Posted: April 24th, 2025

Strategic Financial Analysis

 

The purpose of this assignment is to familiarize you with financial statements, the need to align the financials and the strategic direction of the firm, and the process of performing horizontal and vertical analyses of a company’s balance sheets and income statements.

You will be provided with a scenario and a variances analysis. You will use the information in both to create a memo in which you demonstrate your audit financial statements and expenditures based on organizational priorities.

Instructions

Scenario

You’re a healthcare administration fellow at the prestigious Stanford Healthcare. You have been rotating through the various departments over the past nine months and now you have the honor of working under the mentorship of Chief Financial Officer Linda Hoff.

Stanford Medicine includes Stanford Healthcare, Stanford Children’s Hospital, and Lucile Packard Children’s Hospital Stanford. This organization uses an integrated approach to strategic planning, which incorporates jointly agreed-upon strategic priorities from its various entities. It also ensures a high degree of congruence in strategic focus by each entity.

Before outlining the strategic priorities for Stanford Medicine, it is important to note that a firm’s directional strategy comprises three discrete yet interwoven components: vision, mission, and goals (or, in this case, priorities). Armed with this knowledge, you have familiarized yourself with the vision, mission, and priorities of Stanford Medicine. Below is what you found.

When examining a company’s financials, it is prudent to keep the directional strategy of the company in mind. After all, in order to advance many strategic priorities, which include fulfilling the mission and positioning the organization to achieve its vision for the future, proper management of the firm’s scarce resources is vital. Failure to properly manage the financial performance of the organization can compromise the company’s ability to maintain a competitive advantage in the marketplace.

Our Vision

Precision Health: Predict. Prevent. Cure. Precisely.

We will heal humanity through science and compassion by leading the biomedical revolution in precision health.

Our Mission

Improving Human Health Through Discovery and Care.

Through innovative discovery and the translation of new knowledge, Stanford Medicine improves human health locally and globally. We serve our community by providing outstanding and compassionate care. We inspire and prepare the future leaders of science and medicine.

Strategic Priorities

A collaborative endeavor involving the entire community, the Stanford Medicine integrated strategic planning process yielded a framework that is human-centered and discovery-led, focused on three overarching priorities for our enterprise.

By enhancing our strengths and achieving our goals in these priority areas, we will amplify our preeminence and remain uniquely positioned to lead the biomedical revolution in precision health, ensuring our continued ability to guide healthcare through significant global changes.

Value Focused

Provide a highly personalized patient experience.

Ensure a seamless Stanford Medicine experience.

Digitally Driven

Amplify the impact of Stanford innovation globally.

Deliver human-centered, high-tech, high-touch care and revolutionize biomedical discovery.

Lead in population health and data science.

Uniquely Stanford

Accelerate discovery in and knowledge of human biology.

Discovered here, used everywhere: advanced fundamental human knowledge, translational medicine, and global health.

Ensure preeminence across all our mission areas.

Variance Analyses

Normally, managers are expected to examine positive and negative variances, and then speculate as to possible explanations for the observed variances. Following this initial assessment, managers would be expected to dig deeper into those variances of greatest concern to the organization to uncover the actual causes for the variances, and then implement necessary corrective actions. Digging into all variances would be costly and, quite frankly, a misuse of time and energy.

The CFO asked one of her financial analysts to conduct a variance analysis of the company’s consolidated balance sheets and income statements for fiscal years 2015, 2016, 2017, and 2018, which has been completed. The analyst determined the variances for each account (line item) captured in the financials. Now that this first step has been accomplished, the CFO would like you to pay particular attention to the negative variances contained in the spreadsheet and focus on those variances you believe to be potentially the most impactful to Stanford.

The financial analyst completed your variance analysis over time, which is referred to as a horizontal analysis, and then proceeded to create a common-size balance sheet and income statement for each of the four fiscal years (2015-2018). The common-sized financials are captured in the provided spreadsheet.

Financial Management and Strategic Direction

Once you’ve completed your horizontal and vertical analyses of the financial statements, you should be able to get a sense of how well management has managed the financial resources of the company in support of its strategic direction. In business, the strategic direction should be evident in its vision and mission statements, and strategic priorities. The strategic priorities should support the company’s mission, and the mission should help advance the firm’s vision for the future. Failure to effectively manage the company’s financial resources can seriously compromise the firm’s ability to fulfill its mission and, subsequently, its vision.

