When measuring business performance, it is critical to carry out a strategic analysis of its operations and compare the same with similar companies or industrial average. This analysis intends to determine the financial health of United Health Group by comparing and contrasting its performance with its competitor Target Corporation using financial data from 2017 and 2018. Specifically, ratios are calculated using 2017 financial data.
Comparing Business Operations
The corporation has three main retail divisions; Target stores, Melvyn’s, and Mashall fields. Furthermore, it has distinguished its self from other competitors by offering upscale fashion and products at reasonable prices (Chen et al., 2018) . Target Corporation is followed by the United Health Group which has a total of 230,000 employees. The company was started by Richard T Burke in the year 1977; it is the largest healthcare company offering healthcare products and insurance services. TGT Company Financials (2018) claims that the corporation is dedicated to helping people live healthier lives through its diversified family of business, enabling technology, healthcare information, and intelligence, clinical care management, as well as coordination, to meet the demand of health systems .
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Comparing Cash Flow Statement
Both the cash flow statements of the United Health Group and that of Target Corporation indicated an increase in the cash flows from the operating activities of 2016 to 2017. The cash flow provides the capital position of the company. It is one thing the investors look at as it shows the net change in money at hand for a company compared to the previous period as at 2017 the company had $13.32 million from its operations. The financial activates indicate the flow of capital between United Health Group owners and the creditors. The operating activity liquid flow includes transactions, adjustments, and changes in value that are not defined as investing. This allowed the organization to rear capital and repay bondholders while comparing it with Target Corporation who had $ 2.64 billion at hand for its operational activities which gained the company 6.92 billion. There were $-3.72 billion between the company owners and creditors.
Comparing Income Statement
According to the United Health Group Incorporated, (2017), the company’s revenue covers its premiums product and service. In the year 2017, the company obtained an income of $ 201.2 billion from $ 184.8 billion in the year 2016 which was an increment of 9 percent . Target Corporation does not have any material debt, no material contract assets, as well as contract liabilities. The company’s revenue and operating earnings have amplified as each segment reported indicate an increase in income as a result of growth fostered by care delivery, behavioral services, health financial services and growth in revenue management services.
The core similarity between the two companies is that their cash flows for the year 2017 increased significantly as compared to the previous year. In the case of the United Health Group, the rise in cash flow was driven by the increased earned revenues and higher net earnings, which also resulted from the effect of the health insurance industry tax as well as the great discounts offered too many ACA compliant products. Other changes increased customer funds. According to Target Reports First Quarter (2018). However, in Target Corporation, the operating cash flow provided by continuing operations increased from $ 5,329 to $ 6,849 in the 2017 financial year. Cash equivalents were held by entities located outside the United States. The company’s investment policy is designed to preserve the principal and liquidity of the short-term savings and allows investment in large money market funds.
The current receivables from Target Corporation come from vendor income which is earned but not yet received. The debtors are calculated based on the agreement in place and the company performance at the time it is accepted. As at 2017, the vendor income receivable was $385 million, and that of the United Health Group comes from pharmacy care services and business agreements with pharmaceutical manufacturers, some of which provide rebates based on the utility of the manufacturer’s products by the company’s clients. In 2017, the receivable consolidated in the balance sheet amounted to $ 4.0 billion, which indicate that the two companies are progressing well.
Long-term solvency ratios like the debt ratio of United Health Group is relatively high. In the 2017 first quarter, the company had assumed a debt of $ 926 million. Particularly, the organization’s long-term debt obligation was $ 607 million and $ 209 million which were classified as current debt. Whereas, in Target Corporation the debt ratio dropped from $ 12,749 million in the year 2016 to $ 11,587 million in 2017. The deficit was inclusive of the long-term debt and current portion.
According to Target Corporation (2018), market risk entails how capital investments are made. If Target Corporation’s remodeling of existing stores through the development of new ones, as well as improving technology and chain supply infrastructures does not achieve appropriate returns, the company’s competitive position and financial condition may be adversely affected. In order for Target Corporation to attain profits, the business depends on the managers’ ability to make the right decisions. While this is the case for Target Corporation, the United Health group makes use of its market exposure by diversifying investments across different fixed income market sectors. The unrealized gains or losses on investments are reported in comprehensive income ( Luo et al., 2015) . The 2017 financial report shows the impact of hypothetical changes in market interest rate across the entire yield curve by 1 percent point or 2 percent point.
Comparing and Contrasting Financial Ratios
Financial ratios can measure the financial health of a company. These ratios include profitability ratios, liquidity, debt ratios, and efficiency ratios. The calculations and explanation of the ratios are shown in appendix 1.
Liquidity ratios
| Liquidity ratios | United health | Target Corporation |
| Current ratio | 1.5 | 3.4 |
| Quick | 0.1 | 2.5 |
| Cash | 0.1 | 1.2 |
Liquidity ratios measure the ability of a firm to meet short-term maturing obligations when they fall due. As a rule, the higher the liquidity ratios, the better the performance of a firm. Therefore, using this notion, it is clear that Target Corporation has a better financial health than United Health. Target Corporation has a current ratio of 3.4, quick ratios of 2.5, and cash ratio of 1.2 compared to United Health with a current ratio of 1.5, a quick ratio of 0.1 and cash ratio of 0.1. Overall, Target Corporation has a sound liquidity ratio compared United Health. This can also be interpreted that Target Corporation will meet all its short-term maturing obligations effectively.
