Elevance Health Inc. (NYSE:ELV)

The analysis of the annual financial data reveals several trends related to the company's profitability, cost of capital, invested capital, and economic profit over the five-year period.

Net Operating Profit After Taxes (NOPAT)

The NOPAT shows a significant increase from 4,739 million US$ in 2020 to a peak of 7,193 million US$ in 2021. However, it then experiences a decline over the next two years, falling to 6,841 million US$ in 2022 and further to 6,415 million US$ in 2023. In 2024, there is a recovery, with NOPAT rising again to 7,015 million US$. Despite fluctuations, NOPAT remains appreciably higher than the 2020 level throughout the observed period.

Cost of Capital

The cost of capital shows an upward trend from 10.63% in 2020 to a peak of 11.56% in both 2022 and 2023. In 2024, it decreases slightly to 10.84%. The increase over the early years represents a rise in the required return for invested capital, potentially increasing the company’s financial burdens.

Invested Capital

The invested capital steadily increases each year from 56,634 million US$ in 2020 to 78,241 million US$ in 2024. This growth suggests ongoing investments in operational assets or expansion, indicating the company’s commitment to scaling or maintaining its operational base.

Economic Profit

The economic profit, which considers the cost of capital, starts with a negative value of -1,283 million US$ in 2020, improves to a slight positive of 36 million US$ in 2021, but then declines sharply again over the following years to -880 million US$ in 2022, -1,637 million US$ in 2023, and -1,463 million US$ in 2024. This pattern indicates that despite increases in operating profit, the cost of capital and invested capital expansions have led to persistent challenges in generating returns above the capital cost, reflecting inefficiencies or competitive pressures.

Shareholders’ Net Income

The shareholders’ net income exhibited an upward trend from 2020 to 2021, increasing significantly from 4,572 million USD to 6,104 million USD. However, this upward momentum did not sustain in the following years. From 2021 to 2022, net income slightly decreased to 6,025 million USD, followed by a marginal decline in 2023 to 5,987 million USD. By the end of 2024, the figure remained relatively stable at 5,980 million USD, indicating a plateau after the initial growth.

Net Operating Profit After Taxes (NOPAT)

NOPAT showed a robust increase from 4,739 million USD in 2020 to 7,193 million USD in 2021, signaling improved operational effectiveness and profitability. Subsequent years showed a decline in NOPAT to 6,841 million USD in 2022 and further down to 6,415 million USD in 2023, suggesting a reduction in operating efficiency or increased costs during this period. Notably, there was a recovery in 2024, with NOPAT rising again to 7,015 million USD, reaching levels approaching the 2021 peak.

Overall Observations

Both shareholders’ net income and NOPAT experienced substantial growth from 2020 to 2021. Following this peak, net income maintained relatively steady levels with minor declines, while NOPAT exhibited more volatility, decreasing over two years before partially rebounding in 2024. This pattern could indicate external or operational factors affecting profitability after initial gains. The relative steadiness in net income compared to NOPAT fluctuations may also suggest effective management of non-operating factors such as taxes, financing costs, or extraordinary items during the period analyzed.

The financial data over the five-year period reveals several notable trends related to tax expenses and cash operating taxes.

Income Tax Expense

The income tax expense showed a general upward trend from 2020 to 2024, starting at 1,666 million US dollars in 2020 and increasing to 1,933 million US dollars in 2024. There was a slight dip in 2022 compared to 2021, where the expense decreased from 1,830 million to 1,750 million, followed by a minor further decline in 2023 to 1,724 million. However, the expense rose significantly in 2024, reaching the highest recorded value over the period.

Cash Operating Taxes

Cash operating taxes demonstrated greater volatility during the period. The value initially decreased from 2,363 million US dollars in 2020 to 1,823 million in 2021, indicating a substantial reduction of approximately 22.9%. This trend reversed in the following years, with cash operating taxes increasing to 1,931 million in 2022, then surging to 2,637 million in 2023. Although there was a slight decline in 2024 to 2,550 million, cash operating taxes remained well above the 2021 and 2022 levels.

Overall, the patterns suggest that while income tax expense has been relatively stable with minor fluctuations, cash operating taxes have experienced more pronounced changes with a sharp decline early in the period and a significant rebound later. The year 2024 marked a notable peak for income tax expense, and cash operating taxes remain elevated compared to the middle years of the timeframe.

Total Reported Debt & Leases

The total reported debt and leases show a consistent upward trend over the five-year period. Starting from US$20,992 million at the end of 2020, the figure rose to US$24,028 million in 2021, reflecting a substantial increase of approximately 14.5%. This growth continued at a slower but steady pace in 2022 and 2023, reaching US$25,046 million and US$25,969 million, respectively. The most significant increase occurred in 2024, where debt and leases climbed markedly to US$32,043 million. This sharp rise in the final year signals a potential strategic increase in leverage or financing activities.

