Elevance Health Inc. (NYSE:ELV)

The economic profit trajectory for the period between December 31, 2021, and December 31, 2025, demonstrates a significant decline, transitioning from a state of value creation to persistent value destruction. While the period began with a positive economic profit of 1,064 million USD, the figure deteriorated rapidly, turning negative by 2023 and remaining below zero through 2025.

Net Operating Profit After Taxes (NOPAT)

NOPAT exhibited a general downward trend characterized by volatility. From a peak of 7,193 million USD in 2021, operating profits declined to 6,415 million USD by 2023. Although a temporary recovery to 7,015 million USD occurred in 2024, the figure fell again to 6,650 million USD in 2025. The inability to maintain or grow operating profits consistently hindered the company's ability to generate economic value.

Invested Capital and Cost of Capital

Invested capital increased steadily and substantially throughout the analyzed period, rising from 63,876 million USD in 2021 to 80,815 million USD in 2025. During the same period, the cost of capital peaked at 9.89% in 2022 and 2023 before trending downward to 9.02% by 2025. The continuous expansion of the invested capital base increased the total capital charge, creating a higher threshold of operating profit required to achieve positive economic value added.

Economic Profit Dynamics

The shift toward negative economic profit indicates that the returns generated from operations are insufficient to cover the cost of the capital employed. Economic profit plummeted from 1,064 million USD in 2021 to -478 million USD in 2023. A marginal improvement to -285 million USD in 2024 coincided with a spike in NOPAT and a reduction in the cost of capital, but this recovery was short-lived. By December 31, 2025, economic profit declined further to -636 million USD, signaling that the growth in invested capital has not been matched by a proportional increase in operating returns.

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 performance over the observed five-year period indicates a significant transition from positive economic value creation to consistent economic value destruction. While the capital base has expanded steadily, the inability to translate this growth into economic profit has resulted in a sustained negative economic spread.

Economic Profit

A sharp downward trend is observed in economic profit, which decreased from US$ 1,064 million in 2021 to a deficit of US$ 636 million by 2025. The shift into negative territory occurred in 2023; although a partial recovery was noted in 2024 with a deficit of US$ 285 million, the trend reversed in 2025, reaching the lowest point in the analyzed period.

Invested Capital

Invested capital exhibits consistent growth, rising from US$ 63,876 million in 2021 to US$ 80,815 million in 2025. This indicates a continuous increase in the resources deployed within the business over the five-year interval.

Economic Spread Ratio

The economic spread ratio reflects the deterioration in value creation, falling from 1.67% in 2021 to -0.79% in 2025. The transition to a negative ratio in 2023 confirms that the return on invested capital failed to exceed the cost of capital. Despite a marginal improvement to -0.36% in 2024, the ratio declined again in 2025, suggesting a persistent gap between the cost of capital and the actual returns generated by the expanded investment base.

The financial trajectory between 2021 and 2025 is characterized by a significant divergence between top-line growth and economic value creation. While operating revenue expanded consistently throughout the period, economic profit experienced a severe decline, transitioning from a positive state of value creation to a persistent state of value destruction.

Operating Revenue Growth

A consistent upward trend in operating revenue is observed, increasing from 136,943 million US dollars in 2021 to 197,584 million US dollars by 2025. This represents steady growth in the scale of operations over the five-year period.

Economic Profit Erosion

Economic profit declined sharply from a peak of 1,064 million US dollars in 2021 to 235 million US dollars in 2022, before falling into negative territory in 2023. Despite a brief moderate recovery in 2024, the figure reached its lowest point of -636 million US dollars in 2025, indicating that the returns generated were insufficient to cover the cost of capital employed.

Economic Profit Margin Compression

The economic profit margin mirrored the decline in absolute economic profit, shrinking from 0.78% in 2021 to 0.15% in 2022. The margin became negative in 2023 (-0.28%) and remained negative through 2025, ending at -0.32%. This compression suggests that the increased operating revenue did not translate into proportional economic gains, signaling a decrease in capital efficiency.

The correlation between rising revenues and falling economic profit suggests that the capital investments required to drive growth have not yielded returns exceeding the company's cost of capital. The transition to a negative economic profit margin indicates a systemic shift toward value destruction, where the cost of funding the expansion outweighs the additional operating income generated.