Question

In: Finance

Using the information presented in the Financial Statements of United Health Care, a major HMO, compute...

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                                        ?              ?              .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

Solutions

Expert Solution

2017 2016
Liquidity
                Current                    current asset / current liabilities
2867121/2433996 1,908,215/664,302
1.18 2.872511298
                Days in Receivables        (total receivables/Total Sales)*365
(550313/5,670,878)*365 (167369/3,768,882)*365
35 16.20896727
Capital Structure
                Equity Financing %         shareholders equity/total assets
3688020/6,160,986 2795456/3,489,479
59.86087292 80.17241379
                Long Term Debt to Equity % Long Term Debt/Equity
38970/3,688,020 29721/2,795,456
1.030368764 1.037567084
                Times Interest Earned      (Earnings before tax+interest)/interest
460014+771/771 467944+2163/2163
597.6459144 217.3402681
Activity
                Total Asset Turnover       net sales/total assets
5670878/6,160,986 3768882/3,489,479
0.920454545 1.079965606
                Fixed Asset Turnover       net sales/total fixed assets
5670878/267,652 3768882/162,597
21.23595506 23.25925926
                Current Asset Turnover     net sales/total current assets
5670878/2,867,121 3768882/1,908,215
1.977677014 1.974842767
Profitability
                Total Margin %             net income/net sales
285964/5,670,878 1665214/3,768,882
5.026455026 44.18789809
                Return on Equity %         Net income/Shareholders fund
285964/3688020 1665214/2795456
8

60
Comments
* Company should increase its current ratio as it decreases interms of last year.
* Company should increase debt financing to take the advantage of leveraging.
* There was abnormal profit in 2016.
* Company should utilise its assets to the full capacity

jeff jeffy answered 2 years ago
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