Comment by fellowniusmonk

Even using more accurate financial indicators like Operating Cash Flow and Free Cash Flow still leave lots of room to obfuscate egregious behavior.

I don't know, people who talk about profit margins as if they mean anything in this context are either financially naive or are trying to muddy the water.

I'm not sure a low profit margin is indicative of a company providing a moral degree of service to their insured. Certainly naive profit margin percentages don't show the terptitude of overcharging cancer patients.

For someone who doesn't get this, if a company like UHC buys an entire hospital group they can use that expenditure to legally "hide" profits by reducing their "profit margin" short term while decreasing competition in the space.

If a company acquires enough debt in a given year they can "hide" nearly unlimited profit margins legally.

On a larger scale, a company (UHC) can dump money into "external" money losing ventures that just serve to hold wealth and take that money off their balance sheet, once that entity takes on enough debt the same company (UHC) can acquire it taking on that debt and reducing their profit margin yet again.

GE Capital and Amazon are poster children for having done this process in a legal fashion.

As a beginners guide, if you have access to a talented accounting firm you can ask about these approaches to get started:

1. Management & Consulting Fee Arrangements (Especially with Related Parties)

2. Transfer Pricing (in Multinational Contexts)

3. Debt Pushdown & Thin Capitalization

4. Special Purpose Entities (SPEs) or Variable Interest Entities (VIEs)

5. Intellectual Property (IP) Holding Companies