Financial Reporting and Analysis on United Healthcare Group - Assignment Example

Running Head: Financial Reporting and Analysis on United Healthcare Group FINANCIAL REPORTING AND ANALYSIS ON UNITED HEALTHCARE GROUP Inserts His/her Name University Name EXECUTIVE SUMMARY The key components which have been critically discussed and highlighted under the paper, primarily pertains to operability characteristics of UnitedHealth Group. A comprehensive overview of the company is provided and discussed under the body of paper, under which some core capabilities and products and services range of a company is thoroughly highlighted. In addition, some dynamic and outstanding achievements which have been earned by the Company over its learning curve and developing phase since its inception, have also been pointed out under the paper. Moreover, a strong analysis of SWOT approach have been performed on the various internal and external dynamics and key drivers of Company to highlights its current performance and probable future position. Further, a brief content pertaining to the values, a company forwards towards its key personnel have been incorporated under the paper, along with various societal expectations & corporate cultural aspects, the entity is strictly following as its regular ethical, corporate responsibility and business conduct circle. Finally, a paper is concluded with a formal and analytic discussion over the comparative accounting performance of a company over various years of its operations, along with a brief and sustainable highlight of company’s current accounting policies incorporated under its financial statements. COMPANY OVERVIEW AND BACKGROUND UnitedHealth Group, a parent company of United Healthcare, is considered as one of the diversified and enormous company, in health care and health protection industry. The Company is situated in USA, and is currently regarded as a worldwide leader in providing various health facilitations services and plans to needful peoples, and thus, enabling them to live more healthier lives, and in addition, it also aims for the development and improvement of overall health structure and system that works more efficiently for every deserving individuals1. As the company mission statement says, helping people live healthier lives. The Group headquarter is situated in Minnetonka at Minnesota in the region of USA. It is also ranked at 14th place on Fortune magazines, under the area of top 500 companies operating in United States on current basis. Moreover, UnitedHealth Group offers a wide spectrum of health related products and services to its customer, scattered all over different states of USA, through its two distinct functional business sectors, which includes United Healthcare and Optum2; United Healthcare is an operating segment of the group which offers various health care plans and coverage, including related beneficial and ancillary services to its specific and generic class of customers. Optum, on the other hand, provides services and coverage pertaining to technology-enabled and information healthcare. With its discrete dynamics including the presence of high value and innovative subsidiaries, associated companies and varied departments all over the group, UnitedHealth Group is successfully serving and fulfilling the various health related needs of its customers, which approximately range over 70 million peoples in the region of USA. A group was created and established in 1977, as a United HealthCare Corporation, but founds the symptoms of its origin to a company, which it acquired in 1977. However, a Company genuinely introduced its first network based health plan encompassing the needs of senior citizens in 1979, and it became a public listed company in 1984. Till now a group has sustainably maintained its overall financial reputation and social standing among the entire nation and internationally as well, by claiming many acknowledgements and leadership awards in business by many organizational and regulatory setup of states. Likewise, in 2011, United Healthcare was presented with the highest employer satisfaction rating award for self-insured health plans by J.D. Power and Associates3. Also, in 2011, United Healthcare received with high degree of marks from the American Medical Association (AMA) in the Company’s 2011 National Health Insurance Report Card. And in the period of 2010, in one of the publications by insurance industry i.e. in magazine of Business Insurance, the United Healthcare was named as the "Readers Last Choice" achiever and winner for the development and successfully implementation of "Best health plan provider"4. Therefore, over the years United Health group has significantly climbs its vertical pathways on the ladder of success and growth, in order to provide its customers and other stakeholders with the best value of services and product satisfaction solutions. SWOT Analysis An analysis and evaluation performed on the basis of SWOT technique is regarded as one of the most efficient and coherent analysis, which can be implemented on any Company’s internal and external framework of operations and functionalities. A SWOT is primarily a structured and proactive strategic maneuver, which facilitates the assessor to analyze the key and probable strengths, weaknesses, opportunities and threats for any enterprise, whether a small companies or High profile companies. Hence in overall SWOT analysis, Strengths of a business highlights an attributes that provides a significant edge to the firm as compare to their competitors. Weaknesses characteristic identification, places the Company at a comparative disadvantage over other business setups. Opportunities are those virtues that put the Company in a situation, which could help it exploiting an advantage in their favor. Lastly, threats are those factors and drivers which could put an organization to substantial level of trouble and problems at present scale or future periods to come. However, different components of SWOT analysis have been incorporated over the operational framework of United Health Group in the following paragraphs; Strengths UnitedHealth is currently regarded as the market leader, i.e. constituting the major portion of market share in the healthcare plans sector, which is clearly represented as one of major strengths of the group. Thus, an introduction of an innovative or new healthcare plans or schemes pertaining to address specific health related needs and issues, could dilute the effects of its competitors