This is an American insurance firm that was founded in 1940. Anthem was once known as WellPoint Inc. before changing its name to Anthem. Anthem's healthcare plan provides high-quality services and products that allow members to access the greatest healthcare facilities. Anthem's licensed affiliates and subsidiaries offer a wide range of health, disability, and life insurance products to individuals and groups. Anthem Inc. grew in this industry via dependability and consistency (""Anthem, Inc. - About Us"", 2017). The lively growth is the result of stronger internal growth. Anthem's internal growth is guided by the company's most committed leaders, its innovation capability, and its long-term fighter for corporate social responsibility. Anthem Inc. provides medical, hospital and life insurance plans. It offers a wide variety of broad spectrum on network-based managed care to small and large employers Medicare, Medicaid, and individual markets.
Financial Analysis
Liquidity Ratio
In a nutshell, measures a firm’s ability to meet the short term debt by utilizing the short term assets. When the current assets are greater of equal to one it indicates that a firm can meet its short term liabilities. On the other hand, if the ratio is less than one it implies that the organization is facing liquidity problems.
Quick Ratio
This ratio eliminates particular current assets, for instance, prepaid expenses and inventory that are somehow difficult to be converted into cash. When the ratio is greater than one implies the company is facing problems with liquidity (Hoyle, 2017). Anthem Inc.’s quick ratio is greater than one indicating that the firm is operating at capacity and it can be able to pay all the short term debts by the use of the most liquid assets.
Quick Ratio = (Marketable Securities or Short-Term + Accounts Receivable + Cash / (Current Liabilities)
2016
2015
2014
Quick Ratio
34314.9/21294.4=1.611
30862.1/19092.6=1.616
32228.9/18753.4=1.718
When comparing quick ratio from the current ratio; the quick ratio is consecutive because the stock is eliminated from the current asset. From the above calculation Anthem Inc.’s current ratio has been declining over the three years which is a negative trend since the company liquidity position is threatened. In 2014 the ratio was 1.718 before dropping to 1.616 in 2015 after which it declined to 1.611 in 2016.
Profitability Ratio
The profitability ratios indicate whether a company is making enough money from its operation when compared to the competitors. This ratio remains significantly important for shareholders in trying to uncover the long-term sustainability of a company before investing (Bragg, 2013). This ratio also shows the effectiveness of the management because it indicates the total returns that are generated from the sales of services and goods. Creditors and investors can use this ratio to make a judgment on the ability of the business to pay on time and amount of return they will receive based on its relative level of assets and resources. In other words, this ratio can be used to show well a company is going to use the invested capital resources to generate enough money to pay dividends. The profitability ratio is also essential in going concern and solvency.
Gross Margin
A greater gross profit margin ratio shows that a company charges a higher premium for its services or goods. In short, this ratio measures an organization’s percentage markup on the merchandise or inventory.
Gross margin=gross profit/sales
2016
2015
2014
Margin ratio
18028.6/84863=21.2%
18039.6/79156.5=2.3%
17019.2/73874.1=23%
Based on the above ratio Anthem Inc. had three years of fluctuating gross profit margin ratio. In 2014 the gross profit margin was 23 percent, it declined to 2.3 percent and again rose to 21.2 percent.
Return on Equity
This ratio measures the organizations return on its investment. This ratio is usually stated in percent and the greater it is, the better the company’s financial performance. This is a significant measure of a firm’s profitability. The greater the value, the better the company is positioned to generate incomes to the incoming investors. The potential investors should check the trend of return on investment over a longer period and also compare it with other companies available in the industry. Making an investment solely based on return on investment might not be a good idea since it can be influenced artificially by the management for instance when the company uses the debt financing to reduce the number of shareholders equity the return on income ratio will increase even if the total income remains constant.
Return on Equity=Net income/Equity
2016
2015
2014
Return on equity
2469.8/25100.4=9.83%
2560/23044.1=11.1%
2569.7/24251.3=10.6%
From the above calculations, there was a consistent increase in restitution on equity. In 2014 each of a common shareholder earned about 10 percent, the amount increased in 2015 to 11.1 percent and furthermore increased by 9.83% in 2016. This is a positive indicator because it shows that a better picture of growth.
