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Kimberly Herring
Financial Accounting
VPMBA 651A
Term Report: Aetna Financial Analysis
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Financial Analysis and Assessment
Aetna Inc
Industry: Insurance
Periods: One fiscal year against the previous fiscal year
Currency in
Millions of US Dollars

Aetna Inc. is a diversified healthcare benefits company. The Company offers a range of
traditional and consumer-directed health insurance products and related services, including
medical, pharmacy, dental, behavioral health, group life and disability plans, medical
management capabilities, Medicaid healthcare management services and health information
exchange technology services. The Companys operations are conducted in three business
segments: Health Care, Group Insurance and Large Case Pensions. Its customers include
employer groups, individuals, college students, part-time and hourly workers, health plans,
healthcare providers, governmental units, government-sponsored plans, labor groups and
expatriates. I chose Aetna Inc. for my company analysis not only because I wanted to learn more
about the company, but also because Aetna takes a solid approach to corporate responsibility
through their Aetna Foundation. Their philanthropy arm, Aetna Foundation, supports many
underserved communities with healthcare and awareness. My detail analysis of the companys
financial position in the current period 2013 and prior period 2012 will highlight various trends
and provide information about Aetnas ability to meet obligations as they come due, profitability,
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sales growth status, assets assessment, borrowing and hiring effectiveness. Aetnas financial
statements and ratios were analyzed for investment purposes.

LIQUIDITY

Aetnas liquidity position is about average compared to its competitors United Health Group and
Cigna Corporation. Aetnas negative increase in working captital suggests that the company
lacks the funds necessary for growth, and this may be due to the increase in the account
receivable days compared to the prior period. However, Aetna working capital is about average
when looking at competitors like United Health Group, with a working capital of ($10,258,000),
and Cigna Corporation with a positive working capital of $2,015,000. The increase in acccounts
receivable days from 17.48 in 2012 to 24.55 in 2013 indicates that attention will need to be
focused on streamlining the A/R process to maintain a consistently positive liquidity. The
operating cash flow increase from the prior period to current 2013 is a key indicator of the
company's ability to generate cash to meet obligations. This increase indicates positive cash flow
that Aetna generates from continuing operations. However, looking at the decrease in the quick
and current ratios from 2012 to 2013 indicate that the company is not in a position to quickly
convert assets as they were able to in the period prior. This may be due to the 49% increase in
current liabilities in 2013.
Financial Indicator Current Period Prior Period
Working capital (2968.9) (418)
Accounts Receivable Days 24.55 17.48
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Accounts Payable Days 33.42 32.39
Operating Cash Flow 2940.5 2547.3
Quick Ratio 0.54 0.76
Current Ratio 0.76 0.95
















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PROFITS & PROFIT MARGIN

The net profit margin did not rise in 2013, as might be expected, in fact it decreased. Since some
costs are fixed, the net profit margin should generally rise when the company generates more
sales and gross profit dollars than last period. Although the gross profit dollars increased from
$9,919,400 to $12,043,500 the goal is to improve the net profit margin when increasing sales.
The gross profit margin has decreased but is still positive relative to other companies in the
industry. Although the Return on Equiity decreased from 24.42% to 20.89% from one period to
the next, the business is still generating gross profit dollars and is still in line with industy
averages at 13.14%. Shareholders should have some comfort in knowing that the business is
overall profitable. If managers can continue to grow the business and find ways to minimize the
COGS, the company will be in good health.

Financial Indicator Current Period Prior Period
Operating Cash Flow Margin 6.2 7.0
Return on Equity (ROE) 20.89 24.42

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25.47
27.1
Gross Profit Margin
Current Period

25.47
18.69
Gross Profit Margin
Aetna Industry Avg
15.67
13.87
ROE %
Aetna Industry Avg
4.05
3.54
Net Profit Margin
Aetna Industry Avg
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SALES

The company did good in raising sales by 29% in 2013. Higher sales are certainly better than
lower sales since the company relies on sales to fund additional expenses. The company
increased sales, at the same time as fixed assets were increased by 34% in 2013. This implys that
the increase in assets were contributed to sales which could indicate growth. Unfortunately, the
company fixed asset ratio decreased which means that the company is not turning fixed assets
effectively, which is not good.
On the other hand, the employee base rose slower than sales levels in this period, which means
that the company is driving more sales through employees, which is good.