on a high scale and hence, the overall position of group could further be stabilized. Further, currently a company is enjoying a high market capitalization rate and value in the healthcare industry, which is highly attracted by local and foreign investors of the Company and thus, enables the company to be in a far better position of bargain with its suppliers and creditors related to several business matters. Moreover, a company is continuously enjoying the position of introducing various innovative products and services to its broad customer base over its period of operations, which is considered as one of its major strength and plus point as well. As, other companies in similar industry, does not enjoying such capabilities in their research and development divisions, thus, they do not possess similar position as that of UnitedHealth Group. Moreover, a company enormous strength surpass around its regular derivation of product development plans, informational techniques, funding attributes and various specialized products maintenance, along with its continual adaption of diversified and adjusting needs of the market in particular. However, another important facet of UnitedHealth group lies within its strong base of ever increasing customer network, for instance, a Company directly served about 48 million customers in 2002, giving an annual growth of 5.5% in 2001-20025. Weaknesses UnitedHealth group is highly and directly affected with overall economic and regulatory factors that transforms in the region of US market. Most of the company revenues are earned from these regions and thus, any policies development and regulatory intervention by government related to healthcare investments and product, directly impacts the well-being of the company, both in short term and long term as well. Furthermore, with an expansion of its production and operating plans from several past years, the company has negatively faced some huge increase in its operational and administration cost, giving a downturn to the group on some reasonable extent. Opportunities The group is successfully following the policies of business acquisitions and mergers since its origin, which is dynamically facilitating the company in enhancing its overall market share and putting its competitors to a strong test. As a result, company aims and achieves to earn higher revenues and constantly modifying its product and services portfolio as well. Moreover, a group’s managed by a competent group of fund managers, who smartly and sensibly invest all of its revenue funds into useful and high earning investment platforms, giving considerable scale of cash inflows to the company on a regular basis. Furthermore, a company is just a minor scale player in some sectors despite of its huge operational size, for instance, in the sector of healthcare insurance, the company is only serving 7% percent of customer and thus, by taking various effective measures a company can also enhance its operational channels into those new and dynamic platforms as well. Threats Healthcare industry in US is such that it currently has a lot of potential and growth span under different channels of healthcare products and services, thus, greater possibilities of increased scale of competition under this sector is expected to be faced by UnitedHealth group, which can substantially affect the overall financial standing and revenue earning capabilities of the Company. In addition, a healthcare industry is constantly under the close supervision of various regulatory and statuary components of governments, and hence, changes in any policies and regulations pertaining to healthcare sector could directly hamper or impact the overall standing of Company in near future6. VALUES OF KEY PERSONNEL UnitedHealth group is among those companies who specifically conduct regular checks and evaluation over the various working methodologies to which its employees are connected to and the overall physical working environments and conditions to which they are exposed to. Similarly, a company is continuously striving and endeavoring to provide best of working environments to its comprehensive force of employees, irrespective of their working designation and job responsibilities. The higher management of company is strictly following the company’s designed policies and standards in this regard, on rational basis to ensure that each of its employees gets a healthy working condition, where they are completely secured, nourished and protected. Moreover, a company is also regularly involved in conducting and organizing various training sessions and seminars for its employees in order to keep them aware about work safety environment. To that end, company’s Code of Conduct is a document designed by the management of UnitedHealth group, which completely informs its employees and other stakeholders, with regard to its legal requirements, working standards and other ethical business conduct7. SOCIETAL EXPECTATIONS & CORPORATE CULTURE Involvement in diversified social corporate activities and meeting the expectations of a people living in a society, are among one of the consistent annual targets of the companies. During the year 2013, more than 1300 employees of UnitedHealth group directly helped and facilitated around 250 non profitable organizations in 25 different countries, which is truly a hallmark for the company in itself. Among many social projects of UnitedHealth, Project Sunshine is a considerable one which coordinates and supports the activities and volunteer events, in order to benefits various children’s and families living with challenging medical conditions. Since 2010, approximately 13,200 employees of a company have volunteered themselves in order to perform and conduct different activities in the Project Sunshine. Some highlights of Company in current year social corporate activities have been depicted below8; Completed 45 distinct volunteer projects in 27 cities and 15 states across US Engaged and involved more than 1,800 volunteers from different backgrounds and associations to conduct the activities of these projects and programs Above all, Company recorded more than 6,500 employee volunteer hours, among its own workforce. Thus, UnitedHealth Group is continuously involved in wide range of social activities and programs for the betterment of society and the peoples of it, which ranges the areas related to education, sports development programs, medical awareness programs, illiteracy removal projects and many others. ANALYSIS OF