Healthcare Organizations Merger Analysis Assignment Help
In current business scenario, mergers are frequently used by both small and big businesses. The main aim of companies behind mergers is to combine the strengths of the merging firms in order to face external environmental challenges in a better way (Joseph, 2006). In order to conduct a merger analysis, two publically traded healthcare organizations such as Health Net and United Health Group Inc are selected. This healthcare case study analysis assignment help paper defines basic financial statement and operating indicator analysis to assess the financial condition of both companies. Apart from this assignment, it also analyzes the organization’s debt, equity financing, capital structure, and cost of capital of the two organizations. Additionally, this also includes a risk analysis regarding the merger of both organizations. In last, it also suggests some recommendations in order to address post-merger receivable management in an effective and efficient manner.
Assessment of Financial Condition of Both Companies Health Net, Inc.: Health Net, Inc. is a publicly traded managed care organization that provides health plans and 
Case Study government-sponsored managed care plans in order to deliver managed healthcare services (Health Net Inc., 2012). The main aim of company is to help people and offer them facilities to be secure, comfortable and healthy. United Health Group: The Company’s United Health Care segment offers consumer-oriented health benefit plans and services to public sector employers, mid-sized employers, national employers, small businesses, and individuals (Annual Report, 2011). Key statistics are summarized in a table regarding financial position of both organizations that will be helpful to assess the financial condition of both healthcare organizations (See exhibit 1). Operating margin of United Health is 8.22% which shows better operational efficiency of the firm.
At the same time, net profit margin is 4.97% which reflects that there is adequate returns to the owner (Yahoo Finance, 2012). This shows the ability of the firm to withstand in cut-throat competition, when cost of production is rising and selling price is declining. Simultaneously, net profit margin ratio for Health Net is 1.98% and operating margin is 1.78% that shows the healthcare company is also able to maintain the business profitable in difficult situations. It is sign to evaluate the growth of the firm. On the other side our Australia experts of assignment stated that return on assets for United Health is 7.78% and for Health Net, it is 3.30% (Yahoo Finance, 2012). It shows the profit earning capacity of both firms, as this ratio is high for United Health. It means it is more financially strong in comparison of Health net. Return on equity ratio is also higher for United Health (18.52%) as compared to Health Net (7.20%).
Therefore, it can be stated that the United Healthcare organization has earned more satisfactory return for its shareholders with a strong customer database. Concurrently, the debt-equity ratio of both companies is low as, it is 42.95 for United Health and 31.77 for Health Net (Yahoo Finance, 2012). A low debt-equity ratio shows that both companies are using more owners’ funds (equity) in comparison of outsiders’ capital (debt). It is beneficial for both organizations, as the servicing of debt is less burdensome. It also improves the ability of firms to raise additional firms in the market because low debt ratio provides sufficient safety margin to creditors, as there is high stake of owners in the company’s capital (Brigham & Ehrhardt, 2010). As a result, it can be stated that both companies are in profitable position in the market, as there are positive gross profit, net profit and operating margin. United health is more profitable in comparison of Health Net, as the revenue, gross profit margin and net profit margin is higher in the company.
Capital Structure Analysis Capital structure refers to the combination or mix of debt and equity that is used by a company in order to finance its long-term operations. Health Net and United Health Group are using both debt and equity financing in their business. Below table shows the use of debt and equity financing by both organizations in the year 2011 and 2010.
| Capital Structure | United Health Group | Health Net | ||||
| Year | 2011 | 2010 | 2011 | 2010 | ||
| Long-term debt | 11,638,000 | 11,142,000 | 511,390 | 398,685 | ||
| Equity | 10,000 | 11,000 | 147 | 145 | ||
| Retained-earnings |
|
25,562,000 | 2,171,459 | 2,099,339 | ||
(Source: Annual Report, 2011). Above table reflects that along with equity financing, both companies are also using retained earnings in order to arrange long-term financing. In addition, it shows that both organizations are using more internal sources in comparison of external sources to arrange long-term finance. In this concern, it is analyzed that if the merged firm will require some additional long-term funds, it can easily attain the required funds (Annual Report, 2011). It is because as, both healthcare organizations have a low debt-equity ratio, it provides an edge to the company to raise additional funds without any adverse impact on the business.At the same time, cost of capital is also low for both organizations, as, use of debt capital reduces the cost of capital and for retained earnings; there is also no need to pay any external cost. Both companies use weighted average cost of capital method in order to determine firm’s cost of capital.
