Analysis Of Australian Healthcare Companies’ Financial Reports

Equity and liability positions of Medibank Ltd, QBE Insurance Group Ltd, and NIB Health Funds

The analysis of the various medical and health care services of the various companies operating in the Australia were analysed for the company. The various parts of the financial report and the components of the equity and liabilities of the companies were discussed and the reason behind the changes in the value of the same were taken into consideration for analysis. The changes in the cash flow statement of the company and the trend followed by the companies in the three years of times frame was also discussed (Nib.com.au 2018). The evaluation of the other comprehensive income statement of the company and a comparative analysis of the various items of the health care companies were discussed. The analysis of the accounting for the corporate income tax rate and the effective tax rate for the company was determined. The effective tax rate and the cash tax rate for the company thereby analysing the various aspect of the taxation was taken into consideration. On an overall basis the complete description of the above three companies were provided in various financial aspects (Catão and Milesi-Ferretti 2014). 

1. Changes in Equity: The Changes in equity could be well attributed to the various components of the equity, which are in the financial statement of the company. Common Stock, Retained Earnings and Other Comprehensive Income are some of the common items that were reported by the companies(Mourik 2014). The changes in Equity level was attributed and analysed for the three-year trend period and relevant analysis was discussed in the same context.

• Common Stock: The common stock for the NIB Health Funds has remained the same in the year 2016 and 2017 and has changed consistently in the year 2018. The common stock for the company increased in the year 2018. The common stock for the Medibank Ltd Company has remained the same showing that the company has not increased the equity base financing for the company in the trend period. The common stock for the QBE Insurance Group ltd. has remained almost the same for the company but has fallen slightly reflecting that the company have buy backed the shares of the company(Braun, Schmeiser and Siegel 2014).
• Retained Earnings: The retained earnings for the NIB Health Fund Company has increased from the year 2016 and 2017 and the same has consistently decreased consistently in the year 2018(Nguyen 2016). The fall could be attributed to the buyback that is done by the company by utilizing the retained profits of the company.  The retained earnings of the Medibank Company has increased consistently with the rising profitability and retention ratio of the company. The retained earnings of the NIB Holdings Ltd Company has also increased for the company with the increasing profitability of the company (Prampolini and Morini 2017).

1. Changes in Liability: The various components of the liability that were reported by the company were the Short Term Debt, Long Term Debt, Unearned Premiums and Deferred Income Taxes(Campbell, Galpin and Johnson 2016).

• Unearned Premium: The changes in the unearned premium represents the contingent liability of the companies. The unearned premium for the QBE Insurance Group Ltd has fallen consistently for the company in the three years of period. The unearned premium for the Medibank Ltd has increased for the company in the trend period reflecting the company is collecting fees and charges in advances from customers for the services that the company will be providing. The unearned premium for the NIB Holding Company also increased for the company in the trend period as same as the Medibank Company reflecting the contingent liability that is recognized in the financial statement of the company.
• Deferred Income Taxes: Thedeferred income taxes for the company changed frequently for the companies in the financial year 2016-2018. The deferred income tax for the QBE Insurance Company decreased slightly in the trend period representing a reducing liability in the deferred taxes for the company.  The Deferred income tax for the Medibank Company increased from the year 2016-17 with the increasing profitability of the company. The deferred income tax for the NIB Company has also increased for the company and remained volatile for the company. The changes in the deferred income taxes could be well attributed to the changing depreciation method, recognition of revenues and valuation of the inventory for the company.
• Changes in Debt and Equity: The change in the debt and equity for the companies was evaluated by assessing the changes in the financing source of the companies.

Debt and Equity Position of Firm (2016)
Particulars	QBE Ltd	Medibank Ltd Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	NIB Ltd
Debt	4815220	1687500	151867
Equity	14378593	1578700	387651

Debt and Equity Position of Firm (2017)
Particulars	QBE Ltd	Medibank Ltd	NIB Ltd
Debt	4787175	1742700	151700
Equity	14212272	1719800	428600

Debt and Equity Position of Firm (2018)
Particulars	QBE Ltd	Medibank Ltd	NIB Ltd
Debt	4626923	1715700	229500
Equity	11357692	1829200	557800

Debt and Equity Position of Firm (2016)
Particulars	QBE Ltd	Medibank Ltd	NIB Ltd
Debt	25.09%	51.67%	28.15%
Equity	74.91%	48.33%	71.85%
Total	100%	100%	100%

The debt and equity position shows the effect of the company on the financials of the company and the implication thereby on the overall capital structure of the company. The debt position in the company shows the overall effect of the financial risk of the company in contrast to the total capital structure of the company. Thus, it is optimal for the companies that they maintain an optimal debt to equity ratio for the company. 

