Continue week 3
12
Research Analysis for Business
ECO/561
April 18, 2019
Research Analysis for Business
There are various factors that may determine the sustainability and success of a firm. This appear therefore seeks to carry out analysis of economic data and business data. The paper will also explain how the core economic principles impact the sustainability of the firm. Finally, this paper will recommend actions that a firm can take to ensure success.
A publicly-traded company operating in the U.S market that is chosen for this particular analysis is UnitedHealth Group Incorporated (UNH). This company deals with health care and insurance products. It operates in the monopolistic competition market structure. UNH is the largest health insurance provider in the United States with a 13% market share (per a 2018 FIO Report). The company has been consistently beating street estimates in recent quarters supported by strong growth in revenue. The firm's local and global competitors include CVS Health Corporation, Gilead Sciences, Inc. Celgene Corporation, Stryker Corporation, and AstraZeneca PL.
The following are trends in current macroeconomic indicators for last three years in the United Sates:
Current stage of the business cycle
The United States is currently in the expansion phase of the business cycle. An expansion stage of the business cycle is characterized by increasing employment, economic growth, and upward pressure on prices.
Real gross domestic product (GDP)
The following graph below shows the trends of the Real Domestic Product (GDP) in the US for the last three years. GDP in the US has been increasing for the last three years. This can be interpreted to mean that the economy is performing well. The businesses within the various industries are generating more revenues.
Real Domestic Product (GDP)
Inflation as measured by the consumer price index (CPI)
The graph below shows the consumer price index for all urban consumers in the US. The trend has been increasing and sometimes falling. This can be interpreted o mean that sometimes the rate of inflation is high while sometimes it is low. The rate of inflation in the US has been fluctuating over the last three years.
Consumer Price Index
Unemployment rate
The graph below shows the rate of unemployment in the US over the last three years. The rate of unemployment in the US has been decreasing over the past three years. This means that more people are being employed in the US. This is because the economy has been performing well and more job opportunities created in various sectors of the economy.
Unemployment Rate
Federal funds rate
Federal funds rate is a short-term interest rate at which banks can borrow funds from each other. A low federal funds rate usually implies that the government is using expansionary monetary policy. This will lead to low interest rate for both firms and households. This translates to a relatively high level of inflation. On the other hand, a high effective Federal funds rate means there is a low level of inflation. Over the past three years the Federal funds rate has been increasing to mean that the rate of inflation in the US over the past two years has been low. The Federal funds rate serves as a base for interest rates offered by many financial and credit institutions to firms and households.
Federal Funds Rate
Current rate for borrowing funds
The current rate for borrowing funds has been increasing over the past three years in the United States. The rate of borrowing is high due to favorable interest rate. The interest charged on loans is favorable. That is why many individuals are borrowing funds from different financial institutions.
Bank Prime Loan Rate
Trends have been evaluated in demand over last three years and examined their impact on the industry and firm. The demand for health care products has been high over the past three years. The demand for health care is relatively inelastic. The graphs below show annual and quarterly data regarding the sales of UnitedHealth Group.
Quarterly Sales Data
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2018
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2018
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2018
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2018
UnitedHealth
Group Quaterly
Sales (Millions
US $)
Annual Sales Data
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2015201620172018
UnitedHealth
Group Annual
Sales (Millions
US $)
The data above shows that the sales of UnitedHealth Group have been increasing over the last three years. The increase in sales is attributed to the increase in demand for the firm’s products. The business strategies required in his particular case is for the firm to diversify its products and services so as to continue growing its market share. The firm should also put in place strategies to ensure that the firm is maintaining customer loyalty.
After examining the available current data and information, such as pricing and the availability of substitutes, it is determined the price elasticity of demand for product by assessing the responsiveness of customers to any changes in price. Price elasticity of demand impacts the firm's pricing decisions and revenue growth because it has a direct effect on the number of customers who are going to purchase the products of a firm at the prevailing prices. If the customers feel that the prices of products are too high, then the firm may end up taking loses due low volume of sales.
A firm that has larger number of variable costs when compared to fixed costs will have more consistent per-unit cost. The firm will therefore have a more consistent gross margin, operating margin and profit margin. A firm with a larger number of fixed costs as compared to variable costs may achieve higher margins as production increases. This is because revenues are increasing but costs are not increasing. However, it can also result in lower margins if production decreases.
