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Express Scripts Holding Co. (ESRX)

Economic Value Added (EVA)

Difficulty: Advanced

EVA is registered trademark of Stern Stewart.

Economic value added or economic profit is the difference between revenues and costs,where costs include not only expenses, but also cost of capital.

Economic Profit
Net Operating Profit after Taxes (NOPAT)
Cash Operating Taxes
Invested Capital
Cost of Capital
Economic Spread
Economic Profit Margin

Economic Profit

Express Scripts Holding Co., economic profit calculation

US$ in thousands

	12 months ended	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
	Net operating profit after taxes (NOPAT)¹
	Cost of capital²
	Invested capital³

	Economic profit⁴

Based on: 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-14), 10-K (filing date: 2016-02-16), 10-K (filing date: 2015-02-23), 10-K (filing date: 2014-02-20).

2017 Calculations

¹ NOPAT. See Details »

² Cost of capital. See Details »

³ Invested capital. See Details »

⁴ Economic profit = NOPAT – Cost of capital × Invested capital
= hidden – hidden × hidden = hidden

Item	Description	The company
Economic profit	Economic profit is a measure of corporate performance computed by taking the spread between the return on invested capital and the cost of capital, and multiplying by the invested capital.	Express Scripts Holding Co.’s economic profit increased from 2015 to 2016 but then slightly declined from 2016 to 2017.

Net Operating Profit after Taxes (NOPAT)

Express Scripts Holding Co., NOPAT calculation

US$ in thousands

	12 months ended	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
	Net income attributable to Express Scripts
	Deferred income tax expense (benefit)¹
	Increase (decrease) in allowance for doubtful accounts²
	Increase (decrease) in equity equivalents³
	Interest expense and other
	Interest expense, operating lease liability⁴
	Adjusted interest expense and other
	Tax benefit of interest expense and other⁵
	Adjusted interest expense and other, after taxes⁶
	(Income) loss from discontinued operations, net of tax⁷
	Net income (loss) attributable to noncontrolling interest
	Net operating profit after taxes (NOPAT)

Based on: 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-14), 10-K (filing date: 2016-02-16), 10-K (filing date: 2015-02-23), 10-K (filing date: 2014-02-20).

2017 Calculations

¹ Elimination of deferred tax expense. See Details »

² Addition of increase (decrease) in allowance for doubtful accounts.

³ Addition of increase (decrease) in equity equivalents to net income attributable to Express Scripts.

⁴ Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= hidden × hidden = hidden

⁵ Tax benefit of interest expense and other = Adjusted interest expense and other × Statutory income tax rate
= hidden × 35.00% = hidden

⁶ Addition of after taxes interest expense to net income attributable to Express Scripts.

⁷ Elimination of discontinued operations.

Item	Description	The company
NOPAT	Net operating profit after taxes is income from operations, but after removement of taxes calculated on cash basis that are relevant to operating income.	Express Scripts Holding Co.’s NOPAT increased from 2015 to 2016 but then slightly declined from 2016 to 2017.

Cash Operating Taxes

Express Scripts Holding Co., cash operating taxes calculation

US$ in thousands

	12 months ended	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
	Provision for income taxes
	Less: Deferred income tax expense (benefit)
	Add: Tax savings from interest expense and other
	Cash operating taxes

Based on: 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-14), 10-K (filing date: 2016-02-16), 10-K (filing date: 2015-02-23), 10-K (filing date: 2014-02-20).

Item	Description	The company
Cash operating taxes	Cash operating taxes are estimated by adjusting income tax expense for changes in deferred taxes and tax benefit from the interest deduction.	Express Scripts Holding Co.’s cash operating taxes declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level.

Invested Capital

Express Scripts Holding Co., invested capital calculation (financing approach)

US$ in thousands

		Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
	Short-term debt and current maturities of long-term debt
	Long-term debt, excluding current maturities
	Operating lease liability¹
	Total reported debt & leases
	Total Express Scripts stockholders’ equity
	Net deferred tax (assets) liabilities²
	Allowance for doubtful accounts³
	Equity equivalents⁴
	Accumulated other comprehensive (income) loss, net of tax⁵
	Non-controlling interest
	Adjusted total Express Scripts stockholders’ equity
	Invested capital

Based on: 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-14), 10-K (filing date: 2016-02-16), 10-K (filing date: 2015-02-23), 10-K (filing date: 2014-02-20).

¹ Addition of capitalized operating leases.

² Elimination of deferred taxes from assets and liabilities. See Details »

³ Addition of allowance for doubtful accounts receivable.

