Question

Using the information presented in the Financial Statements of United Health Care, a major HMO, compute financial ratios for 1994 and 1995 and discuss some of the primary observations that you would conclude regarding the financial performance of the firm. Provide an overall evaluation of the financial position of this company.

United Healthcare Financial Ratios

                                                                        Health Plan Median                   2017     2016     2015    

Liquidity

            Current                                                  1.32                              1.18      2.87      .93

            Days in Receivables                                 22.5                             ?          ?          19.8     

            Days Cash on Hand                                 89.9                              ?          ?          53.6

Capital Structure

            Equity Financing %                                 48.9                              ?          ?          60.7%

            Long Term Debt to Equity %                    13.0                              ?          ?          3.67%

            Cash Flow to Total Debt %                      15.0                              ?          ?          37.7%

            Times Interest Earned                               13.1                              ?          ?          109.5

Activity

            Total Asset Turnover                               1.55                              ?          ?          1.74

            Fixed Asset Turnover                               16.8                              ?          ?          24.6

            Current Asset Turnover                            2.88                              ?          ?          5.07

Profitability

            Total Margin %                                      3.6                                ?          ?          6.81

            Return on Equity %                                 11.6                              ?          ?          19.6

Income Statement (000$)

Fiscal Year Ending                                              12/31/17                        12/31/16                        12/31/15

Net sales                                                            5,670,878          3,768,882          3,115,202

Cost of goods                                                     3,930,933          2,643,107          2,236,588

Gross profit                                                        1,739,945          1,125,775          878,614

Selling, general and administration                         1,030,906          555,649           491,635

Income before depreciation and                               709,039           570,126           386,979

amortization

Depreciation and amortization                                94,458             64,079               50,628

Nonoperating income                                           -153,796                       -35,940                  122

Interest expense                                                           771                           2,163                           3,046

Income before taxes                                              460,014             467,944             333,427

Provision for income tax                                       170,205             177,822             119,379

Minority interest                                                     3,845                            1,983                            1,970

Net income before extraordinaries                            285,964             288,139             212,078

Extraordinary items and discounted

Operations                                                          NA                   1,377,075          NA      

Net income                                                         285,964             1,665,214          212,078

United Healthcare Corporation Balance Sheet (Data in Thousands)

Fiscal Year Ending                                  12/31/17            12/31/16                        12/31/15

Assets

Cash                                                     940,110             1,519,049          228,260

Marketable securities                                863,815             135,287                        172,610

Receivables                                            550,313            167,369             169,075

Other current assets                                  512,883           86,510              44,023

Total current assets                                  2,867,121          1,908,215          613,968

Prop. Plant, Equipment                            417,166             273,431             215,628

Less Accumulated Depreciation                  149,514             110,834             88,886

Net Prop and Equipment                           267,652             162,597             126,742

Investment in Subsidiaries                                    1,274,470          1,115,054          768,563

Intangibles                                             1,751,743          303,613 278,081

Total assets                                            6,160,986          3,489,479          1,787,354

Liabilities

Accounts payable                                     1,236,217          470,591             535,863

Accrued expenses                         566,770           122,993            52,027

Other current liabilities                           631,009            70,718           70,844

Total current liabilities                             2,433,996          664,302             658,734

Noncurrent capital leases                           38,970             29,721           39,099

Total Liabilities                                      2,472,966          694,023                       697,833

Preferred stock                                         500,000             NA                      NA

Common stock net                                      1,752                        1,728                1,691

Capital surplus                                        822,429             752,472             659,359

Retained earnings                                                2,358,640         2,085,056          424,468

Other equities                                              5,199                       -43,800             -108

Shareholders equity                                  3,688,020          2,795,456          1,085,410

Total liability and net worth                      6,160,986          3,489,479          1,783,243

Answer 1

Financial Position –

Liquidity –

The current ratio of the company is above 1 so it will be able to pay its short-term obligations.

The days in receivables are increasing over the years therefore quality of credit sales is decreasing.

Capital structure –

The equity is constant over the span of three years but we can see that long term D/E has decreased to 0.011 which means the company has paid its long-term debt which is a good sign for the company as it has reduced its debt burden.

As the company’s debt burden has reduced so the interest has also decreased therefore, the company can easily pay its interest expenses which is also reflected in times interest earned ratio.

Activity Ratio –

As the total asset turnover and fixed asset turnover is decreasing over the years which shows that the company is using its assets less efficiently over the years.

Profitability Ratio –

As we can see, net sales has nearly doubled over the last 2 years but the net income has increased negligibly this is mainly due to increase in operating expenses i.e. it increased at a faster rate than that of net sales. Also company is bearing losses at non operating ends.

Financial Position –

Liquidity –

The current ratio of the company is above 1 so it will be able to pay its short-term obligations.

The days in receivables are increasing over the years therefore quality of credit sales is decreasing.

Capital structure –

The equity is constant over the span of three years but we can see that long term D/E has decreased to 0.011 which means the company has paid its long-term debt which is a good sign for the company as it has reduced its debt burden.

As the company’s debt burden has reduced so the interest has also decreased therefore, the company can easily pay its interest expenses which is also reflected in times interest earned ratio.

Activity Ratio –

As the total asset turnover and fixed asset turnover is decreasing over the years which shows that the company is using its assets less efficiently over the years.

Profitability Ratio –

As we can see, net sales has nearly doubled over the last 2 years but the net income has increased negligibly this is mainly due to increase in operating expenses i.e. it increased at a faster rate than that of net sales. Also company is bearing losses at non operating ends.