Submission

Based on the provided scenario, create a 3-4 page business memorandum to Linda Hoff, Stanford’s CFO. For guidance on writing a memo, take a look at this

Sample Memo [DOCX]

Download Sample Memo [DOCX]

.

In your memo, codify your findings and interpretations from the horizontal and vertical analyses and the level of alignment in the company’s fiscal management and strategic direction. Include the provided Excel spreadsheet you used to complete your analysis as an attachment to the memo. In this memo, you will:

1. Review the year-over-year variances contained in the audited Stanford balance sheets and income statements for fiscal years 2015-2018 in the  Week 5 Assignment Spreadsheet [XLSX] Download Week 5 Assignment Spreadsheet [XLSX]. You’ll be expected to pay particular attention to the negative variances (color-coded in red) that you believe to be potentially the most impactful to Stanford and provide a rationale for that belief.
2. Hypothesize as to the reasons for the negative variances. Be sure the hypothesis is supported by evidence from the scenario, the balance sheets, and income statements.
3. Explain the proportional changes in the common size results over the four fiscal year time frame and identify notable changes in the ratios. Also include a hypothesis, supported by a rationale, to suggest why these anomalies may exist.
4. Identify notable patterns and variances that warrant further investigation and justify both with evidence from the three-year period. Specify the potential consequences of the variances to justify the need to examine these variances further.
5. Assess whether the vision, mission, and goals of the organization are aligned with its current financial position and provide an explanation of why it does or does not align. Provides specifics from the variance analysis to support the assessment.

This course requires the use of Strayer Writing Standards (SWS). The library is your home for SWS assistance, including citations and formatting. Please refer to the

Library site

for all support. Check with your professor for any additional instructions.

The specific learning outcome associated with this assignment is:

• Audit financial statements and expenditures for alignment with organizational strategic priorities.

Balance Sheets

Years Ending August 31,

,

,

, and

Assets

1.8%

2%

2%

8.6%

receivables

1.1%

4%

0.9%
0.8%

24%

2%

0.7%

0.6%

8%

3%

1.8%

2.3%

1.1%
1.1%
0.0%
0.0%

9%

0.0%
0.9%

25%

-16%

1.8%

16%

8%

4%

100.0%
100.0%
100.0%

% of Change between 2018 & 2017
2018
% of Change between 2018 & 2017
2017
% of Change between 2018 & 2017
2016
2015
2018
2017
2016
2015

4.9%

-18%

8%

2.9%
4.1%
4.1%
3.7%

17%

1.4%
1.1%
1.1%
0.8%

0.5%

9%

0.2%
0.2%
0.2%
0.3%

-100%

ERROR:#DIV/0!

0.0%

0.0%
0.0%

0%

0%
228,200
0.0%
228,200
228,200
3.2%
3.7%

4.1%

20%

6%

0.8%
0.7%
0.8%
0.6%

1%

14%

7%

2.1%
2.2%

ERROR:#DIV/0!

ERROR:#DIV/0!

