Reference no: EM133517862
Case Study: 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, 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 your analysis as an attachment to the memo. In this memo, you will:
- 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.
- 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.
- 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.
- 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.
- 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.