Operating Expense Ratio
This is the ratio of operating expenses to sales. It measures the internal operations of a company when compared to the income the firm brings. The investors look for red flags such as utilities, operating income and maintained expenses that may deter them from purchasing a particular property. Repair property taxes, repairs, insurance, maintenance, trash removal, utilities, and property management fees are some of the costs that are included in the operating expenses. The operating expense ratio can indicate where potential issues such as the rising costs of utilities can occur so that investors can solve problem promptly to protect their profit. Calculating the Operating Expense Ratio over some years enables the investors to study the property trend.
2016
2015
2014
Operating Expense Ratio
12557.9/84863.4=14.8%
12534.8/79156.5=15.8%
11748.4/73874.1=15.9%
The operational expenses have had a decreasing trend from 15.9 percent in 2014 to 14.8 percent in 2016. This ratio imply that the general operational cost has been declining over the last years which is a positive indicator for this company.
Net Asset Turnover
A company’s level of efficacy can be estimated by the use of net asset turnover ratio. A higher ratio means that the company uses its assets more efficiently. A lower ratio implies that a company is not using its assets more efficiently.
2016
2015
2014
Asset Turnover
34314.9/84863=0.4
30862.1/79156.5=0.3869
32228.9/73874.1=0.362
From the above asset turnover calculation, there has a rise the asset turnover ratio. In 2014 for every dollar in asset Anthem Inc. was able to generate 0.362 cents, the amount increases further to 0.3869 in 2015 before rising further to 0.4 cents in 2016. This is a positive trend since it indicates that Anthem Inc. utilizes its assets efficiently.
Gearing Ratio
The higher the debt, the riskier a company is, this because the debt holders have a claim on the enterprise. This ratio focuses on the business’s capital structure which is the proportion of finance that provided by external parties such as debtors relative to the finance provided the equity owners. The gearing ratio also emphasizes the liquidity of the business. According to this ratio when the borrowing is high the riskier the business since repayment of the loan or payment of interest are not optional. Gearing can be essential for a business capital structure particularly if it has stronger and predictable cash flow.
Debt/Equity
This ratio measures the company’s level of finance by external parties when compared to equity holders. Those companies with a lower debt ratio are considered to be less risky.
2016
2015
2014
Return on equity
39982.7/25100.4=1.59
38673.7/23044.1=1.67
37813.7/24251.3=1.26
Debt ratio
The debt ratio provides investors and creditors with an idea pertaining the amount of leverage used by the company. In general, the higher the ratio, the riskier the firm while the lower the percentage the least leveraged an institution is. The debt ratio is a solvency ratio because creditors are more concerned about being paid. An organization that borrows more funds from outsiders increases the debt ratio increases. Highly geared companies are better off looking for real owners to finance its growth.
2016
2015
2014
Debt Ratio
14358.5/25100.4=1.59
15324.5/23044.1=1.67
14127.2/24251.3=1.26
In 2014 Anthem Inc. had 12.6 percent more assets than liabilities, however, the amount increased further to 1.67 before dropping to 1.59 percent in 2016. The declining amount of debt ratio in 2016 imply that anthem Inc. reduced external financing.
Stakeholder’s Reaction
Anthem had three years of a steady rise in the total revenue including 2016 when the income was 84863 which was a seven percent increase from the previous year. The increasing revenue can be attributed to the growth in the Specialty and Commercial Business segment and the increased sales of the managed care. The company's financial ratio, however, indicate a different scenario. For instance, the debt to equity ratio indicates that this company is highly geared while the profitability ratio indicates a declining trend; this is likely to scare away potential investors and employees will also remain worried because of the going concern trend is threatened. Anthem Inc. has been having a declining return on equity ratio from 2014 where it was 10.6% to 9.83%; this is a negative financial performance. The shareholders might lose interest in this company meaning that Anthem Inc. will lack enough capital for investments. The decline in return on equity was caused by harsh economic times that reduced the amount of profit.
Competitors and Industry Trend
This industry has so many competitors who offer the same services and products. These competitors include the UnitedHealth Group incorporated, Mohila Healthcare, Inc., Medical Mutual of Ohio, Harvard Pilgrim Health Care, Inc., CIGNA Corporation, and the Aetna Inc., these competitors have significantly reduced Anthems market share and offer stiff competition. Anthem’s competitors have adopted the price leadership strategy by lowering the prices relentlessly; this trend forces Anthems to lower its prices to that level so that it retains its market share. Since products offered by these competitors are substitutes, all firms in the industry have to catch up with leaders hence incurring losses. To mitigate this trend, Anthems must expand its business operation globally, this way it will have a great market share. Therefore, it won't be affected by competitors in one geographical (Francois & Wooton, 2008). Secondly, the company should come up with products that are different from those offered by the competitor; this will mean that it will set its price.