0.0%
0.0%

1.7%
0.5%
6.2%

-21%

0.8%
1.1%
0.9%

-3%

-1.3%

19.1%

19%

1%

14%

17%

46.1%

10%

0.3%
0.4%
0.3%
0.4%

14%

17%

45.1%

8%

5%

9.7%
10.0%

1%

3%

0.1%
0.1%
0.1%
0.1%

13%

15%

16%
7,214,849
8%
6,229,612
4.3%
5,757,337
5,517,879
100.0%
100.0%
100.0%
100.0%

																																																																																																																																																																																																																																																																																																																																																																																																																																																																																																																																																																																																																																																						Stanford Health Care Consolidated Statements of Operations and Changes in Net	Assets		2015		2016		2017		2018
Common Size Balance Sheets Years Ending August 31, 2015, 2016, 2017, and 2018
				% of Change between 2018 & 2017		2018 ($)		% of Change between 2017 & 2016		2017 ($)		% of Change between 2016 & 2015		2016 ($)		2015 ($)		2018 (%)		2017 (%)		2016 (%)		2015 (%)
Current assets:
Cash and cash equivalents	–						8%	652,256											3%	710,109	4				5%	690,460	475,677	9.																																	0%	1	1.			4%	12.0%		8.		6%
Short term investments	68%	391,314	1		25%	233,533										2%	103,627	101,677	5.4%			3.		7%				1.8%
Patient accounts receivable, net of allowance for doubtful accounts	623,077								9%	610,734	559,933	550,721	9.8%				9.7%	1															0.0%
	Other	1																1%	79,036	–	24%	71,112	23%	92,961	75,427							1.1%	1.6%		1.4%
Inventories	58,884				13%	56,559			16%	50,016	42,935						0.8%							0.9%
Prepaid expenses and other	52,886				17%	42,528	36,273	35,486				0.7%					0.6%
Total current assets	1,857,453		12%	1,724,575		20%	1,533,270	1,281,923	2	5.7%	2	7.7%	26.6%	2	3.2%
Investments	357%	509,781		-16%	111,664	132,273	127,860		7.1%			2.3%
Investments at equity	22%	80,989	66,255
Investments in company managed pools	1,400,839						-2%	1,287,193	-9%	1,316,489	1,440,352	19.4%	20.7%	2	2.9%	26.1%
Assets limited as to use, held by trustee		–			100%	–			75%	58,134	-59%	235,788	580,701				4.1%	1		0.5%
Property and equipment, net						14%	3,279,048		19%	2,869,346	2,401,880	1,923,465	45.4%		46.1%	4	1.7%	3	4.9%
Other assets	-23%	86,739		-18%	112,445	137,637	163,578	1.2%	2.4%	3.0%
Total assets		7,214,849		6,229,612		5,757,337		5,517,879									100.0%
Liabalities and net assets
Current liabilities:
Accounts payable and accrued liabilities	46%	449,192	-8%	307,899		19.1%	335,995	282,134		6.2%	5.8%	5.1%
Accrued salaries and related benefits	209,490	255,759	16.7%	236,819	202,859
Due to related parties	39%	98,942	71,429		41.5%	61,308	43,324
Third-party payor settlements	90%	34,474		-21%	18,149	154.5%	22,948	9,018				0.3%			0.4%					0.2%
Current portion of long-term debt	14,505							-3%	13,335		-1.3%	13,756	13,932
Revolving line of credit																																					ERROR:#DIV/0!	135,000		2.2%
Debt subject to short-term remarketing arrangements				228,200	4.0%
Self-insurance reserves and other	54,933	45,854	23.8%	43,232	34,918
Total current liabilities	1,089,736	1,075,625	15.7%	942,258	814,385	15.1%	1	7.3%	16.4%	14.8%
Self-insurance reserves and others, net of current portion	139,841									10%	130,816	-1.1%	118,994	120,364		1.9%		2.1%
Swap liability	–			26%	182,527	245,966	2.5%		3.9%
Other long-term liabilities	2	92%	122,944	-91%	31,363	51.4%	355,683	234,855			4.3%
Pension liability	-87%	6,650	51,745	27.8%	65,463	51,220								0.1%
Long-term debt, net of current portion	44%	1,711,967	1,189,529	1,220,789	1,237,347	23.7%	21.2%	22.4%
Total liabilities	3,253,665	2,725,044			10.0%	2,703,187	2,458,171		45.1%	43.7%	47.0%	44.5%
Net assets:
Unrestricted:
Stanford Health Care	3,285,398	2,871,113	-0.7%	2,449,037	2,467,393	45.5%	42.5%	44.7%
Nonconrolling interests	–					15%	18,727	22,060	–	12.4%	20,133	22,979
Total unrestricted	3,304,125	2,893,173	-0.9%	2,469,170	2,490,372	45.8%	46.4%	42.9%
Temporarily restricted	648,826	603,251	2.7%	577,086	561,642	9.0%	10.2%
Permanently restricted	8,233	8,144	2.6%	7,894	7,694
Total net assets	3,961,184	3,504,568			-0.2%	3,054,150	3,059,708	54.9%	56.3%	53.0%	55.5%
Total liabilities and net assets

Income Statements

% of Change between 2018 & 2017
2018 ($)
% of Change between 2017 & 2016
2017 ($)
% of Change between 2016 & 2015
2016 ($)
2015 ($)
2018 (%)
2017 (%)
2016 (%)
2015 (%)

10%

7%

14%

-2%
-3%
-4%

10%

9%

15%

95%
95%

15%

12%

15%

1.9%
2%
2%
2%

5%

5%

25%

3%
3%
3%

6%

0.1%
0%
0%
0%

10%

9%

15%

100.0%
100%
100%
100%

ERROR:#DIV/0!