Conclusion
Based on the data gathered and analysis performed for this particular report I can make the following recommendations. The firm should set prices of its products to be similar with the perfect substitute goods. The firm should carry out intense advertising to differentiate the products. These strategies will enable the firm to continue increasing its market share. Since the firm is one of the leading firms in the health industry then it still has a lot of potential expansions and exploring global opportunities in the dynamic business environment.
The firm can manage its future production by the carefully analyzing the behavior of macroeconomic and microeconomic variables such as interest rate, inflation, business cycles and the real GDP. These variables generally predict the behavior of the economy. The firm has a competitive advantage within the Medicare market and among its competitors will allow it to take your recommended action. The firm should offer products which meet the expectations of the consumers. This will enable the firm to sustain its success going forward.
References
Board of Governors of the Federal Reserve System (US), Bank Prime Loan Rate [MPRIME], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/MPRIME, April 16, 2019.
Board of Governors of the Federal Reserve System (US), Effective Federal Funds Rate [FEDFUNDS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/FEDFUNDS, April 16, 2019.
Organization for Economic Co-operation and Development, Unemployment Rate: Aged 15-64: All Persons for the United States [LRUN64TTUSA156N], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/LRUN64TTUSA156N, April 16, 2019.
U.S. Bureau of Economic Analysis, Real Gross Domestic Product [GDPCA], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/GDPCA, April 16, 2019.
U.S. Bureau of Labor Statistics, Consumer Price Index for All Urban Consumers: All Items [CPIAUCNS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/CPIAUCNS, April 16, 2019.
UnitedHealth Group Sales/Revenue data retrieved from https://www.macrotrends.net/stocks/charts/UNH/unitedhealth-group/revenue
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Comments: |
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Identified the market structure student’s chosen firm operates in, analyzed student’s chosen firm’s current market share, and identified the firm’s local/global competitors. Analyzed the barriers to entry in this market to illustrate the potential for new competition and its impact on firm’s future in the market. |
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You surprised me, I thought insurance companies were oligopolies. |
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Identified and explained trends in current macroeconomic indicators for last three years including: · Current stage of the business cycle. · Real gross domestic product (GDP). · Inflation as measured by the consumer price index (CPI). · Unemployment rate. · Federal funds rate. · Current rate for borrowing funds such as the so-called “prime rate.” |
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Evaluated trends in demand over last three years and explained their impact on the industry and the firm. Included quarterly (last two quarters) and annual sales (last three years) figures for the product student’s firm sells. Created business strategies by analyzing information and data related to the demand for and supply of firm’s product(s) to support student’s recommendation for the firm’s actions. Included a graphical representation of the data and information used in student’s analysis. |
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Examined available, current data and information, such as pricing and the availability of substitutes, and explained how student could determine the price elasticity of demand for firm’s product. Assessed how the price elasticity of demand impacts the firm’s pricing decisions and revenue growth. |
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Applied the concepts of variable and fixed costs to firm for informing its output decisions. Analyzed how different kinds of costs (labor, research and development, raw materials) affect the firm’s level of output. |
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Based on the data gathered and analysis performed student’s conclusion included: · Business strategies, including price and non-price strategies, based on market structure to ensure the market share and potential market expansions. Also included exploration of global opportunities for student’s business in a dynamic business environment and provided recommendations. · A recommendation for how the firm can manage its future production by synthesizing the macroeconomic and microeconomic data presented. · Proposal for how the firm’s position within the market and among its competitors will allow it to take your recommended action. · Recommended strategies for the firm to sustain its success going forward by evaluating the findings from demand trends, price elasticity, current stage of the business cycle, and government policies. |
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Cited a minimum of three peer-reviewed references and a minimum of two government economic data sources/references. |
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The analysis is a minimum of 1,050 words in length. |
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1082 words |
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Total Available |
Total Earned |
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7 |
6.5/7 |
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Writing Guidelines |
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Comments: |
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The paper—including tables and graphs, headings, title page, and reference page—is consistent with APA formatting guidelines and meets course-level requirements. |
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Intellectual property is recognized with in-text citations and a reference page. |
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Paragraph and sentence transitions are present, logical, and maintain the flow throughout the paper. |
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Sentences are complete, clear, and concise. |
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Rules of grammar and usage are followed including spelling and punctuation. |
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Total Available |
Total Earned |
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3 |
3/3 |
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Assignment Total |
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10 |
9.5/10 |
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Additional comments:
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