Abstract
Undeniably, the major objective of most organizations is to achieve business growth. Since the business environment has increasingly become competitive, the need to set strategic growth objectives has become essential. Thus, strategic management is needed in all business organizations to facilitate the setting and realization of their goals. The profitability of most companies coupled with the ease of market entry is one of the main causes of increased competition in the market for various products and services. Entrepreneurs identify the weaknesses of an organization in terms of production, delivery, and provision of essential services and improve on these areas to expand their market as well as increasing their competitive advantage. Shareholders are interested in seeing the growth of their investments through increased returns, efficiency, and marketability. Additionally, shareholders have different interests in the organization, which they always seek to protect. Therefore, effective corporate governance has become a critical consideration in most companies. The majority of companies that are publicly traded obtain as substantial part of their capital from the public through the sale of securities such as shares in the stock markets. Thus, they are more answerable to the public than the private companies. The resources in any business organization must be allocated optimally to raise the value of the investments of the shareholders. Therefore, the evaluation of the capitalization structure of an organization becomes crucial to facilitate the determination of the current worth of resources and the expected capital growth. This paper will answer a management question by conducting research on the capital structure of UnitedHealth Group Company that offers various health-related services to the people of the United States.
Introduction
Various methods may be used to carry out the evaluation of the capital structure of an organization, which provides the expected investment appraisal. Health organizations deal with various services that are paid for through different plans. Some people may use self-plans or government insurance while others use private insurance. Thus, the payers mix becomes an important factor as far as the management of health companies is concerned. Changes in human resource structure due to a high rate of labor turnover have adverse impacts on an organization (Owenc, Pinagase, & Mercy, 2014). Thus, effective management strategies are necessary to ensure the survival of an organization in the modern competitive business environment. Capital budgeting entails the financial planning that is used to determine the feasibility of the realization f long-term investment goals of an organization (Kengatharan, 2016). The budgeting process assesses the capability of the current capital resource structure of a company through various methods such as IRR (Internal rate of returns), the profitability index, and ARR (Accounting rate of returns) to allocate resources in a manner that adds value to the investments of the shareholders.
An overview of UnitedHealth Group Company
This company is situated in the United States, and it is one of the high- ranking health companies. It offers various services and products through its business operations in its two subsidiaries that include Optum and United Healthcare (Clover, 2013). The company aims at diversifying its services to serve the global community by improving the health of people and improving the working of the health system. Additionally, it seeks to meet the changing needs of its clients by improving the environment in which health services are offered and to increase the health benefits to the people (Clover, 2013).
United Health Group Company provides health services to about 70 million people in America. An approximate of $11 billion was reported in 2015 as the operating income of the company (UnitedHealth, 2015). It has expanded its business through the acquisition of various health and other companies throughout its history. The organization offers various services such as insurance, dental, and pharmaceutical services to the community it serves. The acquisition of different companies has been a major source of business success for the company.
Analysis of the company financials
The company prepares and mails financial reports to all its shareholders. The same information is made available to other people via the internet. An analysis of the financial information can be conducted using the financial data from the financial statements of various years. This analysis is significant to show the financial position of the company as well as analyzing the impacts of different government policies on the financial performance of the company (Blessing, 2013). Additionally, the analysis of financial information of the company helps to compare its performance with its competitors and give relevant financial advice to the management. Changes in the payers mix will also have considerable impacts on the financial capacity of an organization. Considering the financial data of UnitedHealth Group for the year 2013 and 2014, the revenue increased by 7%. The cash flow from business operations increased 5.6%, which improved the net earnings to the shareholders. The profitability of the company grew by 36% in 2014. Additionally, the stock level was increased over the period and more capital was raised through the sale of more shares (UnitedHealth, 2015). It is apparent, from the analysis, that the company has improved its financial performance. The growth of profitability and the value of share help to increase the shareholders’ confidence in investing in the company. As a result, the company is able to generate more capital for business expansion. The efficiency of the management and corporate governance is evident from the increases in returns. Additionally, the financial position of the company as shown by the assets level is an indication of improved financial performance. Therefore, the company seems to have a commendable management that is heading it in the desired financial trends.
What is likely to happen in case of changes in the payer mix
Thompson, Buchbinder, & Shanks (2012) defined payers mix as the amount of revenue that is generated by health care companies through payments made by various agents such as government insurance, private insurance, and individuals who pay for their health services. This mix is essential since it enables the Medicaid and other parties to make less payment for the services. The occurrence of changes in the payers mix will have various impacts on the operations and the financial strategy of the company (Jones et al., 2015). Most of the employees in the US have medical insurance, which is either provided by the government or the employers. Besides, some individuals tend to have private health insurance covers to take care of their payments of treatment services.
The federal government requires people to have various medical insurance plans (Jones et al., 2015). Therefore, the majority of people have their medical services partly covered by the insurance. As such, if fundamental changes occur in the payers mix, the operation of the company will increase. For example, if the government requires every individual to have medical insurance, the demand for health services will increase. Also, if the government provides public health insurance to all citizens, the operations of the company will increase due to increased number of clients. Furthermore, the company will have more funds to expand its medical facility, resulting in increased diversification of services. Consequently, the level of operations will rise. However, if the payers mix changes in the negative direction due to shifts in the insurance plans, activities in the company will decrease. For example, if the majority of the clients of the company have private insurance and the government provides subsidized insurance plans, the company will experience a decline in the level of operation due to changes in the number of clients and the revenue from the private insurance.