Long-term Solvency Ratios
| Solvency ratio | United health | Target Corporation |
| Debt ratio | 1.8 | 0.2 |
| Debt to equity | 87.03% | 54.61% |
According to the solvency ratios in the table above, United Health has a debt ratio of 1.8 while Target Corporation has 0.2. As a rule, a debt ratio above 0.5 is considered risky while below is termed as stable. Therefore, it is correct to conclude that United Health is a risky business with a poor financial health while target corporate is financially healthy. A high debt ratio increases the chances of a business going into liquidation if it cannot meet its short and long-term maturing obligations. Overall, United Health is a risky business with poor financial health while Target Corporation has maintained a sound financial health. Nonetheless, it is correct to conclude that both companies have a high debt to equity ratio above 50%. This means that both companies are utilizing more debt to finance their asset compared to shareholders funds.
Efficiency Ratios
| Efficiency | United health | Target Corporation |
| Inventory turnover | 0.6 | 0.2 |
| Receivable turnover | 1.6 | 5 |
Inventory turnover ratio shows the number of days a company takes to convert stock into sales. A shorter inventory turnover is preferred because it means the business is converting its stock more efficiently into sales. Target Corporation is more efficient in term of converting its sales into sales at 0.2 days compared to 0.6 days of United Health. The receivable turnover shows that United Health is correcting money from credit sales by 1.6 days compared to the target corporation with 5 days. United health takes fewer days to correct money from its credit sales which means that it is more efficient compared Target Corporation.
Profitability Ratios
| Profitability ratios | United health | Target Corporation |
| Profit margin | 5% | 3% |
| Return on asset | 8% | 7% |
| Return on equity | 22% | 24% |
According to the profit margin ratio, United Health has outperformed Target Corporation as shown in the table above. United health has a profit margin of 5% compared to the target corporation margin of 3%. However, both companies are operating below the industrial profit margin benchmark of 5.3%. United health has continued to outperform Target Corporation on return on asset ratio. However, Target Corporation has a higher return on equity of 24% compared to 22% of United Health. Overall, both companies are operating below the industrial average.
In summary, the financial health of a company can be measured by analyzing the liquidity and debt ratio. According to the balance sheet, Target Corporation has a high current asset compared to current liability compared to United Health. Moreover, Target Corporation has high current, quickly and cash ratios. This is an indicator the business is more financially healthy. The debt ratios also prove that Target Corporation has low debt hence low financial risk. Overall, Target Corporation has a better financial health position compared to United Health Inc.
References
Chen, C. W., Collins, D. W., Kravet, T. D., & Mergenthaler, R. D. (2018). Financial statement comparability and the efficiency of acquisition decisions. Contemporary Accounting Research , 35 (1), 164-202.
Luo, X., Wang, H., Raithel, S., & Zheng, Q. (2015). Corporate social performance, analyst stock recommendations, and firm future returns. Strategic Management Journal , 36 (1), 123- 136.
Target Corporation (TGT), (2018). Retrieved from https://finance.yahoo.com/quote/TGT/financials?ltr=1
Target Reports First Quarter (2018). Earnings and Affirms Full-year Guidance . Retrieved from https://corporate.target.com/press/releases/2018/05/target-reports-first-quarter-2018- earnings-and-aff
TGT Company Financials, (2018). Retrieved from https://www.nasdaq.com/symbol/tgt/financials?query=income-statement
United Health Group Incorporated, (2017). Retrieved from https://finance.yahoo.com/quote/UNH/financials?ltr=1
United Health Group Inc., (2018). Annual Financials for United Health Group Inc . Retrieved from https://www.marketwatch.com/investing/stock/unh/financials
United Health Group Inc. (2018). Income statements . Retrieved from https://www.reuters.com/finance/stocks/income-statement/UNH.N
Appendix 1
The following is a summary of the various ratios for the two companies;
Liquidity ratios United Health group Target Corporation
Current ratio = Current assets 137,157 = 1.5 38,999 = 3.4
Current liabilities 91,495 11,587
Quick ratio = Current assets – inventory 13,715 – 2,289 = 0.1 38,999 -11,709 = 2.4
Current liabilities 91495 11,587
Cash ratio = Cash 9,968 = 0.1 14,248 = 1.2
Current liabilities 91,495 11,587
Debt ratios
Debt ratio = Total debt 25,772 = 1.8 11,587 = 0.2
Total assets 13, 7157 38,999
Debt to equity = total debt/total equity 82621/1000 87.03% 27305/500 54.61%
Efficiency ratio
Inventory turnover = Cost of goods sold 16,142 = 0.6 3,528 = 0.2
Inventory 28,444 22,152
Receivables turnover = Sales 48,723 = 1.6 71,879 = 5.0
Accounts receivable 30,896 14248
Profitability ratios
Profit Margin = Net income adopted as calculated 10823/201159 5% 2669/69495 3%
Sales
Return on Assets = Net Income 10823 =8% 2,669 = 7%
Total Assets 139058 37431
Return on Equity = Net Income 10823 = 22% 2,669 = 24%
Total equity 47776 10953
