Elevance Health Inc. (NYSE:ELV)

The period under review demonstrates a consistent pattern of negative economic profit for the entity. While net operating profit after taxes (NOPAT) fluctuates, it does not generate sufficient returns to cover the cost of capital employed. Invested capital steadily increases throughout the period, contributing to the sustained negative economic profit.

Net Operating Profit After Taxes (NOPAT)

NOPAT increased from US$4,739 million in 2020 to US$7,193 million in 2021, representing a substantial improvement. However, it subsequently decreased to US$6,841 million in 2022 and further to US$6,415 million in 2023. A modest recovery is observed in 2024, with NOPAT reaching US$7,015 million. Despite these fluctuations, NOPAT remains below the level required to generate positive economic profit.

Cost of Capital

The cost of capital experienced an increasing trend from 12.18% in 2020 to 13.29% in both 2022 and 2023. A slight decrease to 12.40% is noted in 2024. This increasing cost of capital, coupled with the relatively stable NOPAT, exacerbates the negative economic profit.

Invested Capital

Invested capital shows a consistent upward trend, increasing from US$56,634 million in 2020 to US$78,241 million in 2024. This continuous growth in capital employed, without a corresponding increase in NOPAT sufficient to offset the cost of that capital, directly contributes to the widening negative economic profit.

Economic Profit

Economic profit remains negative throughout the entire period. The deficit widened from US$-2,161 million in 2020 to US$-2,843 million in 2023, before marginally improving to US$-2,689 million in 2024. The consistent negative values indicate that the entity is not generating returns exceeding its cost of capital, suggesting potential inefficiencies in capital allocation or operational performance.

In summary, the entity consistently destroys economic value as indicated by the negative economic profit. While NOPAT shows some volatility and a slight recovery in the final year, it is insufficient to overcome the increasing cost of capital and expanding invested capital base. Continued monitoring of these metrics is recommended to assess the effectiveness of strategies aimed at improving economic profitability.

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.

The economic spread ratio exhibited a generally negative trend over the five-year period. While fluctuations occurred, the ratio consistently remained below zero, indicating that the company’s return on invested capital was less than its cost of capital during each year analyzed.

Economic Spread Ratio Trend

The economic spread ratio began at -3.82% in 2020. A relative improvement was seen in 2021, with the ratio increasing to -1.62%. However, this improvement was short-lived, as the ratio deteriorated to -3.05% in 2022 and further to -4.08% in 2023. A slight positive shift occurred in the most recent year, 2024, with the ratio moving to -3.44%.

Economic profit consistently registered as negative throughout the period, mirroring the negative economic spread ratio. The magnitude of the economic profit losses varied, with 2023 showing the largest loss at US$2,843 million. The economic profit in 2024 was US$2,689 million, a slight improvement from the prior year.

Invested Capital

Invested capital demonstrated a consistent upward trend, increasing from US$56,634 million in 2020 to US$78,241 million in 2024. This growth in invested capital occurred concurrently with the negative economic spread ratio, suggesting that increases in capital deployment did not translate into commensurate returns exceeding the cost of that capital.

The combination of a consistently negative economic spread ratio and increasing invested capital suggests a potential need to evaluate capital allocation strategies and operational efficiency to improve returns and generate positive economic profit.

The economic profit margin exhibited a generally declining trend over the five-year period. While fluctuations occurred, the metric consistently remained negative, indicating the company did not generate returns exceeding its cost of capital during this time.

Economic Profit Margin

The economic profit margin began at -1.79% in 2020. A notable improvement was observed in 2021, with the margin increasing to -0.76%. However, this improvement was not sustained. The margin deteriorated to -1.31% in 2022 and continued to worsen to -1.67% in 2023. A slight moderation in the decline was seen in 2024, with the margin settling at -1.54%.

Operating revenue demonstrated consistent growth throughout the period. Despite this revenue growth, the negative economic profit margin persisted, suggesting that increases in revenue were insufficient to offset the cost of capital. The widening gap between revenue growth and the negative economic profit margin from 2021 to 2023 indicates a potential issue with cost management or capital allocation efficiency.

Relationship between Economic Profit and Operating Revenue

Operating revenue increased from US$120,808 million in 2020 to US$175,204 million in 2024. However, economic profit remained negative throughout the period, ranging from -US$2,161 million to -US$2,843 million. This suggests that while the company increased its top-line revenue, it failed to translate that growth into economic profit.

The relatively stable negative economic profit margin in the most recent year, 2024, could indicate that the factors contributing to the negative economic profit are becoming entrenched. Further investigation into the components of the cost of capital and operational efficiency would be necessary to understand the underlying drivers of this trend.