Express Scripts Holding Co. (NASDAQ:ESRX)

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

Net Operating Profit After Taxes (NOPAT)

The NOPAT shows a consistent upward trend from 2013 through 2016, increasing from approximately 1.82 billion USD to a peak of around 3.38 billion USD in 2016. However, in 2017, there is a slight decline to approximately 3.27 billion USD, indicating a marginal decrease in operating profitability after tax in the final year of the period.

Cost of Capital

The cost of capital remains relatively stable throughout the period, fluctuating slightly between 10.82% and 11.85%. The highest cost of capital is observed in 2014 at 11.85%, followed by a steady decrease to around 10.82% in 2016, before a slight increase again in 2017. This indicates consistent capital cost conditions without significant volatility.

Invested Capital

The invested capital demonstrates a declining trend from about 41.29 billion USD in 2013 to approximately 35.71 billion USD in 2016, suggesting a reduction in capital employed by the company. However, in 2017, there is a reversal of this trend, with invested capital increasing to roughly 37 billion USD, indicating renewed investment or capital deployment.

Economic Profit

Economic profit shows progressive improvement over the years but remains negative throughout. Starting at a deficit of about 3.02 billion USD in 2013, the negative economic profit narrows significantly to a loss of 487 million USD in 2016. Despite this improvement, there is a setback in 2017, with economic profit declining to a negative 749 million USD, suggesting that the company did not earn returns exceeding its cost of capital in any year but was closest to breakeven in 2016.

Overall, the data suggest that the company experienced growth in operating profitability and an improving return on invested capital over most of the period. However, the persistent negative economic profit indicates that the company has not yet generated value beyond the cost of capital. The slight deterioration in economic profit and NOPAT in the last year, alongside an increase in invested capital, may warrant closer examination to understand potential challenges faced during that period.

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 over the five-year period. Starting from a significant negative value of approximately -3.02 billion in 2013, it steadily reduces in magnitude to around -749 million by 2017. This trend indicates a gradual decrease in the company's losses from economic profit perspective, signaling enhanced value generation or reduced economic costs over time.

Invested Capital

Invested capital exhibits a decreasing trend from 41.29 billion in 2013 to 35.71 billion in 2016, followed by a slight increase to 37.01 billion in 2017. This suggests a strategic reduction in invested assets over the period, potentially reflecting divestitures, asset optimization, or efficiency initiatives, with a minor expansion in the final year.

Economic Spread Ratio

The economic spread ratio is negative throughout the period, indicating that the return on invested capital consistently falls below the cost of capital. However, the negative ratio improves markedly from -7.31% in 2013 to -1.37% in 2016, before slightly declining to -2.03% in 2017. This improvement reveals that the company has been narrowing the gap between its returns and capital costs, though it remains unprofitable on this measure.

Overall Analysis

The combined data reflects a company in gradual transition towards improved financial performance, marked by a reduction in economic losses and better efficiency in capital use. Despite these positive trends, the ongoing negative economic spread ratio cautions that the company has yet to generate returns exceeding its cost of capital. The downward adjustment in invested capital mainly supports this improving trajectory, with the slight uptick in 2017 possibly indicating selective reinvestment or strategic asset allocation changes.

Economic Profit

The economic profit has shown a consistent improvement over the five-year period. Starting at a negative value of approximately -3.02 billion USD in 2013, it rose each year, reaching approximately -0.49 billion USD in 2016. However, in 2017, there was a slight decline to around -0.75 billion USD, indicating a minor setback after several years of progress. Overall, the trend suggests a reduction in economic losses, signaling enhanced operational efficiency or profitability over time despite remaining negative.

Revenues

Revenues remained relatively stable across the period analyzed, fluctuating slightly around the 100 billion USD mark. The highest revenue was recorded in 2013 with approximately 104.1 billion USD, followed by a decline in 2014 and subsequent years settling just above 100 billion USD. This stability suggests that the company maintained its sales volume or market position without significant growth or contraction in revenue generation during this timeframe.

Economic Profit Margin

The economic profit margin mirrored the trend observed in economic profit, starting at -2.9% in 2013 and progressively improving to -0.49% in 2016. This indicates a continuous improvement in the relationship between economic profit and revenues. However, a slight deterioration occurred in 2017, where the margin decreased to -0.75%, consistent with the observed decline in economic profit for the same year. Despite these negative values, the narrowing gap points to enhanced profitability relative to sales over the five years examined.