Elevance Health Inc. (NYSE:ELV)

The financial performance from 2021 to 2025 indicates a transition from economic value creation to value destruction. While the organization maintained positive economic profit in the initial two years of the period, a persistent negative trend emerged starting in 2023, signaling that the returns generated by operating activities have failed to exceed the cost of the capital employed.

Net Operating Profit After Taxes (NOPAT)

NOPAT exhibited significant volatility throughout the analyzed period. After a peak of 7,193 million US$ in 2021, profits declined for two consecutive years, reaching a low of 6,415 million US$ in 2023. Although a recovery was observed in 2024 with an increase to 7,015 million US$, the figure declined again to 6,650 million US$ by 2025. This lack of sustained growth in operating profit suggests an inability to scale earnings in tandem with capital expansion.

Invested Capital

A consistent and aggressive upward trend is observed in invested capital, which grew from 63,876 million US$ in 2021 to 80,815 million US$ in 2025. This steady increase indicates continuous investment in the business base; however, the corresponding growth in NOPAT was not sufficient to justify this capital deployment from an economic profit perspective.

Cost of Capital

The cost of capital fluctuated, peaking at 10.08% in 2022 and 2023 before trending downward to 9.18% by 2025. While the reduction in the cost of capital in the later years provided some relief to the capital charge, it was insufficient to reverse the trend of negative economic profit.

Economic Profit

Economic profit underwent a severe deterioration, moving from a positive 948 million US$ in 2021 to a negative 766 million US$ in 2025. The shift to negative territory in 2023 reflects a point where the cost of invested capital began to outweigh the net operating profit. Despite a marginal improvement in 2024, the deficit widened further in 2025, indicating a widening gap between the capital returns and the required rate of return.

The overall analysis suggests that the expansion of the capital base has not yielded proportional increases in operating profitability. The persistent negative economic profit since 2023 underscores a period of value erosion, where the investments made into the company are not generating returns above the weighted average cost of capital.

Analysis of the presented financial information reveals trends in both shareholders’ net income and net operating profit after taxes (NOPAT) over a five-year period. While shareholders’ net income demonstrates a consistent, albeit gradual, decline, NOPAT exhibits more fluctuation.

Shareholders’ Net Income

Shareholders’ net income decreased steadily from US$6,104 million in 2021 to US$5,662 million in 2025. This represents a cumulative decrease of approximately 7.9% over the five-year period. The annual declines were relatively consistent, ranging from approximately 0.7% to 2.2% year-over-year.

Net Operating Profit After Taxes (NOPAT)

NOPAT experienced a more varied trajectory. It decreased from US$7,193 million in 2021 to US$6,415 million in 2023, representing a decline of approximately 10.8%. However, NOPAT then increased significantly to US$7,015 million in 2024, before decreasing again to US$6,650 million in 2025. The increase in 2024 suggests a potential improvement in operational efficiency or a favorable shift in the business environment during that year. The subsequent decrease in 2025 partially offsets the gains made in 2024.

The divergence between the trends in shareholders’ net income and NOPAT is noteworthy. While net income consistently declined, NOPAT demonstrated volatility, including a substantial increase in 2024. This suggests that factors beyond core operational profitability, such as changes in financing costs, non-operating income/expenses, or tax rates, may be influencing shareholders’ net income. Further investigation into these areas would be beneficial to understand the drivers behind the observed trends.

Relationship between NOPAT and Net Income

In 2021, NOPAT exceeded shareholders’ net income by US$1,089 million. This difference narrowed in 2022 to US$816 million, and further to US$502 million in 2023. In 2024, NOPAT exceeded net income by US$1,035 million, and in 2025, the difference was US$988 million. The fluctuating difference between these two metrics indicates changes in the proportion of earnings attributable to shareholders versus operational performance.

Overall, the financial information indicates a weakening trend in shareholders’ net income coupled with fluctuating operational profitability as measured by NOPAT. The increase in NOPAT in 2024 is a positive sign, but the subsequent decline in 2025 warrants further scrutiny.

The reported income tax expense and cash operating taxes exhibit distinct patterns over the five-year period. While income tax expense generally remains relatively stable, cash operating taxes demonstrate more significant fluctuations.

Income Tax Expense

Income tax expense decreased from US$1,830 million in 2021 to US$1,750 million in 2022, followed by a further slight decrease to US$1,724 million in 2023. A subsequent increase is observed in 2024, reaching US$1,933 million, before a substantial decline to US$1,049 million in 2025. This suggests potential impacts from changes in tax regulations, accounting adjustments, or profitability levels.

Cash Operating Taxes

Cash operating taxes increased from US$1,823 million in 2021 to US$1,931 million in 2022. A notable increase occurred in 2023, with cash operating taxes reaching US$2,637 million, followed by a slight decrease to US$2,550 million in 2024. A significant decrease is then observed in 2025, with cash operating taxes falling to US$1,627 million. This pattern indicates a greater sensitivity to underlying business operations and potentially timing differences between reported income tax expense and actual cash outflows for taxes.