The financial strategy of the company will also get affected by changes in the payers mix. According to Thompson, Buchbinder, & Shanks (2012), changes in the demand for services will prompt various health care companies to adjust their strategies. Different companies will set competitive prices for the services to attract the clients. A change in payers mix implies that the insurance plans offered by various organizations such as HMOs will provide higher treatment benefits for their customers. Therefore, organizations like United Health Group will receive more revenue for their services. Thus, the company will have more funds to expand its facility, which will attract more clients. Additionally, a change in payers mix will result in increased revenue from other sources such as out of pocket payers and third-party payers. However, increased operations will be accompanied by changes in the cost structure of the company (Jones et al., 2015). Thus, a change in payer mix has significant contributions to changes in both operational and financial strategies of a company. Therefore, United Health Group will experience fundamental changes in its financial and operational structure as a result of a change in the payers mix.
Effects of increase in staff turnover to the financials of the company
A high rate of labor turnover has various impacts on the performance of an organization. It affects both operational and financial performance of the companies. Staff constitutes the critical part of organization’s resources. Staff turnover entails the number of employees who leave an organization and get replaced by new staff (Owence, Pinagase, & Mercy, 2014). A high turnover rate implies that an organization is frequently replacing its staff. Such movements have severe disruptions to the functioning of the organization. However, changes in employees due to high turnover rate may have some benefits. As far as the financials are concerned, an increase in staff turnover will lead to fundamental changes that may improve the financial position f the company or lead to its deterioration (Owence, Pinagase, & Mercy, 2014).
The cost structure of the company will change fundamentally as a result of an increase in staff turnover. Hiring new staff to replace those leaving the organization will require the company to engage in frequent staff training exercises, which are costly. As a result, the total operation costs will increase leading to reduced returns. New staff cannot be assigned duties before they have undergone thorough training to ensure efficient service delivery. Therefore, the company will suffer financial loss as a result of increased rate of staff turnover due to increased training cost. Furthermore, inconveniences resulting from service disruption as the company looks for new staff to replace the outgoing ones may lead to financial risk. Some clients may run away to seek services from other companies during the recruitment periods. Moreover, getting the staff with skills that match with those of outgoing ones may lead to severe service disruption, resulting in a significant loss of customers. Consequently, the financial performance of the company will be seriously affected. For example, the operating earnings for United Health Group in 2014 were 10.3 billion (UnitedHealth, 2015). This means that its financial position is improving. However, serious increases in staff turnover are likely to cause a considerable decline in these earning due to increased costs associated with staff replacement.
A strategic analysis to show how the financials of United Health Group guides with its strategic planning and decision- making
The decision- making process in any organization is guided by its financial strength. According to Blessing (2013), companies with financial weaknesses do not have the power to implement their decisions due to financial limitations. United Health Group has a strong market base. It financial position shows that the company has sufficient financial strength to hire experienced individuals for its management and corporate governance. The management of the company formulates effective strategies by evaluating the accounting reports of the company to assess its resource capacity to implement its decision. The financial strength of a company determines its ability to hire professional consultants and experts in evaluation of investment decisions. Thus, an organization with a strong financial power tends to have effective approaches to the formulation of business strategies as well as their implementation. The financial report of United Health Group 2013 shows that the company develops business strategies that enable it to make sound decisions in solving business problems and utilizing its human resource capacity (Clover, 2013). Additionally, the future position of the company can be predicted from the analysis of its financials. Apparently, the progress of United Health Group shows its potential to achieve a high market position in future. The improvements in returns and strategic management are reliable indicators of the power of the company to formulate and implement efficient strategic decisions.
Source: Fact book-United Health care Group (Consolidated Financial Results 2016)
Conclusion
Efficient business management is critical to the success of an organization. Strategic business planning promotes the power of an organization to overcome business challenges such as market competition. Additionally, effective management enables a business organization to restructure its operations and financial structures to accommodate changes in business environment. Capital budgeting plays a central role in an organization since it allows a company to allocate resources in an effective manner that adds economic value to the investments of the shareholders. Changes in payers mix have significant impacts on both operational and financial structure of a company. It has been found to affect the performance of United Heath group by changing its revenue base and competitive advantage. Sudden increases in Labor turnover can have adverse effects on an organization. A high rate of staff turnover subjects an organization to unexpected expenditures due to costs incurred in hiring and training of new staff. Evaluation and strategic analysis of a company financials help to describe the relationship between the financial strength of the organization and its capacity to conduct strategic planning as well as making effective decisions.
References
Blessing, A. (2013). The Role Of Financial Statements On Investment Decision Making: A Case Of United Bank For Africa Plc.
Clover, B. (2013, October 21). UnitedHealth confirms Optum rebrand. Retrieved July 17, 2016, from http://www.hsj.co.uk/news/unitedhealth-confirms-optum-rebrand/5064494.article
Jones, C. D., Scott, S. J., Anoff, D. L., Pierce, R. G., & Glasheen, J. J. (2015). Changes in Payer Mix and Physician Reimbursement After the Affordable Care Act and Medicaid Expansion. INQUIRY: The Journal of Health Care Organization, Provision, and Financing, 52, 0046958015602464.
Kengatharan, L. (2016). Capital Budgeting Theory and Practice: A Review and Agenda for Future Research. Applied Economics and Finance, 3(2), 15-38.
Owence, C., Pinagase, T. G., & Mercy, M. M. (2014). Causes and Effects of Staff Turnover in the Academic Development Centre: A Case of a Historically Black University in South Africa. Mediterranean Journal of Social Sciences, 5(11), 69.
Thompson, J. M., Buchbinder, S. B., & Shanks, N. H. (2012). An overview of healthcare management. S, B Buchbinder and N, H Shanks (eds), Introduction to Health Care Management, 2.
UnitedHealth Group (2015). Annual report sent to shareholders. Retrieved July 17, 2016 from http://www.unitedhealthgroup.com/~/media/2B5EEC6F00F446AC9051674E259BA80B.ashx
