Health Insurance Industry Financial Analysis

Financial Ratios & Health Insurance Industry How do financial managers know which company is better than the other? How do organizations know their capital management is meeting industry standards? Organizations and financial managers can use financial ratios to make comparisons. Financial ratios are comparison ratios, in which are used to assess the financial stability and operational performance of a company (Block, Hirt & Danielson, 2011). Financial ratios have many benefits to financial managers, bankers and investors. Like a credit score, financial ratios can help financial managers understand their financial situation, help bankers make lending decisions and investors make stock purchasing decisions. Financial ratios are obtained by analyzing financial statements consisting of an Income Statement, Balance Sheet and Cash Flow statement. To demonstrate the benefits of financial ratios, this paper will look into the health insurance industry. Gleaning from UnitedHealth Group’s 2015 first quarter financial statements, we will take a look at how financial ratios work. Examples of two key financial ratios in the health insurance industry will be explained, and recommendations will be provided.
Health Insurance Industry Financial Structure …show more content…
The financial structure varies because health insurance industries have three different types of payor mix: private companies, individuals and government entities (Zucchi, 2015). Each payor have its own set of risk, product selection and payment schedule. According to Kristina Zucchi (2015), government entities tend to be the largest payor out of the mix. But, has the slowest payment schedule. This slowness is entirely due to government changes on payment schedules. Financial managers who contracts with government entities will run the risk of over or under estimating their cash flow and