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Menotomy Community Hospital (B)
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 late November 2003, Stephen Holmes, M.D., President of Menotomy Community Hospital (MCH), was in a quandary. He had prepared a loan request for the Norten Municipal Bank, and had been granted a line of credit of $2 million. Although his pro-forma financial statements looked good, Dr. Holmes was now concerned that MCH might not have the needed cash during the year.

    Faced with this unexpected turn of events, Dr. Holmes had returned to the Norten Municipal Bank to discuss the situation with George Watson, the bank officer who had granted MCH its line of credit. Mr. Watson agreed that Dr. Holmes had not adequately anticipated the hospital's cash needs. He asked Dr. Holmes to present the bank with a detailed monthly statement of MCH’s projected cash needs for fiscal year 2004. Consequently, Dr. Holmes began to review the hospital's financial statements (contained in Exhibits 1 and 2) and collect data that would help him plan for MCH’s future cash requirements.

BACKGROUND

    Menotomy Hospital was a small private hospital founded in 1985 by four retired physicians. Each founder had between 10 and 35 years of experience working with elderly patients. Realizing that a majority of their patients would not need to travel long distances for hospital care if Norten had a hospital, the physicians had obtained $2.7 million in contributed capital from several investors, and had started their own hospital. Further details on the background of MCH are contained in Menotomy Community Hospital (A). . . .

Assignment

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

2.     What is the cause of MCH’s cash flow problems? What solutions are available to Dr. Holmes? What recommendations would you make to him?