Current Condition
Anthem has had a fluctuating margin ratio from 2014 where it was 23% before dropping to 2.3 percent in 2015 and again rising to 21.2 percent in 2016. The fluctuations are caused by economic changes as well as variation in operational costs. This is not a good indicator; a good margin ratio should keep on rising to guarantee that a company will have enough money to pay dividends. Anthem is also a highly geared company; this is because in the past three years it has been financed more by external debt. The debt to equity ratio indicates that in all the three ratios debt was higher the shareholder's equity. This is a negative financial trend, and it raises questions on the country's going concern. Investing in this could be risky.
There are various strategies that Anthem Inc. can use to improve its financial performance. First, it has to measure its results against the existing competitors to gain a valuable and complete understanding of the company's potential. The company can identify different strategies that have been employed by competitors to come up with a counter strategy. Secondly, the company must improve its customer service. The client can use social media platforms to get in touch with clients. High-quality customer service will increase sales and can act an advertisement mode. It is important that the company participate in corporate social responsibility to boost customer's confidence even further. The company can put in place various measures that can increases production for instance measure that will create a stronger customer loyalty. The company has had a stronger brand for a while, but there is still need to make it more competitive and consumer favorable. The company can enhance loyalty by enhancing advertisements and creating commodities that are up to standard. Lastly, the company ought to increase the size of its production line. Creating a large production line makes it easier to reach customers all over the world. By creating a stronger production line, it will be easier for the company to reach all customers around the world. Anthem Inc. should think of researching different cultures tastes. This will make it easier to sell commodities to across all cultural backgrounds. The key to the implementation of any business strategy is to engage the staff and the shareholder; this will help minimize instance of resistance to change from the staff and failure to get support from shareholders. It is important that all employees are aware of the expectations, each should understand their role in the strategy implementation process (Leonardi, 2015). Anthem Inc. should also align performance and budgets so that the new strategy doesn't have an adverse impact on the company’s financial performance.
Current Conditions in the Financial Markets
To expand it is important the Anthem Inc. tap financing resources. There are various sources of funds available which are initially broken into equity and debt. Equity embroils getting investment funds through the selling a company’s shares while debt involves raising funds from a loan. Anthem Inc. should buy stock instead of the debt equity. Unlike the selling of shares, the debt must be repaid a fact that reduces the amount of profit. The interest on the debt capital is fixed which will increase Anthem Inc.’s breakeven point. A firm that is highly geared faces solvency problems. The debt instruments also come with numerous restrictions on the firm's activities and can prevent anthem Inc. from pursuing other economic objectives. Financing operation with debt increases the debt to equity ratio a factor that will scare away potential investors.
Option B
As An Investor with Huge Sum of Money
As an investor with a large sum of money Anthem Inc. will form the best avenue for investment. Based on the above ratio the company portrays a positive trend in almost all the ratios, for instance, gross profit margin ratio has been rising implying that it will be able to generate enough money to pay dividends. The company’s return on investment has been fluctuating, but it is higher meaning that I will receive a substantial amount of dividend. Based on the gearing ratio, Anthem Inc. has had a declining debt equity ratio; this trend indicates that the company is less risky. A company that relies so much on debt funds is risky because of the interest rate. The debt to equity ratio implies that anthem Inc. used a minimal portion of its total revenue to service the debt. Anthem Inc. has a growing revenue, it creates value for the owners of equity, it is a safe institution, and it is fairly valued and forms a better avenue to make a huge investment.
References
Anthem, Inc. - About Us. (2017). Antheminc.com. Retrieved 26 July 2017, from https://www.antheminc.com/aboutantheminc/index.htm
ANTM Income Statement | Anthem, Inc. Stock - Yahoo Finance. (2017). Finance.yahoo.com. Retrieved 26 July 2017, from https://finance.yahoo.com/quote/ANTM/financials?p=ANTM
Bragg, S. (2013). Financial analysis. Hoboken, N.J.: Wiley.
Francois, J., & Wooton, I. (2008). Market structure and market access. Munich: CESifo.
