Elevance Health Inc. (NYSE:ELV)

The financial performance from 2021 to 2025 reveals a transition from positive economic value creation to a persistent state of value destruction. Despite fluctuations in operating profit and a reduction in the cost of capital toward the end of the period, the steady expansion of the invested capital base has outpaced earnings growth, leading to negative economic profit starting in 2023.

Net Operating Profit After Taxes (NOPAT)

Operating profitability exhibited volatility over the five-year period. NOPAT declined from 7,193 million US$ in 2021 to a low of 6,415 million US$ in 2023. While a recovery occurred in 2024, reaching 7,015 million US$, this growth was not sustained, as figures retreated to 6,650 million US$ by 2025. This indicates an inability to maintain a consistent upward trajectory in operational earnings.

Invested Capital

A consistent and significant upward trend is observed in the capital employed. Invested capital grew from 63,876 million US$ in 2021 to 80,815 million US$ in 2025. This represents a steady increase in the resources deployed to generate profit, with the most substantial year-over-year increase occurring between 2023 and 2024.

Cost of Capital

The cost of capital remained relatively stable but showed a slight peak of 10.06% between 2022 and 2023. A downward trend followed in the final two years, with the rate decreasing to 9.48% in 2024 and reaching a period low of 9.16% in 2025. This reduction in the capital charge was insufficient to offset the impact of the growing capital base.

Economic Profit

Economic profit experienced a severe deterioration, shifting from a surplus of 960 million US$ in 2021 to a deficit of 752 million US$ by 2025. The company crossed into negative economic profit in 2023, signaling that the returns on invested capital fell below the required cost of capital. Although a slight improvement was noted in 2024, the subsequent decline in 2025 confirms a sustained trend of value destruction.

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.

An analysis of value creation metrics reveals a deteriorating trend in economic performance from 2021 through 2025. Despite a consistent increase in the capital base, the ability to generate economic profit has diminished, resulting in a transition from value creation to value destruction.

Economic Profit Trends

Economic profit experienced a sharp decline, moving from 960 million USD in 2021 to a projected deficit of 752 million USD by 2025. A critical inflection point occurred in 2023, when profit turned negative at -596 million USD, indicating that the returns on invested capital were insufficient to cover the cost of that capital. While a slight improvement was observed in 2024, the trend returned to a downward trajectory in 2025.

Invested Capital Expansion

Invested capital demonstrates a steady and uninterrupted upward trajectory, increasing from 63,876 million USD in 2021 to 80,815 million USD in 2025. This continuous growth in the capital base occurred concurrently with the decline in economic profit, suggesting that additional capital injections have not yielded the necessary returns to maintain a positive economic spread.

Economic Spread Ratio Analysis

The economic spread ratio plummeted from 1.50% in 2021 to -0.93% by 2025. The ratio collapsed to 0.18% in 2022 before entering negative territory in 2023 (-0.85%). The persistence of a negative spread from 2023 through 2025 confirms that the return on invested capital has remained consistently below the weighted average cost of capital, signaling an erosion of economic value.

The financial trajectory between 2021 and 2025 reveals a significant divergence between top-line growth and the generation of economic value. While operating revenue increased consistently throughout the period, economic profit experienced a sharp decline, transitioning from a positive contribution to a sustained deficit. This indicates that despite the expansion of operational scale, the returns generated have failed to exceed the cost of capital since 2023.

Operating Revenue Growth

A steady upward trend in operating revenue is observed, rising from 136,943 million US dollars in 2021 to 197,584 million US dollars by 2025. This consistent growth demonstrates an increase in the volume of business activities over the five-year period.

Economic Profit Deterioration

Economic profit showed a precipitous decline, falling from 960 million US dollars in 2021 to 123 million US dollars in 2022. The value entered negative territory in 2023 at -596 million US dollars, and despite a moderate improvement to -404 million US dollars in 2024, it reached a period low of -752 million US dollars by 2025.

Economic Profit Margin Erosion

The economic profit margin mirrors the decline in absolute economic profit, dropping from 0.70% in 2021 to 0.08% in 2022. The margin became negative in 2023 at -0.35%, fluctuated to -0.23% in 2024, and ultimately declined to -0.38% in 2025. This trend highlights a diminishing ability to convert increasing revenues into economic value.