Cigna Group (NYSE:CI)

The period under review demonstrates a declining trend in economic profit. While net operating profit after taxes (NOPAT) fluctuated, it generally decreased over the five-year span. Simultaneously, the cost of capital remained relatively stable, with a slight increase in the middle of the period, and invested capital experienced a gradual reduction. These factors combined to produce consistently negative economic profit in the later years of the observation window.

Net Operating Profit After Taxes (NOPAT)

NOPAT began at US$9,227 million in 2020, decreased significantly to US$6,235 million in 2021, recovered somewhat to US$7,303 million in 2022, and then declined again to US$4,831 million in 2023. A marginal increase to US$4,868 million was observed in 2024, but remained substantially below the 2020 level. This suggests potential challenges in maintaining operational profitability.

Cost of Capital

The cost of capital exhibited relative stability, starting at 8.56% in 2020 and fluctuating around the 9% mark throughout the period, peaking at 9.54% in 2023 before decreasing slightly to 9.35% in 2024. The consistency in the cost of capital indicates that the company’s risk profile and market conditions remained relatively unchanged, and that changes in economic profit are not primarily driven by shifts in financing costs.

Invested Capital

Invested capital decreased steadily from US$93,748 million in 2020 to US$81,638 million in 2024. This reduction in the capital base could be due to asset sales, reduced investment in working capital, or other capital management strategies. However, the decrease in invested capital did not translate into improved economic profit, suggesting that the decline in NOPAT was a more significant factor.

Economic Profit

Economic profit started at a positive US$1,207 million in 2020, but quickly turned negative, reaching -US$1,457 million in 2021. It remained negative for the subsequent years, worsening to -US$3,352 million in 2023 and slightly improving to -US$2,765 million in 2024. The consistent negative economic profit indicates that the company is not generating returns exceeding its cost of capital, and is effectively destroying shareholder value.

The combined effect of declining NOPAT and a relatively stable cost of capital, despite a decreasing invested capital base, resulted in a sustained period of negative economic profit. This trend warrants further investigation to identify the underlying causes of the declining profitability and to develop strategies for improving returns.

Shareholders’ Net Income

The shareholders’ net income demonstrates a fluctuating but overall downward trend over the five-year period. Starting at US$ 8,458 million in 2020, it declined significantly in 2021 to US$ 5,365 million. A recovery is observed in 2022, with an increase to US$ 6,668 million, but this is followed by consecutive decreases in 2023 and 2024, reaching US$ 5,164 million and US$ 3,434 million respectively. The decline from 2020 to 2024 amounts to approximately 59%, indicating decreasing profitability returned to shareholders.

Net Operating Profit After Taxes (NOPAT)

NOPAT exhibits a somewhat similar pattern to shareholders’ net income, with a decline from US$ 9,227 million in 2020 to US$ 6,235 million in 2021. It improved moderately in 2022 to US$ 7,303 million, but then experienced a marked drop to US$ 4,831 million in 2023. Contrary to shareholders’ net income, NOPAT shows a slight recovery in 2024, increasing marginally to US$ 4,868 million. Despite the recovery in 2024, NOPAT decreased by roughly 47% when comparing 2020 to 2024, signaling reduced operational efficiency or increased costs impacting the company’s profitability after tax.

Comparative Observations

Both financial indicators show volatility, with notable declines early in the period followed by partial recoveries and subsequent decreases. Shareholders’ net income declined more steeply than NOPAT over the five years, particularly between 2023 and 2024. The divergence in trends for 2023 and 2024, where shareholders’ net income continued falling while NOPAT rebounded slightly, suggests potential impacts from non-operating items, taxes, or other extraordinary factors affecting net income specifically. Overall, the trends point to challenges in maintaining consistent profitability and returns to shareholders over the recent years.

Income Taxes

The income taxes exhibit significant fluctuations over the years. In 2020, the amount stood at 2,379 million US dollars before experiencing a notable decline to 1,367 million in 2021. Subsequently, there was an increase to 1,607 million in 2022, followed by a sharp drop to 141 million in 2023. In 2024, income taxes rose again to 1,491 million. The volatility suggests changes in taxable income, tax planning strategies, or legislative impacts during this period.

Cash Operating Taxes

Cash operating taxes show a downward trend with some fluctuations. Starting at 3,064 million US dollars in 2020, the value fell sharply to 1,864 million in 2021. There was then an increase to 2,363 million in 2022, followed by a decline to 2,097 million in 2023 and further to 1,901 million in 2024. Despite the fluctuations, the overall pattern points towards a reduction in cash tax outflows over the five-year period.