Hoyle, J. (2017). Advanced accounting. [Place of publication not identified]: Mcgraw-Hill Education.
Leonardi, P. (2015). Materializing Strategy: The Blurry Line between Strategy Formulation and Strategy Implementation. British Journal Of Management, 26, S17-S21. http://dx.doi.org/10.1111/1467-8551.12077
Appendix
Source ("ANTM Income Statement | Anthem, Inc. Stock - Yahoo Finance", 2017)
Income Statement
2016
2015
2014
Shares Outstanding
263.44
261.07
269.94
Net Sales Or Revenues
84863
79156.5
73874.1
Cost Of Goods Sold
66834.4
61116.9
56854.9
Gross Profit
18028.6
18039.6
17019.2
Research And Development Expense
-
-
-
Selling General And Admin Expense
12557.9
12534.8
11748.4
Income Before Depreciation Depletion Amortization
5470.7
5504.8
5270.8
Depreciation Depletion Amortization
192.3
230.1
220.9
Non-Operating Income
-
9.3
-81.1
Interest Expense
723
653
600.7
Pretax Income
4555.4
4631
4368.1
Provision for Income Taxes
2085.6
2071
1808
Minority Interest
-
-
-
Investment Gains Losses
-
-
-
Other Income
-
-
-
Income Before Extraordinaries And Disc Operations
2469.8
2560
2560.1
Extraordinary Items And Discontinued Operations
-
-
9.6
Net Income
2469.8
2560
2569.7
Average Shares Used To Compute Diluted E P S
268.1
272.9
285.9
Average Shares Used To Compute Basic E P S
268.1
272.9
285.9
Income Before Non-Recurring Items
2948.5
2771.7
2529.6
Income From Non-Recurring Items
-478.7
-211.7
30.5
E P S Basic Net
9.21
9.38
8.99
E P S Diluted Net
9.21
9.38
8.99
E P S Diluted Before Non-Recurring Items
11
10.16
8.85
Preferred Dividends Acc Pd
-
-
-
Dividends Common
-
-
-
Dividend Per Share Common
2.6
2.5
1.75
update Date
0
0
0
Balance sheet
2016
2015
2014
Shares Outstanding
263.44
261.07
269.94
Cash
4075.3
2113.5
2151.7
Marketable Securities
19727.2
19681.3
20909.4
Receivables
8566.1
7340.8
7251.4
Inventory
-
-
-
Raw Materials
-
-
-
Work In Progress
-
-
-
Finished Goods
-
-
-
Notes Receivable
-
-
-
Other Current Assets
1946.3
1726.5
1916.4
Total Current Assets
34314.9
30862.1
32228.9
Property Plant And Equipment
4139.9
4058.4
3764.8
Accumulated Depreciation
2162
2038.6
1820.5
Net Property Plant And Equipment
1977.9
2019.8
1944.3
Investment And Advances
2796.3
2630.3
2231.8
Other Non-Current Assets
-
-
-
Deferred Charges
-
-
-
Intangibles
25526.1
25720.2
25040.1
Deposits And Other Assets
467.9
485.4
619.9
Total Assets
65083.1
61717.8
62065
Notes Payable
1518.9
1840.9
1915.3
Accounts Payable
12072.8
11033.6
10647.3
Current Portion Of Long Term Debt
928.4
-
625
Current Portion Of Capital Leases
-
-
-
Accrued Expenses
-
-
-
Income Taxes Payable
-
-
-
Other Current Liabilities
6774.3
6218.1
5565.8
Total Current Liabilities
21294.4
19092.6
18753.4
Mortgages
-
-
-
Deferred Charges Taxes Income
2779.9
2630.6
3226
Convertible Debt
-
-
-
Long Term Debt
14358.5
15324.5
14127.2
Non-Current Capital Leases
-
-
-
Other Long Term Liabilities
1549.9
1626
1707.1
Total Liabilities
39982.7
38673.7
37813.7
Minority Interest
-
-
-
Preferred Stock
-
-
-
Common Stock Net
2.6
2.6
2.7
Capital Surplus
8805.1
8555.6
10062.3
Retained Earnings
16560.6
14778.5
14014.4
Treasury Stock
-
-
-
Other Liabilities
-267.9
-292.6
171.9
Shareholders’ Equity
25100.4
23044.1
24251.3
Total Liabilities And Shareholders’ Equity
65083.1
61717.8
62065
update Date
0
0
0
