Humana Inc (HUM) Is Financially Stable And Healthy

November 9th, 2012 Posted by Company Research Report No Comment yet

Humana Inc (HUM) shows that the company is financially stable and healthy in the past five years.

Humana Balance Sheet

Liquidity ratios of Humana Inc. from 2007 to 2011 are as follows:


  • Working capital in dollars was 4861, 5324, 6820, 7418 and 7972, with an average of 6469. This is the funds left after deducting short-term obligations from the company’s current asset.  As we noticed, the company is doing good, its working capital is consistently increasing year to year and continued to have positive results.
  • The company’s current ratio was 4.27, 4.27,4.80, 4.55 and  4.65. The average was4.51, which means that its current asset was 451 percent of its current liabilities. It shows that the company possessed vast current resources.
  • Its quick ratio was also 4.27, 4.27, 4.80, 4.55 and 4.65, with an average of 4.51, which means that current resources(net of inventory) were 451 percent of its short-term obligations since the company has no inventory.
  • And net working capital ratio was .37, .41, .48, .46 and .45 with an average of .43. This means that the average net working capital left was 43 percent after paying off its current obligations.


Based on the above table, the company is financially stable as far as its current resources are concerned. Working capital was consistently positive and continued to increase yearly.  Its current ratio has an average of more than 451 percent as well as its quick ratio and after the settlement of its current obligations, the company’s  working capital left was 43 percent.

Humana Inc. is a health insurance company, its current assets are consists of short-term investments and cash and cash equivalents and premiums and other receivables. The company has no inventory, accounts receivable as well as accounts payable. 



  • Debt ratio was .69, .66, .59, .57 and .54, with an average of .61 which means that in five years time its total liabilities was  61 percent against total assets. The company’s total debt when compared to its total assets reached more than 50 percent.
  • Debt to equity ratio was 2.20, 1.93, 1.45, 1.33 and 1.20, with an average of 1.62. This tells us that its debt was  162 percent of owners’  equity.
  • And solvency ratio was .12,  .10, .15,  .15 and  .18. The average was .14. This tells us that  Humana Inc. is 14 percent solvent.


  • Current liability to total asset was .11, .12, .13, .13 and .12. The average was .12. This tells us that the creditors, most probably suppliers have only 12 percent claims on the total assets of the company.
  • Long term liability to total asset was .13, .15, .12, .10 and .09with an average of .12 meaning that the banks have also 12 percent claims on the company’s assets.
  • Owners’ equity to total asset was .31, .34, .41, .43 and .46. The average was .39. This means that the stockholders or owners have the majority control of the total assets of the company at a percentage of 39.

Referring to the above data, the company was indebted at an average of 61 percent of total assets and 162 percent if compared to its owners’ equity. As a health insurance company, the company is operating its business through loans.

Humana Property, Plant & Equipment

The table below shows us the investment in property, plant, and equipment of Humana Inc. from 2007 to 2011:


Humana Inc. has an investment in PPE of 637, 711, 679, 815 and 912, with an average of 751 in five years’ period; however, there was no record of accumulated depreciation. The company had only recorded depreciation and amortization of 185, 220, 250, 263 and 270 or average of 238 and this represents 29, 31, 37, 32 and 30 percent of the gross PPE.

Humana Income Statement


Profitability ratios of  Humana Inc. from 2007 to 2011 are as follows:


  • Net margin of the company has an average of .03 percent and is quite low. This is the after-tax profit a firm generated for each dollar of revenue.
  • Asset turnover ratio was 1.96, 2.22, 2.19, 2.10 and 2.08, with an average of 2.11 which means that Humana Inc. generates $2.11 average of sales for every $1 of assets.  As noticed, the asset turnover ratio is inversely related to the net profit margin, the higher the asset turnover the lower the net margin and vice versa.
  • Return on asset  was .06, .05, .07, .07 and .08 with an average of .07. This means that the company generated a profit of $0.07  for each $1 in the asset.
  • Return on equity was.32, .22, .28, .25 and .28. The average was.27 which shows the firm’s earnings on the funds invested by the shareholders or owners. The company’s high ROE was in 2007.
  • Financial leverage or equity multiplier was 3.20, 2.93, 2.45, 2.22 and 2.20. an average of 2.62. This is derived by dividing total asset by total stockholders’ equity. It allows the investor to see what portion of the ROE is the result of debt.
  • Return on invested capital was .15, .10, .14, .13 and .15.Average of .13. This shows us how well a company generates cash flow relative to the capital it has invested in its business.