1. The Cash flow statement for the company is broadly divided into three broad categories as cash flows from operating, investing and financing activities. The Operating activities shows the operating activities conducted by the company on a cash basis. The investing activity shows the purchase or sales of fixed assets for the company. The financing activities shows the amount and sources of financing activity done by the company(Robinson et al. 2015). The Cash flow analysis for the respective company was done for the three year trend period and the relevant analysis in regard to the same were taken into consideration for the companies.
2. Comparative Analysis

Particulars (2018)	QBE Ltd	Medibank Ltd	NIB Ltd
Cash Flow from Operating Activities	172	408.3	233.8
Cash Flow from Investment Activity	297	-190.8	-182
Cash Flow from Financing Activity	-721	342	75

Particulars (2017)	QBE Ltd	Medibank Ltd	NIB Ltd
Cash Flow from Operating Activities	559	393.4	171.7
Cash Flow from Investment Activity	158	75.9	-61
Cash Flow from Financing Activity	-555	313.4	-80.8

Particulars (2016)	QBE Ltd	Medibank Ltd	NIB Ltd
Cash Flow from Operating Activities	-16	352.3	148.4
Cash Flow from Investment Activity	-555	-38.6	-211.8
Cash Flow from Financing Activity	-388	-283.7	30.5

The Cash flow activities of the companies were evaluated by taking the changes in the operating, investing and financing activities of the company. The cash flow from operating activity for the QBE Ltd Company has been volatile and changing frequently reflecting volatile operations of the company. The operating activities of the Medibank Company at the same time has remained sustainable. Investment and financing activities for the company at the same time has remained sustainable for the above three companies and not much material changes were seen(Lin et al. 2015).

• The items that were reported in the comprehensive income statement of

Medibank Ltd:

• Revaluation of Land and Buildings
• Actuarial Gain/Loss on Retirement Benefit Obligation(Medibank.com.au 2018).

QBE Insurance Group Ltd:

• Net Movement in Foreign Currency Translation Reserves
• Net Movement in Cash Flow Hedges
• Gain/Loss on re-measurement of Super Annuity Plan.
• Losses on Revaluation of Owner Occupied Property.

NIB Health Funds:

• Exchange Difference on Translation of Foreign Reserves
• Income Tax
• The above items were not reported in the income statement as the items are not directly attributed to the operations of the income statement and the inclusion of the same in the income statement will make it volatile(Wahlen, Baginski and Bradshaw 2014).

1. Comparative Analysis:

Other Comprehensive Income	2016	2017	2018
QBE INSURANCE GROUP LTD	126	-480	-118
MEDIBANK PRIVATE LTD	2	2.5	0.7
NIB HOLDINGS LTD	94.5	120.1	131.5

 QBE Insurance Group Ltd:The inclusion of OCI will make the company report loss and the financial statement of the company would be volatile.

• Medibank Pvt Ltd:Other Comprehensive Income for the company has been positive as the company did not had major exposure to foreign currency and other related accounts.
• NIB Holdings Ltd:The Company had a classified wide range of OCI items which were reported by the company and the company has also classified the range of items that can be classified and attributed to Income statement.

1. Income is a key measure for managing the performance of the company and the same should be evaluated on an overall basis(Khan and Bradbury 2014). The other comprehensive income statement should be used for the evaluation of the performance of the company. The OCI statement includes several key points that including the revaluation of assets and the foreign currency gains and loss which could be well hedged by application of derivatives contracts should be assessed carefully (Gazzola and Amelio 2014). 

