Profitability and risk-return comparison across health care industries, evidence from publicly traded companies 2010–2019

• Published in: PloS one 2022-11, Vol.17 (11), p.e0275245-e0275245
• Main Authors: Bai, Ge, Rajgopal, Shivaram, Srivastava, Anup, Zhao, Rong
• Format: Article
• Language: English
• Subjects: Biology and Life Sciences; Biotechnology; Biotechnology industry; Economics; Engineering and Technology; Health care; Health care facilities; Health care industry; Health care policy; Health risks; Insurance industry; Medicine and Health Sciences; Profitability; Social Sciences; Volatility
• ISSN: 1932-6203; 1932-6203
• DOI: 10.1371/journal.pone.0275245

We conducted the first profitability comparison study across health care industries in the United States, using the DuPont Analysis framework. The combination of Return on Equity (ROE) and ROE volatility was used to provide a comprehensive “risk-return” approach for profitability comparison. Based on the 2010–2019 financial disclosures of 1,231 publicly traded health care companies in the U.S. that reported positive assets and equity, we estimated the industry-specific fixed effects on ROE and its three components—profit margin, asset utilization, and financial leverage—for ten industries in the health care sector, classified by the Global Industry Classification Standard (GICS). For each industry, we also estimated its fixed effects on ROE volatility. We found that the pharmaceuticals industry and biotechnology industry have lower ROE—mainly driven by their relatively low profit margin and low assets utilization—and higher ROE volatility than other health care industries. We also found that the health care facilities industry relies most on debt financing. This study demonstrates a holistic approach for profitability comparison across industries.