COMPANY’S ACCOUNTING CHOICES During the year ended December 31, 2013, UnitedHealth Group has significantly displayed the improvement in its operating performance as compare to its past years of operations, as witnessed from its latest financial statements, attached as appendix in the paper. The Company has earned gross revenue of $ 122,489m in 2013 as compared to $ 110,618m and $ 101,862m in 2012 and 2011 respectively. This result depicts that the company has strongly witnessed a growth of approximately 11% in its overall earning capabilities as compare to previous year. Furthermore, in current year, the total operating cost of Company is significantly increased by 11.5% on approximate basis, thus, reducing the overall impact of increased revenues by sufficient margins. This high operating cost pertains to the uneven rise in the medical cost of amounting to $ 89,290m in 2013, representing an increase of 11% as compared to previous years medical cost. The main reasons behind such an uneven rise in medical cost, pertains to the huge inflationary effects on medical items and equipment’s acquired or compensated by the company to its customers. Moreover, the earning of company before taking the effects of taxation accounts to $ 8,915m in 2013, relative to $ 8,622m and 7,959m in 2012 and 2011 respectively. This increase in earnings is representing by only 4% in current year, which is due to some adverse effects accruing towards the organization from components of its operating cost, for e.g. medical cost in particular. Finally, after taking the effects of taxation, per share earnings of United Health in 2013 is represented by $ 5.59, as compare to $ 5.38 and $ 4.81 in 2012 and 2011 respectively. SUMMARY OF ACCOUNTING POLICIES UnitedHealth is involved in recording, measuring and recognizing its different set of assets, liabilities, expenses, incomes and equity instruments under its financial statements bases on different accounting policies. Hence, the summarized form of company’s accounting policies pertaining to its major financial statement line items is discussed as under; Premium revenue of a company is recognized in the period in which eligible individuals are entitled to get their respective healthcare benefits. Healthcare revenues are recorded as unearned revenue until it is properly unearned by the happening of desired or anticipated events. Other sources of revenue are recorded in the period of receipts and on accrual basis. Medical cost incurred and medical cost payable in this behalf is recorded on the basis of actuarial process of a company. Cash and Cash Equivalent is recognized on their fair values which normally approximates to their carrying values. Receivables of company are recorded on their fair value of consideration receivable determined at the time of the actual transaction. Property, Plant and Equipment of UnitedHealth Group is recognized at cost less accumulated depreciation and accumulated amortization, if any. Goodwill is valued at its fair value determined at each of the year end of a Company, after incorporating the instances of impairment, if any, in it. Intangible assets of company are recognized after giving due margins of impairments over their costs. Shared based compensation expense is recognized by the company management on a straight line basis over their related service period. ACCOUNTING ADJUSTMENTS The primary reason to discuss this matter under separate section is to highlight any key and significant accounting adjustments which must be incorporated into the financial statements of United Healthcare Group that has come to our knowledge and belief during the evaluation of the company’s financial information. But after thorough analysis and review have been performed over its financial statements, it has been suggested that overall data and financial information presented into these financial statements are true and complete and in addition, consistently and accurately reporting and reflecting the genuine financial health of United Healthcare group9. Further, there were no any doubtful and questionable facts, figures and practices were witnessed that would consequently cause any one to believe that the company’s financial staff or management was aiming to misrepresents its financial numbers and data. All of the accounting policies and regulations of the group has been consistently applied over its comprehensive financial framework, and any changes in those policies have been duly accounted for by the company’s management. Therefore, on the basis of above findings, no accounting adjustments have been identified over the financial statements of United Healthcare group. References: Freeswotanalysis.com,. (2010). UnitedHealth Group SWOT Analysis | Free SWOT Analysis. Retrieved 31 August 2014, from http://www.freeswotanalysis.com/swot-analysis-of-banking-sector/49-unitedhealth-group-swot-analysis.html Group, U. (2014). UnitedHealth Group - Corporate Governance. Unitedhealthgroup.com. Retrieved 31 August 2014, from http://www.unitedhealthgroup.com/About/CorporateGovernance.aspx Home.businessinsurance.com,. (2014). Business Insurance names 2010 Readers Choice Awards winners. Retrieved 31 August 2014, from https://home.businessinsurance.com/clickshare/authenticateUserSubscription.do?CSProduct=bi-reg metered&CSAuthReq=1:473547644480436:AID:9CD202ED0842DEB140FD6A905FB83DF8&AID=/20101103/news/101109957&title=%3Ci%3EBusiness%20Insurance%3C%2Fi%3E%20names%202010%20Readers%20Choice%20Awards%20winners&CSTargetURL=http://www.businessinsurance.com/article/20101103/news/101109957# Mbaskool.com,. (2014). United Health Group | SWOT Analysis | BrandGuide | MBA Skool-Study.Learn.Share.. Retrieved 31 August 2014, from http://www.mbaskool.com/brandguide/pharmaceuticals-and-healthcare/5688-united-health-group.html Palepu, K., Healy, P., & Peek, E. (2010). Business analysis and valuation (1st ed.). Andover: South-Western, Cengage Learning Robertson, K. (2014). J. D. Power: Employers give high marks for Kaiser, UnitedHealthcare - Sacramento Business Journal. Sacramento Business Journal. Retrieved 31 August 2014, from http://www.bizjournals.com/sacramento/news/2011/07/14/j-d-power-employers-kaiser.html Uhc.com,. (2014). UnitedHealthcare makes the health care experience better for everyone involved. Retrieved 31 August 2014, from http://www.uhc.com/about_us.htm APPENDIX: Annual Report of UnitedHealth Group for the year ended December 31, 2013 I attached separately with the paper. Financial Valuation on United Healthcare Group. Read More