The company had a low net margin of 3 percent average. Its operating asset was efficiently used as the firm generated $2.11 average of sales for every dollar of the asset while it has also generated a profit of $0.07. Return on equity was 27 percent average which means that it earned $0.27 for every $1 of equity investment. And finally, the company’s return on invested capital had an average of 13 percent which shows the company’s efficiency in generating cash flow relative to invested capital or  $0.13 for each dollar of invested capital.



  • Revenue was consistently increasing per year with a growth rate of 14, 7, 9 and 9 percent respectively from 2007 to 2011.
  • Gross profit was 5019, 5238,  6185, 6780 and 8009, trailing twelve months of 8064. The trend is increasing year after year. This is the result after deducting the cost of revenue from revenue.
  • Operating income/income before tax was 1289, 993, 1602, 1750 and 2235with trailing ttwelve monthsof 1966.This was the difference between gross profit and the operating expense.  Humana Inc. operating income in 2008  declined by 23 percent compared to 2007 results, but they were able to recover in 2009 and continue trending up until 2011.
  • And finally, income, after tax was 834, 647, 1040, 1099 and 1419 and trailing twelve months, was 1248. The company’s after-tax income in 2008  declined by 22 percent but managed to rise up in 2009 until  2011.


The past five years performance of Humana Inc. was impressive because it showed positive revenue, with consistently increased per year. After deducting the cost of revenue, operating expenses and provision for income tax, the company maintained a positive income throughout its five years of operation, with a slight decline in 2008. The good thing is the company was to recover thereafter until 2011.


Shown below are the expenses of  Humana Inc. from 2007 to 2011:


  • The cost of revenue was 20271, 23708, 24775, 27088 and 28823, with ttm of 30211. This represents 80, 82, 80, 80 and 78 percent of revenue.
  • Selling, the general and administrative expense was  3476, 3945, 4228, 4663 and 5395, with ttm of 5713. This is also 14, 14, 14, 14 and 15 percent of revenue.  The trend was also increasing per year.
  • Income tax was 456, 346, 562, 650 and 816, with ttm of 718, which is equivalent to 2, 1, 2, 2 and 2 percent of revenue.

Considering the industry of  Humana Inc. as a health care insurance, we could not compare it with a marketing or manufacturing company whose returns,  percentage wise reached as high as 20 percent. In the insurance industry,  5 percent net margin is quite high enough.


Detailed below is the company’s margin from 2007 to 2011:


  • Gross margin was .20, .18, .20, .20 and .22. The average was .20. The result fluctuated in 2008 by 2 percent; however, immediately recover and increased by 2 percent in 2011.
  • Operating income and pretax margin was .05, .03, .05, .05 and .06. with an average of .05.  with the same trend went to gross margin also.
  • Net margin was .03, .02, .03, .03 and .04. Average of  .03. The company incurred low net margin in 2008 but high in 2011 at 4 percent, resulted to an average of 3 percent in 5 years period.

Humana Inc. gross margin was at a normal level at 20 percent average throughout five years of operation with this kind of industry. After considering all the related operational costs plus provision for income tax, the company’s net margin was only 3 percent average. This is quite low; the company must exert effort to at least hit the 5 percent mark.

Modified Income Statement


  • As per above table, the company’s revenue was consistently going high, with its highest in 2011. with a yearly growth rate of  14, 7, 9 and 9 percent respectively.
  • After deducting the cost of revenue and operational costs, it resulted in a positive net income with its highest peak was in 2011.
  • The past year’s performance of Humana Inc. as far as its income statement is concerned is quite good and well managed.

Humana Cash Flow

The graph below shows us how the cash flow of  Humana Inc.:


  • Net income was 834, 647, 1040, 1099  and 1419, which is the result of the normal day to day operation of the business. Its peak was in 2011.
  • Accounts receivable was 658, 61, -153, -60 and -46.
  • Depreciation & amortization was 185, 220, 250, 263 and 303.
  • While other operating expenses was  92, 24, 19, 58 and 81.
  • So, its net cash provided by operating activities was 1224, 982, 1422, 2242 and 2079.  The result was trending up except in 2008  wherein it dropped by 20 percent against 2007 but thereafter it continued to increase, however it slightly decreased in 2011 by  7 percent.

