpu Central Hospital (MCH), was preparing a request to the Xian National Bank for an increase in the hospital’s line of credit. Less than eight months earlier, MCH had expanded its staff by 30 percent. At that time, the hospital had been in a secure financial position and Dr. Zhigang, anticipating no financial problems, had spoken to the hospital’s board of directors in favor of the staff increase. However, in July 2003, Dr. Zhigang realized that although MCH had begun training and paying the new staff in June, the hospital would not receive the additional revenue until later in the year.

Faced with this unexpected shortfall, Dr. Zhigang had gone to the bank in July to apply for an increase in the hospital’s short-term line of credit. Guofu Li, the bank officer, had granted MCH the increase, and the line of credit had reached over ¥15 million by September 30, 2004. Although Mr. Guofu had allowed the hospital to continue using its line of credit into its next fiscal year (1), he had called Dr. Zhigang in October 2003 with some important considerations.

He explained that the bank was concerned that Dr. Zhigang had not adequately assessed the hospital's financial future. He asked Dr. Zhigang to provide the bank with a set of pro-forma (i.e., forecasted) financial statements for FY2004, and to specify how large a line of credit the hospital would need. Consequently, Dr. Zhigang had begun to collect data that would help him make the forecasts.

BACKGROUND

Mangpu Central Hospital was a small hospital located in Beijing, China, that had been growing steadily in patient volume. During the 1990s, MCH underwent a large expansion, with the growth continuing into the new millennium. Dr. Zhigang and his management team estimated that inpatient revenue would grow by about 15 to 20 percent a year during the next several years.

Demand for MCH’s inpatient medical services, like that for many other hospitals, was somewhat seasonal. Almost 70 percent of the hospital's inpatient activity took place during the six months between October and March, in conjunction with the flu season and with various injuries, especially accidents between bicycles and automobiles, resulting from slippery winter roads and somewhat the perilous Beijing driving conditions.

Although demand for the hospital's services was seasonal, MCH’s salaries and benefits were expected to be relatively steady throughout the year. MCH had a firm policy of regular employment for both full and part-time employees which, according to Dr. Zhigang, enabled the hospital to maintain a highly skilled and committed staff. MCH’s management team also believed that its employment policy contributed significantly to the hospital's reputation for quality health care. . . .

Assignment

  1. Prepare a pro forma income statement and balance sheet for the coming year. Your “plug figure” for the line of credit should be ¥26,986.
  2. What do these statements tell you about the operations of MCH?

(1) Mangpu’s fiscal year ended on September 30 of each year.