The divergence between income tax expense and cash operating taxes is particularly pronounced in 2023, 2024, and 2025. This difference could be attributed to factors such as deferred tax assets or liabilities, changes in tax credits utilized, or variations in the timing of tax payments relative to reported income. The substantial decrease in both income tax expense and cash operating taxes in 2025 warrants further investigation to understand the underlying drivers.

Relationship between Metrics

In 2021 and 2022, cash operating taxes closely mirrored income tax expense. However, from 2023 onwards, a growing disparity emerges. This suggests that non-cash tax items are becoming increasingly influential in the overall tax profile. The largest difference is seen in 2025, where cash operating taxes are significantly lower than income tax expense.

The invested capital of the organization demonstrates a consistent upward trend over the five-year period. Total reported debt & leases and shareholders’ equity both contribute to this increase, with invested capital representing the sum of these two components.

Total Reported Debt & Leases

Total reported debt & leases increased from US$24,028 million in 2021 to US$32,706 million in 2025. The rate of increase accelerated between 2022 and 2024, growing by US$6,074 million, significantly larger than the increase observed between 2021 and 2022 (US$1,018 million). The increase from 2024 to 2025 was more moderate, at US$663 million.

Shareholders’ Equity

Shareholders’ equity also exhibited growth throughout the period, rising from US$36,060 million in 2021 to US$43,882 million in 2025. The growth was relatively consistent year-over-year, with increases ranging from US$247 million to US$2,509 million annually. The largest single-year increase occurred between 2022 and 2023.

Invested Capital

As a result of the increases in both debt & leases and shareholders’ equity, invested capital grew from US$63,876 million in 2021 to US$80,815 million in 2025. The growth rate of invested capital mirrors the trends in its components, with a notable acceleration between 2023 and 2024, increasing by US$8,572 million. The increase from 2024 to 2025 was US$2,564 million, representing a deceleration in growth.

The consistent growth in invested capital suggests ongoing investment in the organization’s operations and expansion. The increasing reliance on debt financing, particularly between 2022 and 2024, warrants further investigation to assess the associated financial risk and the effectiveness of capital allocation.

The financial trajectory from 2021 to 2025 indicates a significant decline in the company's ability to generate economic value, characterized by a transition from positive economic profit to a sustained period of value destruction.

Economic Profit Trends

A sharp downward trend is observed in economic profit, which plummeted from a peak of US$ 948 million in 2021 to a deficit of US$ 766 million by 2025. The transition into negative territory occurred in 2023, marking a shift where the returns on invested capital no longer exceeded the cost of that capital. Despite a slight recovery in 2024, the deficit widened again in 2025, suggesting an intensifying struggle to maintain economic profitability.

Invested Capital Growth

Invested capital exhibited consistent year-over-year growth throughout the analyzed period. Starting at US$ 63,876 million in 2021, the capital base expanded to US$ 80,815 million by 2025. This steady increase in the capital employed contrasts with the diminishing economic profit, indicating that the expansion of the asset base has not yielded proportional increases in value creation.

Economic Spread Ratio Analysis

The economic spread ratio mirrors the decline in economic profit, reflecting a diminishing margin between the return on invested capital and the weighted average cost of capital. The ratio fell from 1.48% in 2021 to 0.16% in 2022, before turning negative in 2023 (-0.88%). Although there was a marginal improvement to -0.53% in 2024, the ratio deteriorated further to -0.95% by 2025. This persistent negative spread confirms that the company has been destroying shareholder value over the last three fiscal years.

In summary, the period is marked by an inverse relationship between invested capital and economic performance. While the organization successfully increased its capital deployment, the resulting negative economic spread ratios and losses in economic profit indicate an inefficient allocation of resources relative to the cost of capital.

An analysis of the economic performance reveals a significant divergence between revenue growth and value creation. While operating revenue has maintained a consistent upward trajectory, economic profit has transitioned from a positive state to a sustained period of value destruction.

Operating Revenue Trend

Operating revenue grew steadily from US$ 136,943 million in 2021 to US$ 197,584 million by 2025. This indicates a continuous expansion of the company's top-line operations over the five-year period.

Economic Profit Performance

Economic profit experienced a severe decline, falling from US$ 948 million in 2021 to US$ 109 million in 2022, before entering negative territory in 2023 with a loss of US$ 610 million. While a marginal improvement occurred in 2024, the deficit widened further to US$ 766 million by 2025.

Economic Profit Margin Analysis

The economic profit margin reflects this erosion of value, shifting from a positive 0.69% in 2021 to a negative 0.39% in 2025. The transition to negative margins starting in 2023 indicates that the returns generated by the company's operations became insufficient to cover its cost of capital, resulting in negative economic value added despite the increase in total revenue.