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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 Ratio
Economic Profit Margin

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	3,274,103)	3,375,341)	2,290,431)	1,953,528)	1,817,712)
Cost of capital²	12.67%	12.60%	12.72%	13.86%	13.69%
Invested capital³	37,007,152)	35,712,343)	37,411,086)	38,622,209)	41,289,230)

Economic profit⁴	(1,413,502)	(1,125,266)	(2,467,737)	(3,398,198)	(3,833,925)

Based on: 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31).

¹ NOPAT. See details »

² Cost of capital. See details »

³ Invested capital. See details »

⁴ 2017 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 3,274,103 – 12.67% × 37,007,152 = -1,413,502

An evaluation of the economic performance from 2013 to 2017 reveals that the entity consistently operated with a negative economic profit, indicating that the returns generated were insufficient to cover the total cost of the capital employed. Despite this, a general trend of improvement was observed until 2016, as the gap between operating returns and capital costs narrowed significantly.

Net Operating Profit After Taxes (NOPAT): A consistent upward trajectory in NOPAT is evident, rising from 1,817,712 thousand dollars in 2013 to a peak of 3,375,341 thousand dollars in 2016. This represents a substantial increase in operational profitability over the four-year period, although a slight contraction occurred in 2017 to 3,274,103 thousand dollars.
Capital Efficiency and Cost: Invested capital showed a general declining trend from 41,289,230 thousand dollars in 2013 to 35,712,343 thousand dollars in 2016, before increasing slightly to 37,007,152 thousand dollars in 2017. Simultaneously, the cost of capital remained relatively stable, fluctuating within a narrow range between 12.60% and 13.86%.
Economic Profit Dynamics: Economic profit improved steadily from a deficit of 3,833,925 thousand dollars in 2013 to its highest point of -1,125,266 thousand dollars in 2016. This improvement was driven by the combination of rising NOPAT and a reduction in the capital base. However, this positive momentum reversed in 2017, with economic profit declining to -1,413,502 thousand dollars, coinciding with a decrease in NOPAT and a simultaneous increase in invested capital.

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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	4,517,400)	3,404,400)	2,476,400)	2,007,600)	1,844,600)
Deferred income tax expense (benefit)¹	(1,678,900)	(497,400)	(462,100)	(430,500)	(573,700)
Increase (decrease) in allowance for doubtful accounts²	20,300)	(12,300)	(77,800)	(37,100)	69,700)
Increase (decrease) in equity equivalents³	(1,658,600)	(509,700)	(539,900)	(467,600)	(504,000)
Interest expense and other	607,900)	694,800)	500,300)	582,900)	596,100)
Interest expense, operating lease liability⁴	9,028)	8,956)	8,671)	11,144)	12,226)
Adjusted interest expense and other	616,928)	703,756)	508,971)	594,044)	608,326)
Tax benefit of interest expense and other⁵	(215,925)	(246,314)	(178,140)	(207,915)	(212,914)
Adjusted interest expense and other, after taxes⁶	401,003)	457,441)	330,831)	386,128)	395,412)
(Income) loss from discontinued operations, net of tax⁷	—)	—)	—)	—)	53,600)
Net income (loss) attributable to noncontrolling interest	14,300)	23,200)	23,100)	27,400)	28,100)
Net operating profit after taxes (NOPAT)	3,274,103)	3,375,341)	2,290,431)	1,953,528)	1,817,712)

Based on: 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31).

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 2017 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 236,952 × 3.81% = 9,028

⁵ 2017 Calculation
Tax benefit of interest expense and other = Adjusted interest expense and other × Statutory income tax rate
= 616,928 × 35.00% = 215,925

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

⁷ Elimination of discontinued operations.

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.

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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	397,300)	999,500)	1,364,300)	1,031,200)	1,104,000)
Less: Deferred income tax expense (benefit)	(1,678,900)	(497,400)	(462,100)	(430,500)	(573,700)
Add: Tax savings from interest expense and other	215,925)	246,314)	178,140)	207,915)	212,914)
Cash operating taxes	2,292,125)	1,743,214)	2,004,540)	1,669,615)	1,890,614)

Based on: 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31).

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.

