|Perfect Number of Pages to Order||5-10 Pages|
Fiscal Management Memorandum, Horizontal and Vertical Analysis
Read the situation below, then write a 34 page business message to Stanford’s CFO, Linda Hoff.
Codify your findings and conclusions from the horizontal and vertical studies, as well as the company’s fiscal management and strategic orientation, in your memo. Attach an Excel spreadsheet to the memo as an attachment. Examine the year-over-year differences in the audited Stanford balance sheets and income statements for fiscal years 201518 in the Week 5 Assignment Spreadsheet [XLSX] in this document. You’ll be expected to pay special attention to the unfavorable deviations (highlighted in red) that you feel will have the greatest impact on Stanford.
Consider the possible causes of the negative variances.
Examine the standard balance sheets and income statements for abnormally low or high ratios based on what you know about the line item and what you see in the data from previous fiscal years.
Over a three-year period, look for patterns in the line items and note any remarkable discoveries that should be investigated further.
Examine how well the organization’s financial management aligns with the company’s strategic goals. Your horizontal and vertical analyses are used to manage your finances. The strategic direction is determined by Stanford’s vision, mission, and strategic priorities.
The goal of this assignment is to familiarize you with financial statements, the importance of aligning financial statements with the firm’s strategic direction, and the method of completing horizontal and vertical assessments of a company’s balance sheets and income statements.
You work at Stanford Healthcare as a healthcare administration fellow. You’ve spent the last nine months cycling across several departments, and now you have the privilege of working under the tutelage of Chief Financial Officer Linda Hoff.
Stanford Healthcare, Stanford Children’s Hospital, and Stanford Lucile Packard Children’s Hospital are all part of Stanford Medicine. This company takes a holistic approach to strategic planning, incorporating collaboratively agreed-upon strategic priorities from all of its divisions. It also ensures that each entity’s strategic focus is aligned to a great degree. Before going over Stanford Medicine’s strategic priorities, it’s vital to remember that a company’s directional strategy is made up of three distinct but intertwined components: vision, mission, and goals (or, in this case, priorities). You are now familiar with Stanford Medicine’s vision, goal, and priorities as a result of this understanding. Here’s what you discovered. When looking at a company’s financials, it’s important to keep the company’s long-term strategy in mind. After all, proper management of the firm’s few resources is critical in order to progress several strategic initiatives, such as fulfilling the mission and positioning the business to realize its long-term vision. Failure to effectively manage a company’s financial performance can jeopardize its capacity to sustain a competitive advantage in the marketplace.
Precision Health: Precisely predict, prevent, and cure.
By leading the biomedical revolution in precision medicine, we will heal humanity through science and compassion.
Through discovery and care, we are improving human health.
Stanford Medicine advances human health locally and worldwide through innovative discovery and knowledge translation. We give back to the community by offering exceptional and compassionate care. We motivate and educate the next generation of scientists and physicians.
Priorities for Strategic Planning
The Stanford Medicine integrated strategic planning process, a collaborative effort engaging the entire community, resulting in a framework that is human-centered and discovery-driven, with three overarching priorities for our organization.
We will magnify our preeminence and stay uniquely positioned to lead the biomedical revolution in precision health by increasing our strengths and fulfilling our goals in these core areas, assuring our sustained capacity to guide health care through significant global developments.
Ensure that the patient’s experience is highly tailored.
Ensure that your time at Stanford Medicine is as seamless as possible.
Increase the worldwide effect of Stanford innovation.
Deliver human-centered, high-tech, high-touch care while transforming biomedical research.
In the fields of population health and data science, you’ll be a leader.
Stanford is one of a kind.
Increase the speed with which human biology is discovered and understood.
Advance fundamental human understanding, translational medicine, and global health, as discovered here and used elsewhere.
Ensure leadership in all of our mission areas.
ANALYZES OF VARIANCE
Managers are typically expected to analyze positive and negative variances before speculating on possible causes for the observed differences. Managers would be expected to look deeper into the variations that are most concerning to the organization after this first assessment to determine the underlying causes of the discrepancies and then take the necessary corrective steps. Investigating all of the differences would be expensive and, quite frankly, a waste of time and energy. The CFO has requested that you do a variance analysis of the company’s consolidated balance sheets and income statements for fiscal years 2015, 2016, 2017, and 2018, which you have already started. You’ve calculated the variances for each account (line item) in the financial statements. Now that you’ve completed the first stage, the CFO would like you to pay special attention to the negative deviations in the spreadsheet, focusing on the ones you believe would have the greatest impact on Stanford.
After you’ve performed your horizontal variation analysis over time, you’ll be able to produce a similar size balance sheet and income statement for each of the four fiscal years (201518). You created the standard financials, which you saved in a spreadsheet. It’s now time to do vertical and horizontal evaluations on these financials of comparable size. The common size balance sheet allows you to see each asset in relation to total assets, as well as each liability and net asset in relation to total liabilities and net assets (in the case of nonprofit organizations). Each line item on a standard income statement is expressed as a proportion of total revenue or sales. The use of standard sizing for balance sheets and income statements helps businesses to compare themselves to one another, even if they are of various sizes. It also enables a company to compare its financial performance to that of comparable companies. There is no comparable data to compare against in this case; nevertheless, you can review the ratios in each fiscal year and see if anything appears to be excessively low or high based on what you know about the line item and what you see in the data from previous fiscal years (vertical analysis). You can also search for trends in the line items across the four fiscal years and highlight any noteworthy discoveries that should be investigated further (horizontal analysis). In finance, an organization’s intermediate goals and targets for certain financial line items are sometimes established. The company can compare its actual performance to the set goals and objectives.
STRATEGIC DIRECTION AND FINANCIAL MANAGEMENT
You should be able to gain a sense of how well management has handled the company’s financial resources in support of its strategic direction once you’ve done your horizontal and vertical evaluations of the financial statements. The strategic orientation of a company should be clear in its vision and mission statements, as well as its strategic priorities. The company’s mission should be supported by strategic priorities, and the mission should help develop the company’s long-term vision. Failure to efficiently manage the company’s financial resources might jeopardize the company’s capacity to achieve its purpose and, as a result, its vision.
TO THE CFO: BUSINESS MEMORANDUM
Write a business memorandum to the CFO based on your investigation of Stanford Healthcare and the trends you discovered.
Codify your results and interpretations in your note, and examine the organization’s fiscal management’s alignment with the firm’s strategic direction. In an Excel spreadsheet, attach your analysis to the memo. Any input you received from your professor and/or peers should be factored into your research and discovered trends.
Negative variance isn’t always a bad thing, so keep that in mind. For example, you might observe a minor increase in operating costs; however, if you were able to accomplish a positive variance in total operating revenue that outpaced the increase in operating costs, that might be considered a positive outcome. Remember that you must spend money in order to make money. We just want to ensure that operational expenses do not outstrip operating revenue growth. Also, keep in mind that some deviations can be used to explain other variations, even if they are from separate financial accounts. For example, you might notice an increase in operating expenditures, which is a negative variance, but a positive variance in current assets. You should also search for patterns over time. This can disclose both positive and negative tendencies, which can help you understand the differences you found. For example, you may have noted that a particular expense has grown steadily over the last three years (negative variance), but the pace of growth year-to-year has been decreasing. It’s possible that Stanford has put in place certain cost-cutting initiatives that are producing results.
Strayer Writing Standards are required for this course. Please see the Strayer Writing Standards link on the left for help and information.
Fiscal Management Memorandum, Horizontal and Vertical Analysis