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, while invested capital consistently increased throughout the observed timeframe.

Economic Profit Trend

Economic profit experienced a substantial decline from US$1,073 million in 2021 to US$244 million in 2022. This trend continued into negative territory in 2023, reaching -US$469 million. While improving slightly to -US$276 million in 2024, economic profit further deteriorated to -US$627 million in 2025. This indicates a growing disparity between returns generated and the cost of capital employed.

NOPAT Analysis

NOPAT decreased from US$7,193 million in 2021 to US$6,415 million in 2023, representing a contraction in operating profitability. A subsequent increase to US$7,015 million in 2024 suggests a partial recovery in operational efficiency or revenue generation. However, NOPAT decreased again to US$6,650 million in 2025, indicating that the positive momentum was not sustained.

Cost of Capital

The cost of capital increased from 9.58% in 2021 to 9.88% in both 2022 and 2023. A decrease to 9.32% in 2024 suggests a potentially improved financing environment or risk profile. Further reduction to 9.00% in 2025 indicates a continued easing of capital costs. Despite these decreases, the cost of capital remained a significant factor influencing economic profit.

Invested Capital

Invested capital consistently rose throughout the period, increasing from US$63,876 million in 2021 to US$80,815 million in 2025. This expansion in capital deployment did not translate into corresponding increases in economic profit, and in fact coincided with a decline, suggesting diminishing returns on invested capital or inefficient capital allocation.

The combined effect of these trends resulted in a consistent erosion of economic profit over the five-year period. While NOPAT showed some fluctuation, the increasing invested capital base and relatively stable cost of capital contributed to the negative economic profit observed in the later years.

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 1.68%, signifying a substantial spread between returns generated from invested capital and the cost of that capital. This indicates strong value creation. However, a significant decrease is observed in 2022, with the ratio falling to 0.37%.

The trend continues downward, with the ratio becoming negative in 2023 at -0.67% and remaining negative in subsequent years, reaching -0.35% in 2024 and -0.78% in 2025. This suggests that, from 2023 onward, invested capital is yielding returns lower than the company’s cost of capital, resulting in value destruction.

The economic profit mirrors the trend in the economic spread ratio. Positive economic profit of US$1,073 million in 2021 declines to US$244 million in 2022, and then becomes negative, reaching US$-469 million in 2023. This negative trend persists, with economic profit further decreasing to US$-276 million in 2024 and US$-627 million in 2025.

Invested Capital

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

The combination of a rising invested capital base and a declining economic spread ratio indicates a weakening of the company’s ability to efficiently deploy capital and generate returns. The shift from positive to negative economic profit further reinforces this observation.

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 over time. This suggests a diminishing ability to generate returns exceeding the cost of capital.

Economic Profit

Economic profit began at US$1,073 million in 2021, representing a substantial positive value. However, it experienced a significant decrease to US$244 million in 2022. This downward trajectory continued, resulting in a loss of US$469 million in 2023. Losses persisted and widened to US$276 million in 2024 and further to US$627 million in 2025.

Operating Revenue

Operating revenue consistently increased throughout the period, moving from US$136,943 million in 2021 to US$197,584 million in 2025. Despite this revenue growth, the economic profit declined, indicating that revenue increases were insufficient to offset rising costs or a decreasing return on capital employed.

Economic Profit Margin

The economic profit margin started at 0.78% in 2021, indicating a relatively small but positive return on revenue above the cost of capital. In 2022, the margin decreased substantially to 0.16%. By 2023, the margin had become negative, reaching -0.28%. This negative trend continued, with the margin reaching -0.16% in 2024 and -0.32% in 2025. The increasing negativity suggests a growing disparity between revenue generation and the cost of capital.

The consistent growth in operating revenue alongside the declining economic profit margin highlights a potential issue with cost management, capital efficiency, or both. Further investigation into the underlying drivers of these trends is warranted to understand the reasons for the diminishing economic profitability.