As shown in the above table, operating cash flow was good throughout its five years period, it shows a positive result.  Transactions affecting cash flow operating apart from the net income were accounts receivable, depreciation and amortization and other operating expenses.

Cash Flow From Investing Activities

Transactions related to cash flow from investing activities of Humana Inc. from 2007 to 2011 are as follows:


  • Sales/Maturity of Fixed maturity was 3059, 5867, 5534, 3833 and 2882.
  • Acquisition & disposition was -493, -423, -12, -832 and -226.
  • Purchase of investments was -3489, -5681, -7197, -4589 and -3678.
  • Property & equipment, net was -213, -262, -184, -222 and -336.
  • And other investing activities was -709.
  • Net cash for investing activities was -1845, -498, -1859, -1811 and -1359.

Data of Humana Inc. shows that investing cash flow of the company resulted in a negative balance since its cash outflow was more than its cash inflow.  Total cash outflow in the past 5 years was -4904, -6366, -7393, -5643 and -4240 and total were 28,546; while its cash inflow was 3059, 5867, 5534, 3833 and 2882 with a total of 21175.  Overall difference was -7371.

Cash Flow from Financing Activities


Change in short-term borrowings was 326, -1448, -250, 35 and -56.

  • Long-term debt issued was 749 in 2008,
  • Long-term debt payment  in 2008 was -51,
  • Common stock issued in 2007 was 62,
  • Repurchase of treasury stock was -27, -106, -23, -109 and -541,
  • Cash dividends paid was -82 in 2011,
  • Other financing activities was 561, 303, 354, -298 and -338,and
  • Net cash provided by financing activities was  921, -554, 81, -371 and -1017.

Transactions involved under this category, financing cash flow, were limited to issuance of common stock and payment of dividends to shareholders in 2010 and 2011 only.

Free Cash Flow

Shown below is the free cash flow of  Humana Inc. from 2007 to 2011:


Free cash flow was the net amount after deducting capital expenditure from operating cash flow. For the past five years, the company free cash flow was 1011, 720, 1238, 2020 and 1743.  It shows that Humana Inc. has sufficient funds to retire long-term debt, pay dividends and invest additional lines of business.

Cash Flow Ratios

Cash flow ratios measure a company’s ability to meet ongoing financial and operational commitments. The following ratios are used on computingHumana Inc.’s cash flow  from 2007 to 2011:



  • Operating CF to sales was .05, .03, .05, .07 and .06; average of .05, which means that the company generates an average of $0.05 of cash flow for every $1 dollar of sales.
  • Operating cash flow ratio and current coverage ratio was  .83, .60, .79, 1.07 and  .95. an average of .85. It is the result after dividing cash flow from operation by total current liabilities. This tells us how much cash flow can cover the short-term obligation of the company.
  • Free cash flow ratio was .83,  .73, .87, .90, and  .84.with an average of .83. It shows that the company has available funds to retire additional debt, additional dividends and invest another line of business.
  • Capital expenditure ratio was 5.75, 3.75, 7.73, 10.1 and 6.19 with an average of 6.7. By the way, capital expenditure is a ratio that measures a company’s ability to acquire long-term assets using free cash flow. It shows us that the company has the ability to invest in itself.
  • Total debt ratio was .14, .11, .17, .24  and  .22 with an average of .18. This means that Humana Inc has only 18 percent ability to carry its total debt.  This ratio provides an indication of a company’s ability to cover total debt with its yearly cash flow from operations. According to Rio, the higher the percentage ratio; the better the company’s ability to carry its total debt.


As shown above, the company is doing well in its operation, cash flow ratios show that  Humana Inc. has available funds to expand its business thru investment of other lines. In the same manner, it has also the ability to cover not only short-term debt but long term debt as well.  With regards to its CAPEX, the company has the ability to acquire long-term assets using its cash flow, so the company will further grow.

Written by Rio

Edited by Cris

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