Assignment Task New England Trust* Sandra Connor, Vice President of New England Trust’s Nonprofit Lending and Charities Department, found herself sifting through scores of résumés to hire an assistant manager. Facing a glut of mostly MBA applicants for the position, Ms. Connor devised a system to test the applicants’ understanding of the nonprofit sector, and their ability to analyze financial statements for lending and investment decisions. She gave each of the selected candidates for the position 90 minutes to complete the following exercise. Exhibit I contains summarized financial information for 10 local and regional organizations, representing a diverse range of the nonprofit sector. The exhibit includes both balance sheet and operating statement information as well as a set of common ratios. You may find that other ratios are useful, and, if so, you should calculate them. To report financial statements in a consistent manner, the following procedures were applied: Accounts receivable are shown net of bad debt allowances. Plant and equipment is shown net of depreciation. Operating income includes fees for service, investment income, and specific public funding for operations. All other sources of funding, such as public and private contributions and sales of assets, are classified as nonoperating gams. The organizations included on Exhibit 1 are the following: Boston Symphony Orchestra Brigham and Women’s Hospital Quincy City Hospital The Ford Foundation Family Service of Greater Boston Tufts Associated Health Maintenance Organization 00Harvard Community Health Plan, Inc., and Affiliates Museum of Fine Arts, Boston MassPort Authority Oxfam America, Inc. A brief description of each organization follows. Boston Symphony Orchestra (BSO) The BSO provides live musical performances to over one million admissions annually, and is heard by countless others through numerous radio broadcasts each year. BSO owns its performance facilities, which include Boston’s Sym- 1 phony Hall (much of which has been depreciated), and Tanglewood in Lenox, Massachusetts, where outdoor sum_mer events and other activities are hosted. Although ticket sales account for a large portion of total revenues, operating costs are subsidized by endowment and other investment earnings, foundation support, and annual public contributions. Brigham and Women’s Hospital (B&W) Brigham and Women’s is a 750-bed urban teaching hospital affiliated with Harvard University’s School of Medicine. Like most hospitals in the United Introduction States, the B&W attempts to at least break even from the fees it receives from operating activities. One of the challenges hospitals face is collecting unpaid bills, many of which get written off as bad debt. Furthermore, a certain portion of hospital services are delivered as “charitable care.” rlhe B&W owns all of its buildings and is currently rebuilding its labor and delivery ward, the largest of its kind in the Greater Boston Area. Quincy City Hospital Quincy City is a 302-bed municipal hospital serving a local community with a rapidly growing immigrant population. Although the hospital can break even from patient fees, a large portion of fees go unpaid as charitable services and bad debt. Quincy City owns its buildings and most of its fixed equipment. The hospital’s assets have been funded largely by long-term Series A Bonds issued by the City of Quincy, as well as by mortgage loans for both existing buildings and relatively large-scale construction in progress. The Ford Foundation Like any large charitable foundation, The Ford Foundation is in the business of granting proceeds from its large pool of investments to a wide range of solicitants. Ford’s operating income comes strictly from the interest and dividends from its investments. Capital appreciation of its investments is classified as an additional source of nonoperating income. Each year Ford grants millions of dollars to support all kinds of organizations around the world. Typical grants include community development, medical research, education, the arts, and many other charitable causes. Family Service of Greater Boston One of Boston’s largest community service providers, this association emphasizes the improvement of conditions affecting family life. Many of these services are reimbursed by federal and state government contracts. Last year, government contracts represented 35 percent of total funding support. Nearly the same amount of revenues are generated from client fees, which may take considerable time to collect. With large operating expenses, Family Service is very reliant on both outside support and returns generated by its investments. This past year it allocated significantly more to current operations than actual returns from investments. Outside support comes from a variety of sources, most notably, the United Way of Massachusetts.
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