Comparative Analysis

Comparing income taxes and cash operating taxes reveals that cash operating taxes consistently remain higher than income taxes across all years. Both metrics have experienced declines from 2020 to 2021, followed by recoveries in 2022. However, while income taxes sharply fell in 2023 to a very low level, cash operating taxes decreased more moderately that year. The 2024 data indicates a recovery in income taxes to near previous levels, whereas cash operating taxes continued a slight downward trend. This pattern may reflect timing differences between tax accruals and payments, or changes in tax assets and liabilities.

Total reported debt & leases

The total reported debt and leases showed an overall downward trend from 2020 to 2023, decreasing from 33,562 million US dollars in 2020 to 31,375 million US dollars in 2023. However, in 2024, there was a slight increase to 31,972 million US dollars. This indicates a general reduction in debt levels over the period with a minor reversal in the final year.

Shareholders’ equity

Shareholders’ equity consistently declined over the analyzed period, starting at 50,321 million US dollars in 2020 and decreasing each year to reach 41,033 million US dollars in 2024. This represents a significant reduction, suggesting that the company's net assets or retained earnings diminished over time, which might impact its financial stability and capital structure.

Invested capital

Invested capital exhibited a steady decline from 93,748 million US dollars in 2020 to 81,638 million US dollars in 2024. The decrease was gradual without any abrupt changes, reflecting a possible contraction in the total capital used for business operations. This trend corresponds with the reductions seen in both debt and equity, implying overall scaling down of the company's capital base.

The economic spread ratio exhibited a declining trend over the five-year period. Initially positive, it transitioned to negative values and continued to decrease in magnitude. This indicates a worsening relationship between returns generated from invested capital and the cost of that capital.

Economic Spread Ratio

In 2020, the economic spread ratio stood at 1.29%, signifying that the company generated returns exceeding its cost of capital. However, this positive spread reversed in 2021, with the ratio falling to -1.61%.

The negative trend persisted through 2022 and 2023, with the ratio reaching -0.83% and -3.91% respectively. This suggests an increasing gap between the cost of capital and the returns generated.

The most recent year, 2024, shows a slight moderation in the decline, with the ratio at -3.39%, though it remains significantly negative. The magnitude of the negative spread in 2023 was the largest of the period.

The economic profit mirrors the trend in the economic spread ratio. A positive economic profit of US$1,207 million in 2020 was followed by consecutive years of losses: US$-1,457 million in 2021, US$-713 million in 2022, US$-3,352 million in 2023, and US$-2,765 million in 2024. This confirms that the company’s returns have been insufficient to cover its capital costs in recent years.

Invested Capital

Invested capital decreased from US$93,748 million in 2020 to US$81,638 million in 2024. While the decline in invested capital might suggest efforts to improve capital efficiency, it has not been sufficient to offset the widening gap between returns and the cost of capital, as evidenced by the consistently negative economic profit and declining economic spread ratio.

The combined trends suggest increasing challenges in generating returns commensurate with the capital employed. The continued negative economic profit and declining economic spread ratio warrant further investigation into the underlying drivers of profitability and capital costs.

The economic profit margin exhibited a declining trend over the five-year period. Initially positive, it transitioned to negative values and continued to decrease in magnitude before stabilizing somewhat in the most recent year. This suggests a weakening ability to generate returns exceeding the cost of capital.

Economic Profit Margin

In 2020, the economic profit margin stood at 0.76%. This indicates that for every dollar of revenue, the company generated 0.76 cents of economic profit. However, the margin turned negative in 2021, reaching -0.84%, signifying that the company’s economic profit was less than zero.

The negative trend continued through 2023, with the economic profit margin reaching its lowest point at -1.73%. This represents a substantial deterioration in the company’s ability to generate economic profit from its revenue stream.

In 2024, the economic profit margin experienced a slight improvement, moving to -1.12%. While still negative, this suggests a potential stabilization or a minor recovery in the company’s economic profitability.

The movement in economic profit mirrors the trend in the economic profit margin. Starting at US$1,207 million in 2020, economic profit became negative in 2021 and remained so through 2024, reaching a low of negative US$3,352 million in 2023 before a partial recovery to negative US$2,765 million in 2024. This indicates that the cost of capital consistently exceeded the returns generated by the company’s investments during this period, except for the initial year.

Revenues from external customers demonstrated consistent growth throughout the period, increasing from US$159,157 million in 2020 to US$246,148 million in 2024. However, this revenue growth was not sufficient to offset the increasing costs of capital and maintain positive economic profit, as evidenced by the declining economic profit margin.