Centene Corp is a publicly listed company in the US stock exchange. The company is headquartered in St. Louis, Missouri. It offers health benefits to more than 4.1 million people. The company has a market capitalization of $8.5 billion and is one of the best-performing companies in the medical insurance sector in the United States. It has branches in 22 states and offers services to more than 4.1 million people (Orr, 2015, p.7). The company reported revenues of $16.6 billion in 2014, which represented a 52 percent increase from the previous period. This paper seeks to carry out a financial statement analysis to determine the risk profile and profitability of the company. To determine the risk and profitability, we shall critically analyze debt ratios, current ratios and equity ratios of the enterprise.
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Financial statement analysis
There are various reasons for analyzing financial statements such as to determine the risk and profitability of a company. It involves analysis of financial statements to determine its past, present and future performance. The analyses allow managers and other stakeholders such as investors to make sound investment decisions. For instance, financial analysis is imperative to investors since it help them to determine whether a firm has been making profits or not. Moreover, it helps them to identify the financial risks associated with that particular company. This information can be obtained from financial statements of the enterprise (Ronak, 2015, p. 78).
Globally, International Financial Accounting Standards (IFAS) require all publicly listed companies to prepare financial statements and file them with the relevant authorities. In the US, all public listed companies are required by law to file their financial statement with the Security and Exchange Commission. Moreover, all listed companies are obligated to present their annual reports to their stakeholders. Financial statements are also prepared in order to meet accounting standard requirements. Moreover, financial statements are prepared to analyze future cash flow and profitability to help managers make strategic decisions. Hence, financial statements are prepared in order to analyze past information that will help managers to predict the future outcome. Finally, financial statements are prepared to identify potential challenges in future and troubleshoot them.
Method of financial statement analysis
There are two major methods of analyzing financial statements including trend analysis or horizontal analysis and vertical analysis. Horizontal financial analysis refers to the comparison of financial information of the same company over a number of reporting periods. This analysis can also be done using financial ratios of the company over the same time span (Robu & Robu 2015, p. 74). The main objective is to identify whether the numbers are high or low in comparison with other periods. For instance, management can compare costs of sales from different periods to determine the cause of a rise in costs.
Vertical analysis is a financial analysis technic that is undertaken for a single period only. To compare each item in the financial statements, it converts each figure into a base figure of another item. It simply means that each item in the income statement is expressed as a percent of gross sales, while in the statement of financial position; items are expressed as a percentage of total assets.
Financial ratio analysis is a tool used to identify the relationship between values in a balance sheet and relate them to company’s performance in future. Ratio analysis is one of the best financial analysis tool used to determine profitability and risk profile of a business. For instance, the debt ratio is used to show how a firm’s assets have been financial by external sources of finance. There are different types of ratios such as gearing ratios, profitability ratios, and equity ratios.
This ratio is used to indicate the level at which fixed return capital has financed a firm. For instance, we can calculate the debt ratio that is used by investors and other stakeholders to assess the financial risk of a business (Post & Byron, 2015). We shall calculate the debt ratio using 2014 financial statements.
Debt ratio= total liability/ total assets
Total liability can be calculated as follows
Current liabilities + long-term debt + preferential share capital
|Long term debt||5|
|Total current liability||992|
Debt ratio= 992/5838 = 0.17
This ratio shows that for every dollar of fix asset in Centene Corp, 0.17 is financed using external sources of funding.
Debt to equity ratio
This ratio shows the percentage of long-term debt for every 1 dollar of equity. This ratio can be calculated by dividing the long-term debt with total equity.
Debt to equity ratio= long-term debt/ equity
Long-term debt =1129
Equity = 1744
1129/1744 = 0.65
This means that for every $1 of equity, Centene Corp is using 0.65 of debt to finance the company.
This ratio shows the ability of a firm to meet its short-term financial obligations. For instance, current ratio shows the number of times current assets can cover current liabilities.
Current ratio= current asset/ current liabilities
Current assets =2699
Current liabilities = 992
This ratio shows that current assets can cover current liability by 2.72 times.
Orr, H. (2015). CNC – Centene Corp – Company Analysis and ASR Ranking Report. Alpha Street Research Reports, 3(2), 1-9.
Post, C., & Byron, K. (2015). Women on boards and firm financial performance: a meta-analysis. Academy Of Management Journal, 58(5), 1546-1571.
Robu, l., & Robu, M. (2015). Statistical Analysis of the Audit Opinion influence on the Value Relevance of the Financial information. Audit Financiar, 13(131), 73-81.
Ronak, Z. (2015). An empirical analysis of the vulnerability of the countries to the financial crisis of 2008. Skyline Business Journal, 11(1), 72-88.