Reasons for Variances
The financial statements of Stanford Health Care for the period between 2015 and 2018 present both positive and negative variances, as discussed below. There are negative variances in both the income and balance sheet statements which raise a red flag over the strategic management of the organization. Based on the balance analysis, the total assets of the organization grew significantly for the four years covered. It grew from 4% in 2016 to 16% in 2018, which shows strength in the organizations financial position. However, there are some negative variances in some elements of the organizational assets which raise concerns over the future financial position of the organization.
For instance, the cash of the organization dropped for the three years considered. It had a positive change in 2016 where it rose by 45% but decreased to 3% in 2017. However, it went to negative 8% in 2018 when compared to 2017. The current fall in cash and cash equivalent of the organization indicate a fall in liquidity which may affect its ability to pay near debts. A worrying trend is also witnessed in the organizations other assets. Based on the analysis, other assets fell from negative 16% in 2016 to a negative 23% in 2018. This is an implication that the organizations are not adding other assets in its operation. Continuous fall in the future would reduce the overall assets of the organization hence the risk of bankruptcy.
Furthermore, there is a worrying trend of Stanford’s rising liabilities overtime. The total liabilities of the organization rose from 10% in 2016 to 19% in 2018. Possibly, this may have happened due to the expansion of the organizational operations since 2015. The significant growth indicates that the company is increasing its debt at a faster rate which may create a challenge when it comes to repayment. However, the total assets of the business rose at a higher rate compared to the liabilities. The assets grew by 4% in 2016, 8% in 2017, and 16% in 2018. The rising trend in total assets of the organization shows that the organization is solvent hence has not exposed to the risk of bankruptcy.
There was significant growth in the organization’s current liabilities. The rising trend in the current organizational liabilities may have occurred due to increased need for cash to finance short term business operations of the organization. The analysis shows that the current liabilities of the business grew at a slow rate. The biggest change was witnessed in 2016, where they grew by 15.7%, followed by 2017, where they grew by 14%. However, growth slowed to 1% in 2018. The good news for the organization is that the current assets grew at a higher rate than the liabilities. This indicates that the organization has enough cash to pay for the near obligations.
On the other hand, the income statement analysis shows a growing trend of the organizations operating revenues. Based on the excel analysis, the operating revenues received a tremendous growth of 15% in 2016 from 2015. The growth slowed to 9% in 2017 but rose again by 10% in 2018. Generally, there is a significant growth of the organization’s revenues for the four years considered. This is a positive note that may signify profit growth. Besides, the operating expenses of the business have been increasing since 2015. The biggest growth was witnessed in 2016, where the expenses grew by 20.1%. However, the growth dropped to 6.9% in 2017 and rose by 8.8% in 2018.
The growth in Stanford’s operating revenues may be due to the expansion of its activities. Besides, it may also have occurred due to increased promotion of its products and services. Above all, the proper utilization of the current assets may also lead to a growth in the revenues. Although the rise in operating expenses may be a red flag, it is normal for it to rise at those levels when the revenues are growing. The operating revenue grew faster than the expenses. Therefore, Stanford is profitable irrespective of the rising expenses. The management should control the rising expenses by improving efficiency in managing the operations.
The net income Stanford Heath Care organization drop in 2018 by 2.9%. In 2016, the net income of the business fell by 82%. However, it increased by 593.1% in 2017 before dropping by 2.9%. Despite the fall in 2018, the organization is still profitable. However, there is a concern with increased expenses of the organization. This may signify weakness in the efficiency of the management. There is a great need to focus on shaping the unnecessary expenses that affect the profitability of the organizations. The drop is not significant; hence it may not signify a failure in the future if action is taken to reduce the expenses. Finally, there is a growth in the net assets of the organization since 2015. The assets grew from negative 0.2 in 2016 to 14.7% in 2017 but fell to 13% in 2018. The increasing trend shows that Stanford Health Care has continued to invest more to assets. Besides, the growth signifies that the organization is solvent hence not at risk of bankruptcy. It can use its assets to pay its debts without any difficult hence it has a foreseeable future.
Judgment
Based on both vertical and horizontal analysis of Stanford’s Health Care financial statements, it is clear that the organization is in a strong financial position. Besides, the increasing revenues of the business suggests that the management has taken various promotional initiatives to make the products and services of the organization more attractive. Additionally, the organization generates profit from its operations since 2016. This implies the organization operates within its vision and mission. It offers precision health and yet it is making profits from its operations.
Notably, the rising operating expenses and current liabilities of the organizations shows its commitment to meeting the healthcare needs of its patients. It is difficult for a health organization to deliver quality health care when its expenses and liabilities are decreasing. Growth in both expenses and debts signifying continuous expansion of services to align with its values, mission, and vision. Moreover, the analysis has an increase in the net assets of the organization. The growth in the net assets of the organizations shows that continuous investment in operations that focus on promoting patient care. Besides, it also reveals that the organization is solvent hence has a foreseeable future. However, there is a great need for the management to control the rising operating expenses and current liabilities to avoid exposure to the risk of bankruptcy.