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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	1,032,900)	722,300)	1,646,400)	2,555,300)	1,584,000)
Long-term debt, excluding current maturities	14,981,500)	14,846,000)	13,946,300)	11,012,700)	12,363,000)
Operating lease liability¹	236,952)	240,743)	266,786)	294,809)	321,730)
Total reported debt & leases	16,251,352)	15,809,043)	15,859,486)	13,862,809)	14,268,730)
Total Express Scripts stockholders’ equity	18,119,600)	16,236,000)	17,372,800)	20,054,200)	21,837,400)
Net deferred tax (assets) liabilities²	2,532,300)	3,572,200)	4,069,800)	4,532,400)	4,985,200)
Allowance for doubtful accounts³	95,300)	75,000)	87,300)	165,100)	202,200)
Equity equivalents⁴	2,627,600)	3,647,200)	4,157,100)	4,697,500)	5,187,400)
Accumulated other comprehensive (income) loss, net of tax⁵	2,900)	12,300)	14,000)	(2,100)	(11,700)
Non-controlling interest	5,700)	7,800)	7,700)	9,800)	7,400)
Adjusted total Express Scripts stockholders’ equity	20,755,800)	19,903,300)	21,551,600)	24,759,400)	27,020,500)
Invested capital	37,007,152)	35,712,343)	37,411,086)	38,622,209)	41,289,230)

Based on: 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31).

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.

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.

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Express Scripts Holding Co., cost of capital calculations

Dec 31, 2017

	Capital (fair value)¹	Weights					Cost of capital
Equity²	44,380,248)	44,380,248)	÷	60,978,400)	=	0.73	0.73	×	16.48%	=	11.99%
Debt³	16,361,200)	16,361,200)	÷	60,978,400)	=	0.27	0.27	×	3.81% × (1 – 35.00%)	=	0.66%
Operating lease liability⁴	236,952)	236,952)	÷	60,978,400)	=	0.00	0.00	×	3.81% × (1 – 35.00%)	=	0.01%
Total:	60,978,400)					1.00					12.67%

Based on: 10-K (reporting date: 2017-12-31).

¹ US$ in thousands

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2016

	Capital (fair value)¹	Weights					Cost of capital
Equity²	42,176,284)	42,176,284)	÷	58,225,826)	=	0.72	0.72	×	16.48%	=	11.94%
Debt³	15,808,800)	15,808,800)	÷	58,225,826)	=	0.27	0.27	×	3.72% × (1 – 35.00%)	=	0.66%
Operating lease liability⁴	240,743)	240,743)	÷	58,225,826)	=	0.00	0.00	×	3.72% × (1 – 35.00%)	=	0.01%
Total:	58,225,826)					1.00					12.60%

Based on: 10-K (reporting date: 2016-12-31).

¹ US$ in thousands

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2015

	Capital (fair value)¹	Weights					Cost of capital
Equity²	45,861,358)	45,861,358)	÷	62,116,744)	=	0.74	0.74	×	16.48%	=	12.17%
Debt³	15,988,600)	15,988,600)	÷	62,116,744)	=	0.26	0.26	×	3.25% × (1 – 35.00%)	=	0.54%
Operating lease liability⁴	266,786)	266,786)	÷	62,116,744)	=	0.00	0.00	×	3.25% × (1 – 35.00%)	=	0.01%
Total:	62,116,744)					1.00					12.72%

Based on: 10-K (reporting date: 2015-12-31).

¹ US$ in thousands

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2014

	Capital (fair value)¹	Weights					Cost of capital
Equity²	63,036,595)	63,036,595)	÷	77,531,603)	=	0.81	0.81	×	16.48%	=	13.40%
Debt³	14,200,200)	14,200,200)	÷	77,531,603)	=	0.18	0.18	×	3.78% × (1 – 35.00%)	=	0.45%
Operating lease liability⁴	294,809)	294,809)	÷	77,531,603)	=	0.00	0.00	×	3.78% × (1 – 35.00%)	=	0.01%
Total:	77,531,603)					1.00					13.86%

Based on: 10-K (reporting date: 2014-12-31).

¹ US$ in thousands

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2013

	Capital (fair value)¹	Weights					Cost of capital
Equity²	59,847,588)	59,847,588)	÷	74,732,117)	=	0.80	0.80	×	16.48%	=	13.20%
Debt³	14,562,800)	14,562,800)	÷	74,732,117)	=	0.19	0.19	×	3.80% × (1 – 35.00%)	=	0.48%
Operating lease liability⁴	321,730)	321,730)	÷	74,732,117)	=	0.00	0.00	×	3.80% × (1 – 35.00%)	=	0.01%
Total:	74,732,117)					1.00					13.69%

Based on: 10-K (reporting date: 2013-12-31).

