Express Scripts Holding Co. (NASDAQ:ESRX)

The analysis of the financial data over the five-year period reveals several noteworthy trends regarding profitability, capital efficiency, and economic value creation.

Net Operating Profit After Taxes (NOPAT)

The NOPAT demonstrates a clear upward trend from 2013 to 2016, rising from approximately $1.82 billion to approximately $3.38 billion. However, in 2017, there is a slight decline to around $3.27 billion. This indicates steady growth in operational profitability for four years, followed by a marginal contraction in the final year.

Cost of Capital

The cost of capital remains relatively stable throughout the period, fluctuating narrowly between 10.81% and 11.84%. This stability suggests consistent market or risk-related assessments for the company’s capital cost without significant volatility.

Invested Capital

Invested capital shows a declining trend from 2013 through 2016, dropping from roughly $41.29 billion to $35.71 billion. In 2017, there is a slight rebound to about $37.01 billion. This may reflect asset optimization, divestitures, or efficiency improvements over the period, with a slight increase possibly due to reinvestment or new capital projects in the last year.

Economic Profit

Economic profit remains negative throughout the entire timeframe but shows material improvement from -$3.02 billion in 2013 to -$485 million in 2016. However, it deteriorates somewhat in 2017 to -$747 million. Despite being negative, the consistent upward movement until 2016 suggests progress toward creating value over and above the cost of capital, though full positive economic profit is not achieved.

In summary, the company experienced improving operational profitability alongside a reduction in invested capital, leading to a marked decrease in negative economic profit. The slight setbacks in 2017 across NOPAT and economic profit may indicate challenges or changes affecting returns. The steady cost of capital provides a stable discounting baseline, underscoring that the economic profit improvements stem mainly from internal operational enhancements rather than changes in capital costs.

Net Income Attributable to Express Scripts

The net income attributable to the company showed a consistent upward trend throughout the five-year period. Starting from approximately 1.84 billion US dollars in 2013, the net income increased annually, reaching about 4.52 billion US dollars by the end of 2017. This represents a more than doubling of net income over the duration analyzed, indicating strong profitability growth.

Net Operating Profit After Taxes (NOPAT)

The NOPAT figures likewise showed an overall increasing trend, rising from roughly 1.82 billion US dollars in 2013 to over 3.27 billion US dollars in 2017. The growth is generally steady, with an especially notable increase between 2015 and 2016. However, unlike net income, NOPAT slightly declined in 2017 compared to the previous year, decreasing from approximately 3.38 billion to 3.27 billion US dollars.

Comparative Insights

Both net income and NOPAT demonstrate sustained profitability improvements over the analyzed timeframe, highlighting effective operational and financial management. The disparity in 2017, where net income continued rising but NOPAT decreased, may suggest changes in operating efficiency, tax impact, or other factors affecting post-tax operating profits.

Provision for Income Taxes

The provision for income taxes exhibits fluctuation over the five-year period. It begins at 1,104,000 thousand US dollars at the end of 2013, then decreases slightly in 2014 to 1,031,200 thousand US dollars. A notable increase occurs in 2015, with the provision reaching 1,364,300 thousand US dollars, followed by a decline in 2016 to 999,500 thousand US dollars. By the end of 2017, there is a significant drop to 397,300 thousand US dollars, marking the lowest figure in the observed timeframe.

Cash Operating Taxes

Cash operating taxes demonstrate more variability with an overall upward trajectory throughout the period. Starting at 1,890,614 thousand US dollars in 2013, the amount decreases to 1,669,615 thousand US dollars in 2014. Subsequently, a sharp increase is observed in 2015, reaching 2,004,540 thousand US dollars. In 2016, cash operating taxes decline again to 1,743,214 thousand US dollars before climbing significantly to 2,292,125 thousand US dollars by the end of 2017, the highest level recorded in the five years.

Comparative Observations

Overall, the provision for income taxes and cash operating taxes do not follow the same trend patterns. While the provision for income taxes peaks in 2015 before steadily declining to its lowest point in 2017, cash operating taxes show a general increasing trend despite year-to-year fluctuations. The divergence between these two tax-related metrics may suggest differences in tax accounting policies, timing differences, or changes in cash flow management relating to tax obligations.

Total Reported Debt & Leases

The total reported debt and leases show a fluctuating trend over the five-year period. The value decreased slightly from approximately 14.27 billion USD at the end of 2013 to about 13.86 billion USD in 2014. However, from 2014 onward, the debt increased steadily, reaching around 16.25 billion USD by the end of 2017. This reflects a rising leverage position in the latter years.

Total Express Scripts Stockholders’ Equity

Stockholders’ equity demonstrates a declining trend from 2013 through 2016, dropping from roughly 21.84 billion USD in 2013 to about 16.24 billion USD in 2016. This decline represents a significant reduction in equity over this period. Notably, in 2017, there is a reversal of this downward trend with equity increasing to about 18.12 billion USD, suggesting a partial recovery or accumulation of retained earnings or capital injection during that year.

Invested Capital

Invested capital also declined consistently from 2013 to 2016, moving from approximately 41.29 billion USD to around 35.71 billion USD. In 2017, a modest increase to about 37.01 billion USD is observed. This trend indicates a contraction in the total capital employed by the company initially, followed by a slight expansion towards the end of the period.

Economic Profit

The economic profit shows a consistent improvement from 2013 through 2016, with the deficit decreasing from -3,015,513 thousand US dollars in 2013 to -484,990 thousand US dollars in 2016. However, in 2017, there is a reversal in this positive trend as economic profit declines again to -746,856 thousand US dollars, indicating worsening profitability compared to the previous year.

Invested Capital

Invested capital demonstrates a general downward trend between 2013 and 2016, reducing from 41,289,230 thousand US dollars to 35,712,343 thousand US dollars. In 2017, this trend slightly reverses with an increase to 37,007,152 thousand US dollars, suggesting renewed investment or capital retention after several years of contraction.

Economic Spread Ratio

The economic spread ratio consistently improves over the five-year period, moving from -7.3% in 2013 to -1.36% in 2016, indicating a narrowing loss margin relative to invested capital. Despite this improvement, the ratio worsens slightly in 2017 to -2.02%, mirroring the decline observed in economic profit and highlighting a minor deterioration in return performance.

Economic Profit

The economic profit shows a consistent improvement from 2013 to 2016, moving from a negative value of -3,015,513 thousand US dollars in 2013 to a less negative value of -484,990 thousand US dollars in 2016. However, in 2017, there is a slight decline to -746,856 thousand US dollars, indicating a reversal in the trend of improvement seen in prior years.

Revenues

Revenues display relative stability over the five-year period with values fluctuating narrowly between approximately 100 billion and 104 billion US dollars. The highest revenue is observed in 2013 at about 104.1 billion US dollars, followed by a gradual decline to roughly 100 billion US dollars by 2017.

Economic Profit Margin

The economic profit margin follows a trajectory of consistent improvement from -2.9% in 2013 to a peak improvement of -0.48% in 2016. By 2017, the margin slightly deteriorates to -0.75%, although it remains significantly better than the margins reported in 2013 through 2015.

Overall Trends and Insights

While revenues remain relatively steady, economic profit and its margin have shown significant recovery from large negative values, suggesting improved operational efficiency or cost management over time. The decline in economic profit and margin in 2017 signals potential challenges that may require further investigation to understand the underlying causes. Despite these setbacks, the overall trend from 2013 to 2017 reflects progress in reducing economic losses.