Express Scripts Holding Co. (NASDAQ:ESRX)

The period between 2013 and 2017 demonstrates a consistent pattern of negative economic profit, although the magnitude of the loss decreased and then slightly increased over the observed timeframe. Net operating profit after taxes exhibited an overall upward trend, while the cost of capital remained relatively stable. Invested capital fluctuated, contributing to the changes in economic profit.

Net Operating Profit After Taxes (NOPAT)

NOPAT increased from US$1,817,712 thousand in 2013 to US$3,375,341 thousand in 2016, representing substantial growth. However, a slight decrease was observed in 2017, with NOPAT falling to US$3,274,103 thousand. This suggests a potential plateauing of operational profitability.

Cost of Capital

The cost of capital experienced a minor increase from 13.55% in 2013 to 13.72% in 2014, followed by a decline to 12.48% in 2016. It then stabilized around 12.5% in 2017. The relative stability of the cost of capital indicates consistent market expectations regarding the risk profile of the invested capital.

Invested Capital

Invested capital decreased from US$41,289,230 thousand in 2013 to US$35,712,343 thousand in 2016. A modest increase was then noted in 2017, bringing the invested capital to US$37,007,152 thousand. These fluctuations in invested capital likely reflect changes in operational needs and strategic investment decisions.

Economic Profit

Economic profit remained negative throughout the period, starting at a loss of US$3,777,567 thousand in 2013. The losses decreased steadily to US$1,081,175 thousand in 2016, indicating improved capital efficiency. However, economic profit deteriorated slightly in 2017, with a loss of US$1,367,596 thousand. This suggests that while NOPAT increased, it did not increase sufficiently to offset the cost of capital applied to the invested capital base, and the 2017 increase in invested capital contributed to the larger loss.

In summary, while operational profitability, as measured by NOPAT, improved over the period, the company consistently failed to generate returns exceeding its cost of capital. The slight increase in economic loss in 2017 warrants further investigation to determine the underlying causes and potential corrective actions.

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.

The economic spread ratio demonstrates a consistent, though decelerating, improvement over the observed period. Initially negative, the ratio moved closer to zero between 2013 and 2016, before exhibiting a slight deterioration in 2017. This trend is directly linked to the changes in economic profit and invested capital.

Economic Spread Ratio Trend

The economic spread ratio began at -9.15% in 2013 and improved to -3.03% by 2016. This indicates a narrowing gap between the return on invested capital and the cost of capital. However, the ratio worsened slightly to -3.70% in 2017, suggesting a potential reversal of this positive trend.

Economic profit, while consistently negative, also shows a pattern of improvement. The magnitude of the loss decreased from approximately -3,777,567 thousand US dollars in 2013 to -1,081,175 thousand US dollars in 2016. The increase in economic profit loss in 2017, to -1,367,596 thousand US dollars, corresponds with the slight decline in the economic spread ratio.

Invested Capital

Invested capital decreased from 41,289,230 thousand US dollars in 2013 to 35,712,343 thousand US dollars in 2016. This reduction in capital employed likely contributed to the improvement in the economic spread ratio during those years. A slight increase in invested capital to 37,007,152 thousand US dollars occurred in 2017, potentially contributing to the ratio’s deterioration.

The interplay between economic profit and invested capital is evident. While both metrics individually show fluctuations, their combined effect, as represented by the economic spread ratio, reveals a general trend of improving financial performance from 2013 to 2016, followed by a modest setback in 2017. Further investigation would be required to determine the underlying drivers of these changes and assess the sustainability of the observed trends.

The economic profit margin exhibited a consistent, though decelerating, improvement from 2013 to 2016, followed by a slight deterioration in 2017. Throughout the observed period, the economic profit margin remained negative, indicating that the company’s returns did not exceed its cost of capital.

Economic Profit Margin Trend

From 2013 to 2016, the economic profit margin improved from -3.63% to -1.08%. This suggests a narrowing gap between the company’s operating profits and its cost of capital. The rate of improvement diminished each year; the largest single-year improvement occurred between 2015 and 2016. In 2017, the economic profit margin worsened slightly to -1.37%, reversing the prior year’s positive trend.

Relationship to Revenues

Revenues experienced a modest decline from 2013 to 2017, decreasing from US$104,098,800 thousand to US$100,064,600 thousand. While revenues decreased, the economic profit margin improved for several years, suggesting that improvements in operational efficiency or cost management contributed to the narrowing of the negative economic profit. The 2017 decline in the economic profit margin, coupled with the continued revenue decrease, indicates potential challenges in maintaining profitability.

Economic Profit

The absolute value of economic profit decreased consistently from 2013 to 2016, moving from a loss of US$3,777,567 thousand to a loss of US$1,081,175 thousand. This aligns with the improving economic profit margin. However, economic profit increased in absolute value in 2017 to a loss of US$1,367,596 thousand, mirroring the deterioration in the economic profit margin.

Overall, the period demonstrates a trend toward improved economic performance, but the company continued to generate economic losses. The 2017 results suggest that the positive trend may have stalled, and further investigation into the drivers of the margin decline would be warranted.