ERROR:#DIV/0!

ERROR:#DIV/0!

ERROR:#DIV/0!

ERROR:#DIV/0!

ERROR:#DIV/0!

5.3%

45%
40%

7.7%

4.3%

0.9%
1%
1%
1%

9.7%

13%
13%
14%

7.1%

7.4%

26%
26%
26%

3.6%
3%
3%
3%

10.0%

0.7%
1%
1%
1%

Other

24.3%

-1.2%

9.7%
9%
9%
10%

7.3%

-3%
-3%
-3%

8.8%

95%

92%

5%
4%
8%

12.4%

0.6%
0%
0%
0%

ERROR:#DIV/0!

ERROR:#DIV/0!

0.1%
0%

2.3%
3%
1%
2%

ERROR:#DIV/0!

-3%
-2%

ERROR:#DIV/0!

ERROR:#DIV/0!

2%

ERROR:#DIV/0!

ERROR:#DIV/0!

-100.0%

ERROR:#DIV/0!

ERROR:#DIV/0!

-100.0%

3%

9.6%

2%
11%

ERROR:#DIV/0!

ERROR:#DIV/0!

ERROR:#DIV/0!

41.5%

-2.0%
-2%
-2%
-2%

ERROR:#DIV/0!

-100.0%

0.0%

-0%
1%

0.2%
0%
0%
-0%

ERROR:#DIV/0!

ERROR:#DIV/0!

ERROR:#DIV/0!

309.00

0.0%
0%
0%
0%

0.6%
0%
-0%

)

)

0%
-0%
-0%

10%
-1%
9%

ERROR:#DIV/0!

ERROR:#DIV/0!

ERROR:#DIV/0!

3.9%

0.0%
0%
0%
0%

and other

37.8%

0.9%
1%
1%
1%

Contribution income from Stanford Health Care-ValleyCare affiliation

ERROR:#DIV/0!

ERROR:#DIV/0!

-100.0%

62.00

0%

0.0%
0%
0%
0%

0.1%
0%
0%
0%

Net assets released from restrictions used for:

ERROR:#DIV/0!

ERROR:#DIV/0!

ERROR:#DIV/0!

5.7%

-0%
-0%
-0%

Purchase of property and equipment

-76.6%

35.7%

-57.5%

-0.0%
-0%
-0%
-0%

0.9%
1%
0%
1%

ERROR:#DIV/0!

ERROR:#DIV/0!

ERROR:#DIV/0!