Shareholders’ Equity

Shareholders' equity experienced a positive growth trajectory throughout the period. Beginning at US$33,199 million in 2020, equity expanded steadily to US$36,060 million in 2021 and US$36,307 million in 2022, showing moderate annual increases. The upward movement became more pronounced in the subsequent years, culminating in an equity balance of US$41,315 million by the end of 2024. This steady accumulation of equity suggests ongoing profitability or capital retention strategies enhancing the company’s net assets.

Invested Capital

Invested capital also displayed a consistent increasing pattern, starting from US$56,634 million in 2020 and growing annually through to 2024. Elevations to US$63,876 million in 2021, US$66,804 million in 2022, and US$69,669 million in 2023 illustrate gradual capital expansion. By 2024, invested capital reached US$78,241 million, indicating an accelerated growth rate. This trend points to ongoing investments in operational or business assets, which may correspond to expansion efforts or increased asset base supporting growth initiatives.

Overall Financial Position Insights

The data reveals a pattern of expanding financial resources alongside increasing obligations. The rise in total debt and leases is proportionally higher than the growth in shareholders' equity, especially in the latest period, reflecting potentially greater reliance on external financing. Simultaneously, the increase in invested capital suggests that the company has been actively deploying capital into its business operations. The balance between rising debt and equity levels indicates a leveraged growth strategy, which may affect risk profiles and financial flexibility going forward. Monitoring the impact of this leverage on profitability and cash flows would be essential for a comprehensive financial assessment.

Economic Profit

The economic profit showed a notably volatile trend over the five-year span. Beginning with a significant negative value of -1283 million US dollars in 2020, it improved dramatically to a slight positive figure of 36 million in 2021. However, this positive performance was not sustained, as economic profit declined again to -880 million in 2022, with further deterioration in 2023 to -1637 million. The figure slightly improved in 2024 but remained deeply negative at -1463 million, indicating ongoing challenges in generating value over and above the cost of capital.

Invested Capital

Invested capital consistently increased each year, reflecting growth in assets deployed by the company. Starting from 56,634 million US dollars in 2020, the invested capital expanded steadily to 63,876 million in 2021, 66,804 million in 2022, 69,669 million in 2023, and reached 78,241 million by the end of 2024. This upward trend suggests a continuous investment in the company’s operations and possibly strategic expansion or asset acquisition.

Economic Spread Ratio

The economic spread ratio, indicating the return spread over the cost of capital, exhibited fluctuations aligning with the economic profit trend. The ratio was negative at -2.26% in 2020, improved to a marginal positive 0.06% in 2021, signaling a brief period where returns possibly matched or slightly exceeded capital costs. However, subsequent years saw the ratio revert to negative values: -1.32% in 2022, deteriorating further to -2.35% in 2023, and improving slightly to -1.87% in 2024. This pattern underscores the company’s challenge in consistently generating returns above its invested capital cost.

The analysis of the annual financial data reveals notable trends in both operating revenue and economic profit metrics over the five-year period under review.

Operating Revenue

Operating revenue demonstrated a consistent upward trajectory from 2020 to 2024. Beginning at approximately US$120.8 billion in 2020, it increased steadily each year, reaching about US$175.2 billion by 2024. This represents a substantial growth in revenue, indicating successful business expansion or increased sales volume over the period.

Economic Profit

Economic profit, expressed in millions of US dollars, exhibited considerable volatility throughout the years. In 2020, the company recorded a negative economic profit of about -US$1.3 billion. This turned positive in 2021, with a modest gain of US$36 million, indicating a brief period of value creation. However, in the following years, economic profit reverted to negative territory, declining sharply to -US$880 million in 2022, further deteriorating to -US$1.64 billion in 2023, and slightly improving to -US$1.46 billion in 2024. This fluctuation suggests challenges in sustaining profitability despite revenue growth.

Economic Profit Margin

The economic profit margin, expressed as a percentage, mirrors the pattern observed in economic profit. It started with a negative margin of -1.06% in 2020, which improved to a slight positive margin of 0.03% in 2021. Subsequently, the margin decreased again to -0.57% in 2022, then further declined to -0.96% in 2023 and marginally recovered to -0.84% in 2024. This indicates that the company struggled to maintain profitability relative to its operating revenue after 2021.

Overall, while the company experienced continuous revenue growth from 2020 through 2024, it faced persistent challenges in generating positive economic profit and maintaining economic profit margins beyond 2021. The data suggests that despite increasing sales, the costs or capital charges associated with operations may have outweighed returns, leading to continued economic losses in most years of the period.