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UnitedHealth Group Inc. (UNH)

Analysis of Goodwill and Intangible Assets

Advanced level

Accounting Policy on Goodwill and Intangible Assets
Goodwill and Intangible Assets Disclosure
Adjustments to Financial Statements: Removal of Goodwill
Adjusted Financial Ratios: Removal of Goodwill (Summary)
Adjusted Total Asset Turnover
Adjusted Financial Leverage
Adjusted Return on Equity (ROE)
Adjusted Return on Assets (ROA)

Accounting Policy on Goodwill and Intangible Assets

Goodwill

To determine whether goodwill is impaired, annually or more frequently if needed, UnitedHealth Group performs a multi-step impairment test. UnitedHealth Group may first assess qualitative factors to determine if it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value. UnitedHealth Group may also elect to skip the qualitative testing and proceed directly to the quantitative testing. When performing quantitative testing, UnitedHealth Group first estimates the fair values of its reporting units using discounted cash flows. To determine fair values, UnitedHealth Group must make assumptions about a wide variety of internal and external factors. Significant assumptions used in the impairment analysis include financial projections of free cash flow (including significant assumptions about operations, capital requirements and income taxes), long-term growth rates for determining terminal value and discount rates. Comparative market multiples are used to corroborate the results of the discounted cash flow test. If the fair value is less than the carrying value of the reporting unit, then the implied value of goodwill would be calculated and compared to the carrying amount of goodwill to determine whether goodwill is impaired.

There was no impairment of goodwill during the year ended December 31, 2018.

Intangible Assets

UnitedHealth Group’s intangible assets are subject to impairment tests when events or circumstances indicate that an intangible asset (or asset group) may be impaired. UnitedHealth Group’s indefinite-lived intangible assets are also tested for impairment annually. There was no impairment of intangible assets during the year ended December 31, 2018.

Source: 10-K (filing date: 2019-02-12).

Goodwill and Intangible Assets Disclosure

UnitedHealth Group Inc., balance sheet: goodwill and intangible assets

US$ in millions

		Dec 31, 2018		Dec 31, 2017		Dec 31, 2016		Dec 31, 2015		Dec 31, 2014
	Customer-related
	Trademarks and technology
	Trademarks and other indefinite-lived
	Other
	Other intangible assets, gross carrying value
	Accumulated amortization
	Other intangible assets, net carrying value
	Goodwill
	Goodwill and other intangible assets

Based on: 10-K (filing date: 2019-02-12), 10-K (filing date: 2018-02-13), 10-K (filing date: 2017-02-08), 10-K (filing date: 2016-02-09), 10-K (filing date: 2015-02-10).

Item	Description	The company
Other intangible assets, net carrying value	Sum of the carrying amounts of all intangible assets, excluding goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges.	UnitedHealth Group Inc.’s other intangible assets, net carrying value decreased from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level.
Goodwill	Amount after accumulated impairment loss of an asset representing future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized.	UnitedHealth Group Inc.’s goodwill increased from 2016 to 2017 and from 2017 to 2018.
Goodwill and other intangible assets	Sum of the carrying amounts of all intangible assets, including goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges.	UnitedHealth Group Inc.’s goodwill and other intangible assets increased from 2016 to 2017 and from 2017 to 2018.

Adjustments to Financial Statements: Removal of Goodwill

UnitedHealth Group Inc., adjustments to financial statements

US$ in millions

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Adjustment to Total Assets
	Total assets (as reported)
	Less: Goodwill
	Total assets (adjusted)
	Adjustment to Shareholders’ Equity
	Shareholders’ equity (as reported)
	Less: Goodwill
	Shareholders’ equity (adjusted)

Based on: 10-K (filing date: 2019-02-12), 10-K (filing date: 2018-02-13), 10-K (filing date: 2017-02-08), 10-K (filing date: 2016-02-09), 10-K (filing date: 2015-02-10).

UnitedHealth Group Inc., Financial Data: Reported vs. Adjusted

Adjusted Financial Ratios: Removal of Goodwill (Summary)

UnitedHealth Group Inc., adjusted financial ratios

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Total Asset Turnover
	Reported total asset turnover
	Adjusted total asset turnover
	Financial Leverage
	Reported financial leverage
	Adjusted financial leverage
	Return on Equity (ROE)
	Reported ROE
	Adjusted ROE
	Return on Assets (ROA)
	Reported ROA
	Adjusted ROA

Based on: 10-K (filing date: 2019-02-12), 10-K (filing date: 2018-02-13), 10-K (filing date: 2017-02-08), 10-K (filing date: 2016-02-09), 10-K (filing date: 2015-02-10).

Financial ratio	Description	The company
Adjusted total asset turnover	An activity ratio calculated as total revenue divided by adjusted total assets.	UnitedHealth Group Inc.’s adjusted total asset turnover ratio deteriorated from 2016 to 2017 but then improved from 2017 to 2018 not reaching 2016 level.
Adjusted financial leverage	A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity. Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.
Adjusted ROE	A profitability ratio calculated as net income divided by adjusted shareholders’ equity.
Adjusted ROA	A profitability ratio calculated as net income divided by adjusted total assets.	UnitedHealth Group Inc.’s adjusted ROA improved from 2016 to 2017 and from 2017 to 2018.

