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“left-hand side” of the balance sheet equal the “right-
hand side”, our independently determined estimate of
the fair market value of Sta-Home’s invested capital
(i.e., interest-bearing debt and equity, reduced by the
estimated working capital infusion) combined with
reported current liabilities, provides the total
“right-hand side” of the balance sheet.
The result is as follows:
Indicated MVIC $11,604,000
Less working capital infusion 2,020,000
Plus current liabilities 11,274,000
Indicated asset value 20,858,000
E. Our Valuation of the Sta-Home Tax-Exempt Entities
The traditional determinants of fair market value persist
even when valuing a nonprofit, tax-exempt company. There are
differences, however, in the amount of weight usually given to
the earnings and profits of regular business organizations and
those of tax-exempt entities. Earnings and profits are obviously
less meaningful in the case of nonprofit organizations. Here,
Medicare funded 95 percent of the Sta-Home tax-exempt entities’
operations. As applicable herein, the Medicare program was not
designed to produce corporate profits nor to contribute to the
capital growth of health care organizations. It was designed to
reimburse providers of home health care services for their costs,
including administrative salaries and overhead. The system
nevertheless permitted the operators of such agencies to generate
executive-level salaries and benefits for themselves. It also
permitted them to accumulate substantial assets in their
businesses without paying income taxes on any of their earnings.
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