Corporate finance
Juan Navarro
Financial Analysis of Humana, Inc. 2
Humana INC is one of the largest companies that offer health insurance products in the
United States. The organization provides various products such as; individual and group health
insurance plans, Medicare and Medicaid supplement plans, and workers' compensation plans
among others. As of 2014, it had over 13 million customers in the USA, with approximately
16500 employees. Throughout the years the insurance company has been in the forefront to
ensure various individuals and organizations get the best out of their health care investment.
Recently there has been a rise in the number of people willing to take medical insurance
covers. As a result, medical insurance companies have tripled (Investing in Health, 2012).
Additionally, state regulatory bodies have also enforced new laws to protect citizens. Individuals,
however, should be vigilant in choosing a suitable medical insurance company. Health Care,
2012). They can achieve this by analyzing the insurance companies’ previous financial
performance.
A financial analysis is, therefore, necessary to help an insurer make the best
investment decision. The following report contains a five-year economic trend analysis of
Humana Health Care from the years 2007 to 2011. Analysis methods include:
balance sheets
profitability analysis including total profit margin, asset turnover, return on assets
liquidity analysis including current ratio, days cash on hand and working capital
analysis
solvency analysis including debt ratio and times interest earned ratio analysis
According to Humana's balance sheet from the year, 2013 to the year 2018, the corporation is
consistently profitable. However, the profit decreases in the years 2015 and 2017. The company
also shows growth through increases in operating revenues due to increased member enrollment
Humana’s profit margin shows $0.03 kept for each dollar of revenue which is
The asset turnover also shows $1.46 of sales is generated from each dollar of
asset. This is practically equal to the 2018 industry average of $1.45 (CNN
Money, 2009).
Return on assets generates $0.06 for each dollar of assets. This is $0.02 more
Return on stockholder equity shows $0.12 profit for each dollar of stockholder
equity which is almost equivalent to the 2018 industry average of $0.11 (CNN
Money, 2009).
While 2018 and 2017 were particularly challenging years, the company is bouncing back and
Additionally, the liquidity of Humana Care was analyzed. The company's current ratio
has increased within four years. According to Gapanski (2012), The current asset ratio shows
that the current assets will satisfy the organization's current obligations. Another accurate
measure of the company's liquidity is the day’s cash on hand (Gapenski, 2012). Humana Health
Care, Inc.'s days’ cash on hand has increased by 44% in the last five years, with the most recent
being 91.54. This shows 51.54 days of organizational expenses could be covered with current
cash balances (Nonprofit Assistance Fund, nd.). Unlike the asset ratio, Humana's debt ratio over
has fluctuated, without however surpassing the industry average which of 63%. A below-average
debt ratio helps prove that the company will have lower loses in case of bankruptcy to creditors
that losses will also be low if the company goes bankrupt (Gapenski, 2009).
The Times Interest Earned (TIE) for Humana over the last five years has been above the
industry average of 5.9 (Gapenski, 2009). This is true for every year except 2008 when the TIE
was 4.56 which correlates with the highest debt ratio (Gapenski, 2009). Humana's TIE
rebounded with a TIE of 8.76 in 2011, which is above average. A TIE above average indicates a
relatively high margin of safety that Humana is covering its interest charges (Gapenski, 2009).
The TIE reinforces the debt ratio as well as Humana's debt financing expansion possibilities
(Gapenski, 2009). The debt ratio and TIE indicate Coventry would be a good investment.
Financial Analysis of Humana, Inc. 5
Another financial analytical tool is a DuPont analysis. The analysis enables a more critical look
ROE shows that performance on stockholder equity is increasing. A DuPont analysis divides the
ROE into three components to identify the cause of change in ROE (Investopedia, 2009). These
components are the total profit margin that illustrates total asset turnover , asset use efficiency,
Changes in Humana’s ROE, however, are only attributable to changes in total profit
margin. The profit margin and ROE were highest in 2017, with a considerable amount of
increase during the five years. These profit margin and ROE changes correspond to changes in
operating expenses. The lowest profit margin and ROE in 20016 are results of Coventry's
Recommendation
To sum up, the data presented in this analysis represents a sound investment opportunity.
Humana medical insurance company is profitable with positive net incomes annually
Has above average and healthy, asset turnover, return on assets, and return on stockholder
equity
Has adequate liquidity with increases in current ratios, and a below average debt ratio.
increases ROE through profit margin increases rather than leverage or debt increases
In brief, it is clear that although Humana is not immune to changes in the economic climate as
depicted by data reported in 20 but1, despite hardships, they have remained profitable, liquid,
and solvent.
Financial Analysis of Humana, Inc. 6
Financial Analysis of Humana, Inc. 7
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insurance.asp#axzz1yI6PvoQF
Investopedia (2009). Decoding DuPont Analysis. Retrieved July 23, 2012, from
Financial Analysis of Humana, Inc. 8
Investopdeia (2012). Earnings Before Interest and Tax – EBIT. Retrieved July 09, 2012, from,
http://www.investopedia.com/terms/ebit.asp#axzz208MRzpGL.
Kennon, J. (2012). Interest Income and Expense. Retrieved July 09, 2012, from,
http://beginnersinvest.about.com/od/incomestatementanalysis/a/interest-income-
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Using the balance sheet cheat sheet. (n.d.). In Nonprofits Assistance Fund. Retrieved July 17,
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