1. The tax expenses which are show by the company in the financial report are:

• QBE Insurance Group Ltd:
• Income Tax Expense on Profit
• Income tax in Contrast to Other Comprehensive Income Statement.
• Medibank Pvt Ltd:
• Income Tax Expenses
• NIB Health Funds Ltd:
• Income Tax
• Taxation on Other Comprehensive Income Statement.
• The effective tax rate for all the three companies were calculated by the formula (Income Tax Expenses/Earnings before Tax). The effective tax rate for the NIB Health Fund was the highest at around 31.08% among the peer companies evaluated for the trend period 2017-18(Qbe2016.qreports.com.au 2018). The effective tax rate for the company was calculated using the latest financial report of the company.

Particulars	QBE	Medibank	NIB
Profit before Income Tax	1072	628.3	174.4
Income Tax Expenses	228	183.2	54.2
Effective Tax Rate	21.27%	29.16%	31.08%

The deferred tax liability is created when the profit as per the tax law is lower than the actual reported profit in the books of accounts. The deferred tax asset is reported when the profit as per the tax is greater than the tax low. He reason for recording of deferred tax was the variability in the profitability level as per book and tax law. 

Particulars	QBE	Medibank	NIB
Deferred income tax assets	514	0	0
Deferred income taxes Liability	56	15.9	33.6

• Variability in Deferred Tax Asset and Liability.

Particulars	QBE	Medibank	NIB
Year	2018	2017	2017	2016	2018	2017
Deferred income tax assets	514	778	0	0	0	0
Deferred income taxes Liability	56	106	15.9	27.4	33.6	26.9

Cash flow activities of the three healthcare companies

QBE Insurance Group Ltd: The deferred tax assets for the QBE Company decreased in the year17-18 from 778 to 514mn. The deferred tax liability also decreased by about 50% for the company.

• Medibank Ltd:The Company did not had any deferred tax asset in the trend period however the deferred tax liability decreased in the trend period.
• NIB Health Fund Ltd:NIB did not had any deferred tax asset in the financial statement but still the deferred tax liability for the company increased from 26.9mn to 33.6mn in the trend period.

1. Cash Tax Rate

Particulars	QBE	Medibank	NIB
Income Tax Expenses	228	183.2	54.2
Add: Decrease in DTA	264	0	0
Less: Decrease in DTL	50	11.5	-6.7
Cash Tax	442	171.7	60.9
EBITDA	1072	628.3	174.4
Cash Tax Rate	41%	27%	35%

The company which had the highest cash tax rate was the QBE Insurance Group Ltd having the highest amount of cash tax rate at 41%. NIB Health Fund had a 35% cash tax rate and Medibank has 27% cash tax rate.

The cash tax rate and the book tax rate differs as the cash tax rate takes deferred tax and liabilities into account and then finally computes the actual cash tax which is paid by the company. The cash tax rate is a better assessment way for determining the net tax paid by the company after taking various factors and account in analysis. 

Conclusion

The assignment dealt with covering various aspects like the equity and liability base of the company. The cash flow statements of these companies was also analysed and the changes in the cash flow activities of the companies were also analysed for the last three years of time frame. The health care companies analysed for the purpose of analysis was the Medibank Company, QBE Company and NIB Company. The analysis of the company was done by analysing the equity and liability base of the company. The other comprehensive income statement of the company was also analysed for the company thereby analysing the implication of the same in the financial statement of the company. The OCI statement includes several key points including the revaluation of assets and the foreign currency gains and loss, which could be well hedged by application of derivatives contracts, should be assessed carefully. Taxation effect was viewed for analysing the various aspects and analysing the net cash rate and effective tax rate applicable for the company. On an overall basis there were various approaches and factors that were taken into consideration for the analysis of the companies operating in the industry.

Reference

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Campbell, T.C., Galpin, N. and Johnson, S.A., 2016. Optimal inside debt compensation and the value of equity and debt. Journal of Financial Economics, 119(2), pp.336-352.

Catão, L.A. and Milesi-Ferretti, G.M., 2014. External liabilities and crises. Journal of International Economics, 94(1), pp.18-32.

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Khan, S. and Bradbury, M.E., 2014. Volatility and risk relevance of comprehensive income. Journal of Contemporary Accounting & Economics, 10(1), pp.76-85.

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Qbe2016.qreports.com.au. (2018). Annual Report. [online] Available at: https://qbe2016.qreports.com.au/xresources/pdf/QBE16AR_Financial_Report.pdf [Accessed 26 Jan. 2019].

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