⁴ Addition of equity equivalents to total Express Scripts stockholders’ equity.

⁵ Removal of accumulated other comprehensive income.

Item	Description	The company
Invested capital	Capital is an approximation of the economic book value of all cash invested in going-concern business activities.	Express Scripts Holding Co.’s invested capital declined from 2015 to 2016 but then increased from 2016 to 2017 not reaching 2015 level.

Cost of Capital

Express Scripts Holding Co., cost of capital calculations


Equity²	÷	=	×		=
Debt³	÷	=	×	× (1 – 35.00%)	=
Operating lease liability⁴	÷	=	×	× (1 – 35.00%)	=
Total:

Based on: 10-K (filing date: 2018-02-27).

¹ US$ in thousands

² Equity. See Details »

³ Debt. See Details »

⁴ Operating lease liability. See Details »


Equity²	÷	=	×		=
Debt³	÷	=	×	× (1 – 35.00%)	=
Operating lease liability⁴	÷	=	×	× (1 – 35.00%)	=
Total:

Based on: 10-K (filing date: 2017-02-14).

¹ US$ in thousands

² Equity. See Details »

³ Debt. See Details »

⁴ Operating lease liability. See Details »


Equity²	÷	=	×		=
Debt³	÷	=	×	× (1 – 35.00%)	=
Operating lease liability⁴	÷	=	×	× (1 – 35.00%)	=
Total:

Based on: 10-K (filing date: 2016-02-16).

¹ US$ in thousands

² Equity. See Details »

³ Debt. See Details »

⁴ Operating lease liability. See Details »


Equity²	÷	=	×		=
Debt³	÷	=	×	× (1 – 35.00%)	=
Operating lease liability⁴	÷	=	×	× (1 – 35.00%)	=
Total:

Based on: 10-K (filing date: 2015-02-23).

¹ US$ in thousands

² Equity. See Details »

³ Debt. See Details »

⁴ Operating lease liability. See Details »


Equity²	÷	=	×		=
Debt³	÷	=	×	× (1 – 35.00%)	=
Operating lease liability⁴	÷	=	×	× (1 – 35.00%)	=
Total:

Based on: 10-K (filing date: 2014-02-20).

¹ US$ in thousands

² Equity. See Details »

³ Debt. See Details »

⁴ Operating lease liability. See Details »

Economic Spread

Express Scripts Holding Co., economic spread calculation

		Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
	Selected Financial Data (US$ in thousands)
	Economic profit¹
	Invested capital²
	Ratio
	Economic spread³

Based on: 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-14), 10-K (filing date: 2016-02-16), 10-K (filing date: 2015-02-23), 10-K (filing date: 2014-02-20).

2017 Calculations

¹ Economic profit. See Details »

² Invested capital. See Details »

³ Economic spread = 100 × Economic profit ÷ Invested capital
= 100 × hidden ÷ hidden = hidden

Ratio	Description	The company
Economic spread	The ratio of economic profit to invested capital, also equal to the difference between return on invested capital (ROIC) and cost of capital.	Express Scripts Holding Co.’s economic spread improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017.

Economic Profit Margin

Express Scripts Holding Co., economic profit margin calculation

		Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
	Selected Financial Data (US$ in thousands)
	Economic profit¹
	Revenues
	Ratio
	Economic profit margin²

Based on: 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-14), 10-K (filing date: 2016-02-16), 10-K (filing date: 2015-02-23), 10-K (filing date: 2014-02-20).

2017 Calculations

¹ Economic profit. See Details »

² Economic profit margin = 100 × Economic profit ÷ Revenues
= 100 × hidden ÷ hidden = hidden

Ratio	Description	The company
Economic profit margin	The ratio of economic profit to sales. It is the company’s profit margin covering income efficiency and asset management. Economic profit margin is not biased in favor of capital-intensive business models, because any added capital is a cost to the economic profit margin.	Express Scripts Holding Co.’s economic profit margin improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017.

	Express Scripts Holding Co.	Other companies (not purchased previously)
Financial Statements
Common-Size Financial Statements
Ratios
Relative Valuation
Discounted Cash Flow (DCF) Valuation
Economic Value Added (EVA)
Long-term Trends
Analysis
Financial Reporting Quality

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

Express Scripts Holding Co. (ESRX)

Economic Value Added (EVA)

Economic Profit

Net Operating Profit after Taxes (NOPAT)

Cash Operating Taxes

Invested Capital

Cost of Capital

Dec 31, 2017

Dec 31, 2016

Dec 31, 2015

Dec 31, 2014

Dec 31, 2013

Economic Spread

Economic Profit Margin