UnitedHealth Group Inc., Financial Ratios: Reported vs. Adjusted

Adjusted Total Asset Turnover

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Revenues
	Total assets
	Activity Ratio
	Total asset turnover¹
	Adjusted for Goodwill
	Selected Financial Data (US$ in millions)
	Revenues
	Adjusted total assets
	Activity Ratio
	Adjusted total asset turnover²

Based on: 10-K (filing date: 2019-02-12), 10-K (filing date: 2018-02-13), 10-K (filing date: 2017-02-08), 10-K (filing date: 2016-02-09), 10-K (filing date: 2015-02-10).

2018 Calculations

¹ Total asset turnover = Revenues ÷ Total assets
= hidden ÷ hidden = hidden

² Adjusted total asset turnover = Revenues ÷ Adjusted total assets
= hidden ÷ hidden = hidden

Activity ratio	Description	The company
Adjusted total asset turnover	An activity ratio calculated as total revenue divided by adjusted total assets.	UnitedHealth Group Inc.’s adjusted total asset turnover ratio deteriorated from 2016 to 2017 but then improved from 2017 to 2018 not reaching 2016 level.

Adjusted Financial Leverage

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Total assets
	Shareholders’ equity
	Solvency Ratio
	Financial leverage¹
	Adjusted for Goodwill
	Selected Financial Data (US$ in millions)
	Adjusted total assets
	Adjusted shareholders’ equity
	Solvency Ratio
	Adjusted financial leverage²

Based on: 10-K (filing date: 2019-02-12), 10-K (filing date: 2018-02-13), 10-K (filing date: 2017-02-08), 10-K (filing date: 2016-02-09), 10-K (filing date: 2015-02-10).

2018 Calculations

¹ Financial leverage = Total assets ÷ Shareholders’ equity
= hidden ÷ hidden = hidden

² Adjusted financial leverage = Adjusted total assets ÷ Adjusted shareholders’ equity
= hidden ÷ hidden = hidden

Solvency ratio	Description	The company
Adjusted financial leverage	A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity. Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.

Adjusted Return on Equity (ROE)

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Net earnings attributable to UnitedHealth Group common shareholders
	Shareholders’ equity
	Profitability Ratio
	ROE¹
	Adjusted for Goodwill
	Selected Financial Data (US$ in millions)
	Net earnings attributable to UnitedHealth Group common shareholders
	Adjusted shareholders’ equity
	Profitability Ratio
	Adjusted ROE²

Based on: 10-K (filing date: 2019-02-12), 10-K (filing date: 2018-02-13), 10-K (filing date: 2017-02-08), 10-K (filing date: 2016-02-09), 10-K (filing date: 2015-02-10).

2018 Calculations

¹ ROE = 100 × Net earnings attributable to UnitedHealth Group common shareholders ÷ Shareholders’ equity
= 100 × hidden ÷ hidden = hidden

² Adjusted ROE = 100 × Net earnings attributable to UnitedHealth Group common shareholders ÷ Adjusted shareholders’ equity
= 100 × hidden ÷ hidden = hidden

Profitability ratio	Description	The company
Adjusted ROE	A profitability ratio calculated as net income divided by adjusted shareholders’ equity.

Adjusted Return on Assets (ROA)

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Net earnings attributable to UnitedHealth Group common shareholders
	Total assets
	Profitability Ratio
	ROA¹
	Adjusted for Goodwill
	Selected Financial Data (US$ in millions)
	Net earnings attributable to UnitedHealth Group common shareholders
	Adjusted total assets
	Profitability Ratio
	Adjusted ROA²

Based on: 10-K (filing date: 2019-02-12), 10-K (filing date: 2018-02-13), 10-K (filing date: 2017-02-08), 10-K (filing date: 2016-02-09), 10-K (filing date: 2015-02-10).

2018 Calculations

¹ ROA = 100 × Net earnings attributable to UnitedHealth Group common shareholders ÷ Total assets
= 100 × hidden ÷ hidden = hidden

² Adjusted ROA = 100 × Net earnings attributable to UnitedHealth Group common shareholders ÷ Adjusted total assets
= 100 × hidden ÷ hidden = hidden

Profitability ratio	Description	The company
Adjusted ROA	A profitability ratio calculated as net income divided by adjusted total assets.	UnitedHealth Group Inc.’s adjusted ROA improved from 2016 to 2017 and from 2017 to 2018.

	UnitedHealth Group Inc.	Other companies (not purchased previously)
Financial Statements
Common-Size Financial Statements
Analysis of Financial Ratios
Relative Valuation
Discounted Cash Flow (DCF) Valuation
Economic Value Added (EVA)
Long-term Trends
Analysis of Components of Financial Statements
Financial Reporting Quality

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Financial Statements
Common-Size Financial Statements
Analysis of Financial Ratios
Relative Valuation
Discounted Cash Flow (DCF) Valuation
Economic Value Added (EVA)
Long-term Trends
Analysis of Components of Financial Statements
Financial Reporting Quality