Financial Indicator Current Period Prior Period
Sales Per Employee $1.360 $1.053
Fixed Asset Turnover 65.51 67.78


ASSETS

The 20% increase in total asset purchases represents large investments that can lead to long-term
profitability. This is a very good result, because it can help improve the return on assets
over the long term, this will increase profitability. In addition to increasing assets, lowering
assets while improving the profitability will also improve the health of the company in the long
run. Aetnas managers will want to carefully consider whether or not to purchase additional
assets at this time. Just my initial analysis of the companys financials would indicate that the
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company may not need to purchase assets right now and continue improving profitability for the
next period.

Financial Indicator Current Period Prior Period
Return on Assets $5.896 $6.139
Asset Composition 19.32 19.35



BORROWING

The question that is posed when analyzing the companys Debt to Equity ratios is whether the
company is borrowing funds effectively to be profitable in the long run. After some analysis it is
clear that Aetnas Leverage ratios and Debt to Equity ratios this period would be more favorable
to the companys investors rather than its creditors. Aetna's leverage ratios and Debt to Equity
ratios are both higher than industry averages. This could be very good for investors looking at
the return of benefits; however for potential creditors these higher ratios could pose a risk.

5.90
6.14
5.11
ROA %
Current Period Prior Period Industry Avg
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EMPLOYEES

It is good to see that the annualized amount of profits that each employee has generated in this
period is higher than the previous period. This implies that the company has good hiring
practices, and managers hire employees that can generate additional profitability in the long run.

Financial Indicator Current Period Prior Period
Profit per Employee 84,565.17 73,257.22



3.56
2.69
Leverage Ratio
Aetna Industry Avg
0.56
0.5
Debt/Equity Ratio
Aetna Industry Avg

$84,565.17

$73,257.22
Profit per Employee
Current Period Prior Period
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RAW DATA 2013 2012

Income Statement Data

Sales (Income) $ 47,289.90 $ 36,599.80
Cost of Sales (COGS) $ 35,246.40 $ 26,680.40
Gross Profit $ 12,043.50 $ 9,919.40
Gross Profit Margin $ 25.47 $ 27.10
Selling General & Admin Expenses, Total $ 8,330.80 $ 6,703.20
Depreciation and Amortization $ 214.60 $ 142.00
Interest Expense $ (333.70) $ (268.80)
Net Profit before Taxes (EBITDA) $ 2,940.50 $ 2,547.30
Net Profit Margin $ 6.22 $ 6.96

Balance Sheet Data

Cash (Bank Funds) $ 3,391.20 $ 4,586.70
Accounts Receivable $ 3,181.20 $ 1,752.60
Total Current Assets $ 9,634.00 $ 8,030.00
Fixed Assets $ 721.90 $ 540.00
Total Assets $ 49,871.80 $ 41,494.50
Accounts Payable $ 3,226.90 $ 2,367.40
Total Current Liabilities $ 12,602.90 $ 8,448.00
Long-Term Debt $ 7,865.30 $ 6,481.30
Total Liabilities (Total Debt) $ 35,793.60 $ 31,065.30
Total Equity $ 14,078.20 $ 10,429.20
Full time FTE 34772











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At first glance when reviewing Aetnas financial statements it seems like the company did not do
as well as the previous year. This is because I was only considering the drop in gross profit
margin, which is used to fund operating cost. After further review, I realized that Aetnas
managers may be setting up the company for future growth - for which expenses incurred now
will result in higher long term profits. Additionally, Mark Bertolini, CEO of Aetna also spoke to
the growth of the company in his Q4 2013 earnings call. He mentioned that by Aetnas recent
acquisition of Coventry Healthcare in 2013, which was the largest acquisition in Aetnas history,
the company can focus more towards a patient-centric population with a stronger business
strategy. This shift in business in 2013 may have directly impacted the financials for the current
period, but in the long run the company will be stronger. The Q4 2013 figures show Aetnas true
strength, as the company fell in their gross profit margin but increased earnings per share of
$1.34, which is 43% more than 2012.

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