Elevance Health Inc. (NYSE:ELV)

The period under review demonstrates a shifting financial performance as measured by economic profit. Net operating profit after taxes (NOPAT) initially decreased from 2021 to 2023, before exhibiting a recovery in 2024, followed by a slight decline in 2025. Simultaneously, the cost of capital fluctuated, generally decreasing over the observed timeframe, while invested capital consistently increased.

Economic Profit Trend

Economic profit experienced a significant decline. Starting at US$1,081 million in 2021, it decreased to US$254 million in 2022 and then transitioned into a negative value of US$460 million in 2023. While improving to negative US$266 million in 2024, economic profit further deteriorated to negative US$618 million in 2025. This indicates a growing disparity between returns generated and the cost of capital employed.

NOPAT Performance

Net operating profit after taxes began at US$7,193 million in 2021, decreasing to US$6,415 million by 2023. A recovery was observed in 2024, with NOPAT reaching US$7,015 million, but this was followed by a slight decrease to US$6,650 million in 2025. The fluctuations in NOPAT contribute to the overall trend in economic profit, though they are not solely responsible given the concurrent changes in cost of capital and invested capital.

Cost of Capital

The cost of capital was 9.57% in 2021, increasing to 9.87% in 2023. It then decreased to 9.30% in 2024 and further to 8.99% in 2025. While a decreasing cost of capital would typically be favorable, it was insufficient to offset the increasing invested capital and the initial decline in NOPAT, ultimately contributing to the negative economic profit trend.

Invested Capital Growth

Invested capital consistently increased throughout the period, rising from US$63,876 million in 2021 to US$80,815 million in 2025. This growth in capital employed, coupled with the fluctuations in NOPAT and cost of capital, significantly impacted the economic profit calculation. The increasing capital base required a higher absolute level of NOPAT to achieve positive economic profit.

In summary, the observed trend indicates a diminishing ability to generate returns exceeding the cost of capital. The increasing invested capital, combined with the initial decline in NOPAT and subsequent insufficient recovery, drove the economic profit into negative territory and exacerbated the decline over the period.

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 economic spread ratio demonstrates a declining trend over the five-year period. Initially positive, the ratio transitions to negative values, indicating a diminishing ability to generate returns exceeding the cost of capital.

Economic Spread Ratio

In 2021, the economic spread ratio stood at 1.69%, representing a substantial spread between returns and the cost of capital. This ratio experienced a significant decrease in 2022, falling to 0.38%. The trend continued downward, with the ratio becoming negative in 2023 at -0.66% and remaining negative through 2025, reaching -0.76%. This suggests a weakening of the company’s profitability relative to its capital employed.

The economic profit mirrors the trend in the economic spread ratio. Economic profit decreased substantially from US$1,081 million in 2021 to US$254 million in 2022, and then became negative, reaching -US$618 million in 2025. This indicates a consistent erosion of value creation.

Invested Capital

Invested capital consistently increased throughout the period, rising from US$63,876 million in 2021 to US$80,815 million in 2025. This growth in invested capital occurred concurrently with the decline in economic profit and the economic spread ratio, suggesting that increases in capital deployment are not translating into proportional increases in returns.

The combined trends suggest that while the company continues to invest capital, its ability to generate returns above its cost of capital is deteriorating. The negative economic profit in the later years indicates that the company is destroying, rather than creating, economic value.

The economic profit margin demonstrates a clear declining trend over the five-year period. Initially positive, it transitioned to negative values, with the magnitude of the negative margin increasing each year.

Economic Profit Margin

In 2021, the economic profit margin stood at 0.79%. This indicates that for every dollar of operating revenue, the company generated 0.79 cents of economic profit. A substantial decrease was observed in 2022, with the margin falling to 0.16%. This suggests a significant reduction in the company’s ability to generate economic profit from its revenue base.

The trend continued negatively in subsequent years. By 2023, the economic profit margin had become negative, registering at -0.27%. This signifies that the company’s cost of capital exceeded the economic profit generated from its operations. The margin further deteriorated to -0.15% in 2024 and reached -0.31% in 2025, indicating a widening gap between the cost of capital and economic profit.

The consistent decline in the economic profit margin, coupled with the shift from positive to negative values, suggests increasing challenges in generating returns that exceed the company’s cost of capital. The increasing negative margin from 2023 to 2025 warrants further investigation into the underlying factors contributing to this trend, such as changes in operating efficiency, capital costs, or revenue growth.

Relationship to Operating Revenue

While operating revenue consistently increased throughout the period, the economic profit margin’s decline indicates that revenue growth alone was insufficient to offset rising costs or a higher cost of capital. The substantial increase in operating revenue from US$136,943 million in 2021 to US$197,584 million in 2025 did not translate into improved economic profitability, as evidenced by the decreasing margin.

The trend in economic profit itself mirrors the margin, starting positive and becoming increasingly negative. This reinforces the conclusion that the company’s financial performance, in terms of generating economic value, has deteriorated over the observed period.