Healthcare

Answers to our Exorbitant annual profit margin test

Here are the companies that generated the profit margins in yesterday’s quiz post (based on latest data from Bloomberg) indicated. Any surprises?

  • 1. -.31% 🤑 CVS

  • 2. 22.41% 🤑 Apple

  • 3. – 38.80% 🤑 Kraft/Heinz

  • 4. 4.07%. 🤑 Anthem ✔️

  • 5. 18.75% 🤑 Johnson and Johnson

  • 6. 2.96% 🤑 Humana ✔️

  • 7. 5.42 🤑 Cigna ✔️

  • 8. 31.18% 🤑 Microsoft

  • 9. 1.3% 🤑 WalMart

  • 10. 5.30% 🤑 UnitedHealth Group ✔️

  • ✔️= Health Insurance Company

    Based on Forbes list, health insurance does not even make the top sixteen list of profitable industries. But you know what does? Physician offices at #7 other medical services at #10 and even outpatient health care services.

    Just an FYI here are some pharma margins:

    Merck 14.71%

    Eli Lilly 13.16%

    Astra Zeneca 9.76%

    Novartis 23.72%

    Glaxo SmithKline 11.76%

    Novo Nordisk 34.54%

    Amgen 35.35%

    What Is Profit Margin?

    Profit margin is one of the commonly used profitability ratios to gauge the degree to which a company or a business activity makes money. It represents what percentage of sales has turned into profits. Simply put, the percentage figure indicates how many cents of profit the business has generated for each dollar of sale. For instance, if a business reports that it achieved a 35% profit margin during the last quarter, it means that it had a net income of $0.35 for each dollar of sales generated. Source: Investopedia

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    6 replies »

    1. Thank you for this, Mr. Quinn.

      I’d like to also highlight something that isn’t specifically noted in your post or in the comments, but has, in my opinion, a very large impact on the costs of “health care” in the United States.

      As follows …

      All of the 10 companies you list for profit margin comparison here have one significant feature in common – they are all publicly-traded, “for-profit” companies*. That has two implications: 1. Those companies/corporations pay both state and federal taxes on their “profits”, whatever they are, and 2. (more importantly) They are required by law to publish their accounting records (quarterly/annually) for full public scrutiny. You have provided a bit of that “public scrutiny” here with this post. Again, thanks.

      But larger questions occurred to me while reading your post and the comments here (actually, earlier) – Where are the accounting records, and attendant “public scrutiny” thereof, for the actual health care providers such as hospitals, clinics, etc.? The answer is, there aren’t any (or at least very few.)

      The vast majority (I’ve read over 85%**) of hospitals/clinics/etc. – actual health care providers in the U.S. – operate under IRS 501(c) or 501(r) “nonprofit” status. Again, there are those two implications:
      1. Those hospitals/clinics/etc. are tax exempt. By definition (only), they are “nonprofit” and only “profits” are taxed. and,
      2. Those “nonprofit” organizations are NOT required to release their accountancy records/reports to the public – for public scrutiny.

      I have no particular interest in taxing hospitals/health care providers. But it does give me pause that the accounting records/reporting of those entities are withheld from the public and from public scrutiny. As you, as well as Vince and Dwayne, have noted, even a little bit of “public scrutiny” of accounting records/reports can go a very long way towards creating an “informed” voter, or even an “informed” health care recipient. That becomes a problem when there is no publicly available information. There has been some (political) discussion of compelling health care providers to make their services pricing public and advertised – and I endorse that. But I can’t help but wonder how critical the “public” would be if Walmart, and the other nine “for profit” companies listed in your post ONLY publicly provided their service/product prices, and no other information on their operations.

      Perhaps that “absence” of information is where folks should look to find the sources of the exorbitant health care costs in the United States – instead of the health insurers.

      * Full disclosure: I either own or have owned common stock in most of the 10 companies listed by Mr. Quinn. I’m an investor, and have been for about 45 years. As an aside, when I look though the accounting reports of companies I’m considering investing in, I do look at “profitability” and “profit margins”. But what I’m really looking for in all accounting reports, are indications of efficiency. And I would be looking specifically for efficiency in health care provider accounting records – IF they were publicly available.

      ** I can’t cite the source of the 85% “nonprofit” figure I used here. I simply don’t remember where I read it, but it was recent (within the last year), and as I recall from a reliable source. But you may take that claim as you would a glass of tequila – “with a grain of salt”. But I do know that there are two major, full-capability hospitals (with associated clinics) in my city, and both operate under “nonprofit” status. How about those in your city? Are their accounting records publicly available?
      Just asking.

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    2. Walmart is a surprise to me. I am not surprised that they have to run a thin profit margin because of competition, but I am surprised at how thin.

      I am not surprised about the hospitals and insurance companies because in some cases they are regulated and in other cases quasi market monopolies.

      The free market rewards those who take the risks and they will earn what the market will bear. Nobody needs or has to buy an Apple iphone, but people are willing to spend big money on Apple phones and Apple is rewarded.

      The drug companies take the risk in finding new drugs and should be rewarded. However, I believe that the rules in America right now allow the drug companies to restrict and preventing generics from entering the market once their patent protection expires, thus keeping there profits high from the lack of competition.

      And yes, we are all to blame if we have any pensions, bank accounts, or 401ks because we depend on the profit of these companies to pay for our investments.

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