Contributions

200.00
2.00
0.0%
0%
0%
0%

-64.4%
89.00
25.0%
250.00
9900.0%
200.00
2.00
0.0%
0%
0%
0%

1.4%

10%
-0%
10%

-0.2%

13.9%

75%
75%

13.0%

14.7%
3,504,568.00
-0.2%
3,054,150.00
3,059,708.00

75%

Stanford Health Care Consolidated Statements of Operations and Changes in Net Assets Years Ending August 31, 2015, 2016, 2017, and 2018
Common Size Income Statements Years Ending August 31, 2015, 2016, 2017, and 2018
Operating revenues:
Net patient service revenue	4,735,366.00	4,311,530.00	4,019,285.00	3,525,014.00	96.4%	97%	98%	99%
Provision for doubtful accounts	-25%	(57,437.00)	-39%	(77,004.00)		-4%	(126,280.00)	(131,601.00)		-1.2%
Net patient service revenue less provision for doubtful accounts	4,677,929.00	4,234,526.00	3,893,005.00	3,393,413.00	9	5.3%				95%
Premium revenue	92,654.00	80,647.00	72,29		2.00	62,893.00
Other revenue	135,597.00	129,324.00	122,996.00	98,718.00	2.8%
Net assets released from restrictions used for operations	-56%	4,366.00	9,904.00	–	40%	9,372.00	15,663.00
Total operating revenues	4,910,546.00	4,454,401.00	4,097,665.00	3,570,687.00
Operating expenses:
Salaries and benefits	2,091,260.00		7.4%	1,986,360.00	2	9.6%	1,850,124.00	1,428,100.00	42.6%		45%
Professioanl services	46,146.00	-14.0%	42,851.00	49,846.00	47,801.00
Supplies		13.9%	667,379.00	10.3%	586,056.00	531,130.00	484,036.00	1	3.6%
Purchased services	1,216,992.00	1,136,020.00	15.9%	1,058,182.00	912,886.00	24.8%
Depreciation and amortization	14.3%	176,742.00	13.4%	154,686.00		24.3%	136,442.00	109,735.00
Interest	-1	8.8%	35,434.00	43,643.00		-2.0%	39,661.00	40,485.00
477,661.00	384,354.00	8.3%	389,199.00	359,368.00
Expense recoveries from related parties	(121,727.00)	8.1%	(113,451.00)	12.1%	(104,965.00)	(93,640.00)	-2.5%
Total operating expenses	4,589,887.00	6.9%	4,220,519.00	20.1%	3,949,619.00	3,288,771.00	93.5%	96%
Income from operations	37.1%	320,659.00	58.0%	233,882.00	-47.5%	148,046.00	281,916.00	6.5%
Interest and investment income	103.1%	31,122.00	15,325.00	–	13.0%	13,635.00	15,680.00
Earnings on equity method investments		37.8%	7,048.00	5,114.00
Increase in value of company managed pools	-23.4%	110,984.00	498.9%	144,829.00	-55.5%	24,181.00	54,	309.00
Interest rate swaps mark to market adjustments					-100.0%	95.2%	(115,958.00)	(59,392.00)
Swap interest and change in value of swap agreements	-43.7%	48,043.00	85,368.00	1.0%
Loss on extinguishment of debt	(47,613.00)	(35.00)	-1.0%													-0%
	Contribution income from Stanford Health Care-ValleyCare affiliation	96,758.00
Excess of revenues over expenses	-2.9%	470,243.00	593.1%	484,518.00	-82.0%	69,904.00	389,236.00		11%
Other change in unrestricted net assets:
Tranfer to Stanford University, net	(98,183.00)	-22.0%	(69,376.00)	33.8%	(88,944.00)	(66,477.00)
Transfer (to) from Lucile Salter Packard Children’s Hospital	2,068.00	-112.4%	(3,300.00)	26,600.00
Change in net unrealized gains on investments	792.1%	9,438.00	-15.0%	1,058.00	-150.9%	1,245.00	(2,445.00)
	Net assets released from restrictions used for:
	Purchase of property and equipment		-76.6%		35.7%	1,320.00		-57.5%	973.00	2,288.00
Change in pension and postretirement liability	357.4%	28,277.00	-7827.5%	6,182.00	-99.6%	(80.00)	(19,461.00)		-1%
Noncontrolling capital distribution, net	-498.7%	(1,		200.00	-130.1%	301.00	1512.9%	(1,000.00)	(	62.00		-0.0%
(Decrease) increase in unrestricted net assets	-3.1%	410,952.00	-2099.8%	424,003.00	-106.4%	(21,202.00)	329,679.00	8.4%
Changes in temporary restricted net assets:
Transfer from Stanford University	-20.8%	2,177.00	2,748.00	-34.9%	2,645.00	4,062.00
	Contributions	57.3%	44,894.00	28,541.00	-60.4%	20,717.00	52,333.00
Investment income	-84.7%	712.00	526.6%	4,662.00	-55.4%	744.00	1,667.00
Gains on company managed pools	71.6%	2,467.00	-14.6%	1,438.00	-33.7%	1,683.00	2,537.00
Operations	-55.9%	(4,366.00)	(9,904.00)	-40.2%	(9,372.00)	(15,663.00)	-0.1%
(309.00)	(1,320.00)	(973.00)	(2,288.00)
Increase in temporary restricted net assets	74.2%	45,575.00	69.4%	26,165.00	-63.8%	15,444.00	42,710.00
Changes in permanently restricted net assets:
	-64.4%		89.00		25.0%		250.00		9900.0%
Increase in permanently restricted net assets
(Decrease) increase in net assets	456,616.00	-8204.0%	450,418.00	-101.5%	(5,558.00)	372,391.00	9.3%
Net assets, beginning of year		14.7%		3,504,568.00		3,054,150.00		3,059,708.00	2,687,317.00	71.4%	69%
Net assets, end of year	3,961,184.00	80.7%	79%	86%