Over the last 4 weeks, we have reviewed foundational concepts related to business operations and accounting. You have learned inventory concepts and some basic terms, such as assets, liabilities, expenses, and revenues. In addition, you have learned the regulatory agencies’ expectations on auditing and reporting, including the benefits of internal and external controls to prevent financial fraud.
As a health care manager and part of the leadership team, your role is to continually assess the financial stability and long-term viability of the organization using the financial ratios and horizontal and vertical analysis. Whether assessing the financial health of an organization for investment purposes or for benchmarking an organization against another, it is important to understand the core concepts to conduct a rudimentary analysis. This process will also allow you to analyze consolidated financial statements to make business decisions in health care and practice your auditing skills.
Preparing for Assessment
You are a health care manager at a nursing home. You are looking to expand your business arrangements and your boss suggests Stanford Health as an option. She asks you to do an analysis on their financials for 2 years to determine if this relationship will be a good fit. There is a leadership meeting next month where you will share your findings on whether to pursue a relationship with Stanford Health.
Choose one of the Stanford audited financial statements.
Create a 10- to 15-slide auditing proposal presentation with your financial analysis and recommendations. Include speaker notes as if you were presenting this in person. Use the Excel template provided to track your calculation and add visuals to your presentation.
Include the following items in your auditing proposal:
Background & Operational Structure:
Describe the health care organization.
Include the history and purpose; identify the service or product they offer.
This information is typically found in the annual report.
Describe the company’s operational structure (e.g., sole-proprietorship, corporation, partnership).
Financial Analysis and Stability:
Explain the purpose of financial analysis.
Describe the 3 basic tools of financial analysis (vertical, horizontal, and financial ratios).
Explain the purpose of each tool.
Calculations & Interpretation:
Using the Excel template provided, calculate and explain what the results are saying about the company’s financial status for each type of analysis (one or more slides per analysis).
Horizontal Analysis (provide both the $ and % change)
Cash and cash equivalents
Vertical Analysis for the Current and Prior Year (using Net Patient Service Revenue as the base figure)
Salary and Benefits
Financial Ratios Analysis for Current and Prior Year
Current ratio (liquidity ratio)
Debt to assets ratio (solvency ratio)
Profit margin ratio (profitability ratio)
Recommendation For Leadership:
Would you recommend pursuing a relationship with Stanford Health based on its financial health?
Justify your recommendation.
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