Express Scripts Holding Co. (NASDAQ:ESRX)

Net Operating Profit After Taxes (NOPAT)

There is a consistent upward trend in net operating profit after taxes from 2013 to 2016, increasing from approximately $1.82 billion to $3.38 billion. However, in 2017, there is a slight decline to about $3.27 billion, indicating a possible plateau or mild downturn after several years of growth.

Cost of Capital

The cost of capital remains relatively stable across the five-year period, fluctuating modestly between 10.82% and 11.86%. There is a gradual decline from 11.72% in 2013 to 10.82% in 2016, followed by a slight increase to 10.88% in 2017.

Invested Capital

Invested capital shows a declining trend from 2013 to 2016, dropping from approximately $41.29 billion to $35.71 billion. In 2017, this trend reverses slightly with an increase to about $37.01 billion. This reduction in invested capital over time may reflect efforts to optimize asset utilization or divestments, followed by a moderate reinvestment in the latest year.

Economic Profit

Economic profit remains negative throughout the period, indicating that the returns on invested capital are not sufficient to cover the cost of capital. Although economic losses are substantial in the earlier years (e.g., -$3.02 billion in 2013), the magnitude of the loss decreases significantly by 2016 (-$488 million). However, in 2017, economic profit worsens again to approximately -$751 million, suggesting that despite improved operating profits, the capital cost burden remains significant.

Overall Analysis

While operating profitability measured by NOPAT improved notably until 2016, the persistent negative economic profit highlights challenges in achieving returns above the cost of capital. The stable yet slightly decreasing cost of capital during most years suggests consistent financing conditions. The reduction in invested capital until 2016 could have been a strategic move to improve capital efficiency. The decline in economic profit loss until 2016 indicates progress in value creation, but the reversal in 2017 calls for further scrutiny of capital allocation and operational performance to sustain economic gains.

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 analysis of the financial data over the five-year period reveals significant trends in economic profit, invested capital, and the economic spread ratio.

Economic Profit

The economic profit has shown a consistent upward trend from 2013 to 2016, improving from a substantial loss of approximately -3.02 billion US dollars in 2013 to a much smaller loss of around -489 million US dollars in 2016. This indicates a gradual reduction in economic losses over this period. However, there is a slight deterioration in 2017, with economic profit increasing negatively again to approximately -751 million US dollars, suggesting a reversal in the improving trend.

Invested Capital

Invested capital demonstrates a downward trend from 2013 through 2016, decreasing from about 41.29 billion US dollars to approximately 35.71 billion US dollars. This could indicate a strategic reduction or optimization of capital investment. In 2017, there is an increase in invested capital to around 37.01 billion US dollars, reflecting a potential reinvestment or expansion effort after several years of contraction.

Economic Spread Ratio

The economic spread ratio, which measures the return rate over the cost of capital, remains negative throughout the period. The ratio improves from -7.32% in 2013 to -1.37% in 2016, signaling a narrowing gap between returns and the cost of capital. Nevertheless, the ratio worsens slightly to -2.03% in 2017, aligning with the observed increase in economic profit losses in that year. This negative spread ratio throughout the period indicates economic returns have consistently been below the cost of capital.

In summary, the data suggest an overall improvement in economic performance from 2013 to 2016, marked by reduced losses and lower invested capital. However, the year 2017 indicates a slight reversal in these improvements, with increased economic losses, higher invested capital, and a declining economic spread ratio. This highlights potential challenges in maintaining profitability and capital efficiency in the most recent period analyzed.

Revenue Trend

Revenues of the company showed a slight decline over the five-year period, decreasing from approximately 104.1 billion US dollars in 2013 to around 100.1 billion US dollars in 2017. The revenue remained relatively stable but exhibited a gradual downward trend after peaking in 2015.

Economic Profit Analysis

The economic profit demonstrated a consistent pattern of negative values throughout the period, indicating the company experienced economic losses each year. However, these losses diminished markedly over time, with economic profit improving from around -3.02 billion US dollars in 2013 to approximately -750.8 million US dollars in 2017. This trend suggests an ongoing effort to reduce economic losses, although the company remained economically unprofitable at the end of the period.

Economic Profit Margin Development

The economic profit margin mirrored the changes seen in economic profit, remaining negative throughout the timeframe but showing an improving trend. It improved from -2.9% in 2013 to -0.75% in 2017, representing a decline in the relative economic losses associated with revenue. Notably, the margin saw the most significant improvement between 2015 and 2016, dropping from -1.76% to -0.49%, before slightly deteriorating again in 2017.

Overall Insights

Although the company maintained steady revenues over the years, its economic profitability remained negative, albeit with a significant trend toward reduction in losses. The improvement in economic profit and margin suggests operational or strategic improvements that enhanced value creation relative to the cost of capital. Nevertheless, the persistent negative economic profit indicates that further measures may be necessary to shift into positive economic profitability.