1.**Pro Forma in excel attachment.

MMHS is a successful home health service company which has expanded constantly over the intervening 20 years, with further patient growth forecasted in 2012. The home healthcare business is seasonal with 66% of the entire annual sales occurring in the late Fall and Winter months. The evolving expansion of the agency and seasonality of the business makes cash management challenging for Ms. Ringer and has landed her in the predicament of requiring a loan to pay salaries. Aligning operating expenses to revenue, improving management of operating costs and decreasing the amount of cash in accounts receivable will improve her immediate cash flow crisis. For details see prior question.

2. To have access to the equity line of credit, the bank required the agency to maintain a cash balance of $20,000 at all times and the liquidation of the loan in its entirety for at least 1 month/year. The cash flow worksheet for the operations of MHHS reveal that the agency meets the requirements set forth by the bank. July is the loan free month due to Ms. Ringer liquidating the loan in June. This is as a result of decreased labor costs in the summer months because of staff vacations and part time salaries that are not paid. Her cash inflows exceed her expenses from January to June, which correlates with peak patient volumes. It appears she requires the line of credit to cover staff salaries and overhead during her quieter summer months. In addition the debt ratio has been steadily increasing since2008 while liquidity ratios have been decreasing putting MHHS at risk. When you review the amount of money in accounts receivable it appears she is borrowing money to pay salaries, as she is not collecting the money owed the agency, in a timely manner, and is cash strapped.

The reconciliation of the information on the Cash Flow Worksheet with the