¹ US$ in thousands

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Express Scripts Holding Co., economic spread ratio calculation, comparison to benchmarks

	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
Selected Financial Data (US$ in thousands)
Economic profit¹	(1,413,502)	(1,125,266)	(2,467,737)	(3,398,198)	(3,833,925)
Invested capital²	37,007,152)	35,712,343)	37,411,086)	38,622,209)	41,289,230)
Performance Ratio
Economic spread ratio³	-3.82%	-3.15%	-6.60%	-8.80%	-9.29%
Benchmarks
Economic Spread Ratio, Competitors⁴
Abbott Laboratories	—	—	—	—	—
Elevance Health Inc.	—	—	—	—	—
Intuitive Surgical Inc.	—	—	—	—	—
Medtronic PLC	—	—	—	—	—
UnitedHealth Group Inc.	—	—	—	—	—

Based on: 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31).

¹ Economic profit. See details »

² Invested capital. See details »

³ 2017 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -1,413,502 ÷ 37,007,152 = -3.82%

⁴ Click competitor name to see calculations.

An analysis of the period between 2013 and 2017 reveals a consistent pattern of negative economic profit and a negative economic spread ratio, indicating that returns on invested capital remained below the cost of capital throughout the timeframe. Despite the persistence of value destruction, a notable trend of improvement was observed from 2013 through 2016, followed by a partial reversal in 2017.

Economic Profit: Economic profit showed a steady upward trajectory for the first four years, with losses narrowing from -3.83 billion USD in 2013 to -1.13 billion USD in 2016. This period of improvement suggests a gradual alignment of operational returns with capital costs. However, this progress was interrupted in 2017, as economic profit declined to -1.41 billion USD, marking a reversal of the previous three-year recovery.
Invested Capital: Invested capital experienced a general decline from 2013 to 2016, falling from 41.29 billion USD to 35.71 billion USD. This reduction in the capital base coincided with the improvement in the economic spread ratio. In 2017, invested capital increased to 37.01 billion USD, which correlates with the observed dip in economic profit and the spread ratio.
Economic Spread Ratio: The economic spread ratio improved consistently from -9.29% in 2013 to -3.15% in 2016, demonstrating a reduction in the gap between the internal rate of return and the required cost of capital. The ratio then shifted to -3.82% in 2017, indicating a slight deterioration in the efficiency of capital utilization and a widening of the value-destruction gap compared to the prior year.

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Express Scripts Holding Co., economic profit margin calculation, comparison to benchmarks

	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
Selected Financial Data (US$ in thousands)
Economic profit¹	(1,413,502)	(1,125,266)	(2,467,737)	(3,398,198)	(3,833,925)
Revenues	100,064,600)	100,287,500)	101,751,800)	100,887,100)	104,098,800)
Performance Ratio
Economic profit margin²	-1.41%	-1.12%	-2.43%	-3.37%	-3.68%
Benchmarks
Economic Profit Margin, Competitors³
Abbott Laboratories	—	—	—	—	—
Elevance Health Inc.	—	—	—	—	—
Intuitive Surgical Inc.	—	—	—	—	—
Medtronic PLC	—	—	—	—	—
UnitedHealth Group Inc.	—	—	—	—	—

Based on: 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31).

¹ Economic profit. See details »

² 2017 Calculation
Economic profit margin = 100 × Economic profit ÷ Revenues
= 100 × -1,413,502 ÷ 100,064,600 = -1.41%

³ Click competitor name to see calculations.

Between 2013 and 2017, the company consistently operated with a negative economic profit, indicating that the returns generated did not exceed the company's cost of capital. Despite this persistent negative value, a general trend of improvement was evident through 2016, followed by a slight reversal in 2017.

Economic Profit Trajectory: Economic profit showed a steady recovery from December 31, 2013, when losses were at their peak of negative 3.83 billion US dollars. This deficit was reduced annually, reaching a period low of negative 1.13 billion US dollars by December 31, 2016. However, this progress stalled in 2017, as the economic profit declined again to negative 1.41 billion US dollars.
Revenue Stability: Revenues remained relatively stagnant throughout the five-year period, fluctuating within a narrow range between approximately 100 billion and 104 billion US dollars. The lack of significant top-line growth suggests that the improvements in economic profit observed between 2013 and 2016 were likely driven by operational efficiencies or changes in capital structure rather than increased sales volume.
Economic Profit Margin Analysis: The economic profit margin mirrored the absolute economic profit trend, starting at negative 3.68% in 2013 and improving to negative 1.12% by 2016. This indicates a narrowing gap between the actual return on capital and the required cost of capital. The subsequent shift to negative 1.41% in 2017 represents a moderate deterioration in capital efficiency relative to revenue.

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Express Scripts Holding Co. (NASDAQ:ESRX)

Economic Value Added (EVA)

Economic Profit

Net Operating Profit after Taxes (NOPAT)

Cash Operating Taxes

Invested Capital

Cost of Capital

Economic Spread Ratio

Economic Profit Margin