Memorandum

To: Linda Hoff, CEO
From: Healthcare Administrator
Subject: Findings and Interpretation of the Financial Statement for Stanford Health Care
Date: February 1, 2022
I am writing to inform you about the observation I have made from the analysis of
Stanford Health Care’s fiscal documents. Two well-known methods have been used in the
analysis: horizontal and vertical. Some of the documents that have been reviewed include the
income statement and the balance sheet. The outcomes have proven to be effective and efficient
in determining the variance in the production line. Both the positive and negative aspects have
been put into consideration. More so, the analysis has led to a much better understanding of the
correlation between the financial management of a firm and the strategic decision incorporated in
each action. Through a vertical and horizontal evaluation, I will highlight my observation of the
variance, especially the negative ones. In addition, I will explain the relationship between the
organization management and the strategic financial decision that have to be considered both in
the short and long run.
Horizontal and Vertical Analysis
Sales and operating costs are the most impacted components in the income statement for
a horizontal analysis. A look at the income statement for Stanford Healthcare, there has been a
constant increase in the operating cost for a duration lasting four years. The pace of increase in
the past four years has equally risen. However, there is no crucial consideration since the
operating costs are still rising when the growth level is optimal. But there is a need to carry out
an in-depth evaluation for the cause of the rise in operating costs. More so, an analysis should be

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done on whether or not the cause connects to the organization. The income statement indicates
that professional line service is the main contributing factor to increasing operating costs (Berry,
Betterton, and Karagiannidis, 2014). In addition, the organization’s services for experts reflect as
an epitome of the strategic goals and mission of the organization. There has been an increase in
the number of professional services for four years except in 2017, a 14% decline. The effects of
the decline are also being reflected on the sale, which only increased by 9% from the previous
financial year. It is the lowest increase in sales that has been experienced in the four years
duration.
On the other hand, there has been an increase in the workers’ wages during the same
period by 7.4%. If a comparison was made of the same line item in 2018, there has been an
improvement. There has been an increase in the professional services by 7.7% while the values
of the wages and salaries move up by 5.3%, which is much smaller compared to the previous
years.
In addition, there has been an increase in sales by 10% during the same fiscal year, and
the value is much higher compared to that of the previous years. The main argument that needs
to be discussed is the increasing professional services instead of the salaries and wages for the
company. A critical action that the management can take is to increase the cost of medical
services as a strategic goal. In the process, the outcomes will be more value-focused, with an
increase in personalized patient services (Riahi and Khoufi, 2016). A horizontal review of the
income statement depicts the effect put in place by the organization in addressing the issue. The
outcomes are making it possible to align the goals and objectives that have been set for
accomplishment both at the moment and in the future.

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A look at the operating income in the standard size income statement shows the highest
revenue being in 2015, after which there is a decline in 2016. Currently, the health care
organization is in the process of recovery until 2018. The weak financial results for 2016 are due
to an increase in wages and benefits ratio. It will be able to boost its operation by decreasing the
percentage covered by salaries and wages. A positive outcome will be achieved if there is an
increase in the recovery rate from the relevant parties up to 2018. Another step has been to
decrease the need for doubtful accounts both vertically and horizontally (Riahi and Khoufi,
2016). But the pools operated by the organization have followed a pattern where there is an
increase and decrease in value which resonates with the economic trend. In the balance sheet, the
most notable change is the increasing long-term debt for the 2018 financial period. The effect is
being depicted in both the horizontal and horizontal analysis. There is a steep increase of 44%
and 23.47% in the total liabilities and assets. The figures are much higher in 2016 and 2017. An
explanation to support the occurrence is the focus that the health care facility is putting on
medical research and investment in the same duration. More so, the growth might be due to an
increase in the value of accounts payable and the various distinct long-term liabilities.
Financial Management and Strategic Decisions
There have been crucial variances in both the vertical and horizontal analysis. The
outcomes assist with decision-making about dedicating the company towards its strategic goals
and schedule. The milestones that are set to be achieved the reasons for an organization’s level of
performance. Also, a company needs to have enough financial control to achieve the set aims.
On the other hand, economic management is a representation of the approaches that a firm uses
to achieve its goals. The two components go hand in hand with each other. It will not be
appropriate to conclude the financial review of Stanford Healthcare analysis that the organization

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is making any progress. That is because the financial outcomes of the facility are solid. The sales
are equally rising at a much faster rate than the operating cost, which is a good indication that the
company’s interest is in line with the set goals and objectives (Madsen and Stenheim, 2015).
Equally, there is an increase in the assets, primarily in the property and equipment section.
However, that has not been the case over the years. The expenditures have equally boosted
higher level indicating the dedication that Stanford Health care gas towards the discovery of
technology that will make their operations smoother. Even though the change is slower, more
technological investments are expected to increase the growth rate in the future. Investing more
in the sector will positively impact the future of modern medicine. Other than just increasing the
sales and making more profits, it will be possible to effectively and efficiently meet the
consumers’ demand by satisfying their utility level. The only way of achieving the mission will
be for the management to take full advantage and control over their fiscal performance. Lastly,
the focus should be on short-term changes and aim towards long-term solutions and
improvements.

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References

Berry, S., Betterton, C., & Karagiannidis, L. (2014). Understanding Weighted Average Cost of
Capital: A Pedogeological Application. Journal of Financial Education, 11-32.
Madsen, D. & Stenheim, T. (2015). The Balanced Scorecard: A review of five research area.
American Journal of Management 15(2), 24-41.
Riahi, O., & Khoufi, W. (2016). Effects of Fair Market Value on Company’s Reputation.
International Journal of Accounting and Economics Study, 4(1), 36.