Risk Analysis As, both healthcare organizations will merge together, they can face some challenges and it is the reason that it is necessary to conduct a risk analysis in order to make the merger successful. Following are some risk factors that can impact on the post-merger business performance of both organizations: Market Risk: Company can face market risk in terms of changing market characteristics, market trends, competitors’ development and strategy after merger of both organizations (Rezaee, 2001). In order to effectively manage these risks, it will be necessary that senior management make effective strategies and consider a risk management plan. Operations: After merger, healthcare company can also face operational risk. It is because as both companies are different from each-other, they have different process, resources and materials to manage daily business activities. It is the reason that there can be operational risk in terms of sharing of knowledge, align business processes and make effective decisions regarding the business (Kirchner, 2009). If all these risks are not effectively considered by the organization, they can adversely impact on the financial position of the company. Rules and Regulations: Both firms’ business activities are highly regulated and it is the reason that changes in existing policies or new laws and regulations or their enforcement or application could impact on company’s results of operations, cash flows and financial position (Annual Report, 2011). Similarly, implementation of any healthcare reforms can also impact on the way in which company operates its business. Human Resource: It can also be a risk factor that how human resources of both organizations will react to the merger. Key personnel are analyzed by the managers to ensure that no vital knowledge will be lost due to merger. Furthermore, they will also assess the expectations of employees on the upcoming business transactions in order to reduce the employee turnover rate due to dissatisfaction of employees after merger (Rezaee, 2001). Good corporate values will be developed as well as commitment of physicians and other nursing staff will be enhanced through motivation in order to reduce any adverse impact of merger on the business.
Receivables Management Analysis Healthcare Net has classified its receivables as receivable from CMS related to Medicare business, receivable from DHCS related to California Medicaid business and receivable from the DoD relating to current and prior contracts for the TRICARE North Region (Annual Report, 2011). Government audit affects the timing of collection of such receivables. In order to effectively manage the receivable, company is using revolving credit policy. Company estimates the amount of uncollectable receivables to reflect allowances for doubtful accounts on a monthly basis. At the same time, the allowances of doubtful accounts estimation are based on the creditworthiness of customers, historical collection rates and the age of unpaid balances. Company also assess the recoverability of the receivables and on the basis of their net realized value, an allowance is recorded. Those receivables that are viewed as to be uncollectable are fully written off against their corresponding asset account.
United Health Group has also made investment in accounts receivable that can cause to concentrations of credit risk for the company. This risk has limited for the company, as company has a strong customer base of employer groups and other customers (Annual Report, 2011). It is also using revolving credit policies to manage its receivables. After merger, company can manage its receivable with the consideration of profit margin. In this concern, if healthcare organizations will have high profit margin for its services, it can use comparatively more flexible credit policy. At the same time, if profit margin is narrow for services, it can use a rigid credit policy. Thus, it can be said that the profitability of product line on which credit is extended should be closely related with receivables management (Hildebrandt International, American Bar Association and Section of Law Practice Management, 2004).
Similarly, merged firm should also agree on the use of work processes, information system and people in order to manage the receivables. It will be helpful for the company to manage the receivables in an effective way and make the merger successful. Conclusion From the above discussion by Australia assignment help experts stated that merger of both organizations will be beneficial for both healthcare organizations. As compared to United Health Group, the financial position of Health net is not so strong, thus, it can be stated that merger will help the organization to strengthen the firm’s profitability in the market. Merged firm should also manage different risk factors effectively so that it can get success in the market. References Annual Report (2011). Health Net Inc. Retrieved from http://investor.health.net/phoenix.zhtml?c=70296&p=irol-reportsAnnual Annual Report (2011). UnitedHealth Group Incorporated. Retrieved from http://www.unitedhealthgroup.com/invest/2011/UNH-2011-10-K.pdf Brigham, E. F. & Ehrhardt, M. C. (2010). Financial Management Theory and Practice. USA: Cengage Learning. Health Net Inc. (2012). Retrieved from http://investor.health.net/phoenix.zhtml?c=70296&p=irol-irhome Hildebrandt International, American Bar Association and Section of Law Practice Management (2004). Anatomy of a Law Firm Merger: How to Make or Break the Deal. USA: American Bar Association. Joseph, C. (2006). Credit Risk Analysis: A Tryst with Strategic Prudence. USA: McGraw-Hill Professionals. Kirchner, T. (2009). Merger Arbitrage: How to Profit from Event-Driven Arbitrage. USA: John Wiley & Sons. Rezaee, Z. (2001). Financial Institutions, Valuations, Mergers, and Acquisitions: The Fair Value Approach. USA: John Wiley & Sons. Yahoo Finance (2012). Retrieved from http://finance.yahoo.com/q/ks?s=HNT+Key+Statistics Yahoo Finance (2012). Retrieved from http://finance.yahoo.com/q/ks?s=UNH+Key+Statistics