Economic Value Added (EVA)
EVA is registered trademark of Stern Stewart.
Economic value added or economic profit is the difference between revenues and costs,where costs include not only expenses, but also cost of capital.
Economic Profit
Humana Inc., economic profit calculation
US$ in millions
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2023 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 2,726 – 9.49% × 30,225 = -142
Analysis of economic value added indicates a significant deterioration in the ability to generate returns above the cost of capital over the five-year period ending December 31, 2023.
- Net Operating Profit After Taxes (NOPAT)
- Operating profitability experienced a peak in 2020 at 3,874 million US$, followed by a consistent year-over-year decline. By 2023, NOPAT fell to 2,726 million US$, representing a decrease of approximately 29.6% from its peak, signaling a contraction in operational efficiency or an increase in operating expenses.
- Invested Capital
- A substantial expansion in the capital base is observed, growing from 18,877 million US$ in 2019 to 30,225 million US$ by 2023. A particularly sharp increase occurred between 2020 and 2021, where invested capital rose by approximately 40%, suggesting significant asset acquisition or capital deployment during that interval.
- Cost of Capital
- The cost of capital remained relatively stable, oscillating within a narrow range between 9.28% and 10.16%. While there was a slight dip in 2021, these fluctuations were insufficient to offset the combined impact of the expanding capital base and the declining operational profits.
- Economic Profit
- Economic profit exhibits a severe downward trajectory. After reaching a high of 1,707 million US$ in 2020, the value plummeted to 329 million US$ in 2021 and continued to erode until becoming negative in 2023 at -142 million US$. This transition to negative economic profit indicates that the company is no longer generating sufficient NOPAT to cover the required return on the capital employed.
The observed trend reveals a critical divergence where the capital requirements increased significantly while operating returns declined. This combination has resulted in the destruction of economic value, as the capital charge has surpassed the net operating profit after taxes by the end of the analyzed period.
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Net Operating Profit after Taxes (NOPAT)
Humana Inc., NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowance for doubtful accounts.
3 Addition of increase (decrease) in unearned revenues.
4 Addition of increase (decrease) in equity equivalents to net income attributable to Humana.
5 2023 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 593 × 3.90% = 23
6 2023 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 516 × 21.00% = 108
7 Addition of after taxes interest expense to net income attributable to Humana.
The financial data for the periods ending December 31, 2019, through December 31, 2023, indicate discernible trends in both net income attributable and net operating profit after taxes (NOPAT).
- Net Income Attributable to the Company (in US$ millions)
- The net income increased from 2707 million in 2019 to a peak of 3367 million in 2020, indicating a significant growth during this period. Following this peak, there was a noticeable decline over the subsequent years, with the value reducing to 2933 million in 2021, then to 2806 million in 2022, and further down to 2489 million by the end of 2023. This pattern suggests a contraction in profitability after the strong performance in 2020.
- Net Operating Profit After Taxes (NOPAT) (in US$ millions)
- NOPAT exhibited a similar trend to net income. It rose from 3029 million in 2019 to 3874 million in 2020, representing substantial growth and operational efficiency that year. However, post-2020, NOPAT consistently declined, falling to 3172 million in 2021, then to 3053 million in 2022, and finally to 2726 million in 2023. This decline suggests a decrease in operating profitability and efficiency over these years.
Overall, both net income and NOPAT demonstrated a peak in 2020, followed by a downward trend through 2023. This pattern may reflect external market challenges, operational issues, or changes in the business environment that impacted profitability and operating performance after 2020.
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Cash Operating Taxes
Humana Inc., cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
The financial data presented provides insights into the company's provision for income taxes and cash operating taxes over a five-year period from 2019 to 2023.
- Provision for Income Taxes
- This item experienced significant fluctuations during the period. Starting at 763 million US dollars in 2019, the provision increased sharply to 1,307 million in 2020. This was followed by a considerable decrease to 485 million in 2021. In the subsequent years, the provision rose again to 762 million in 2022 and continued increasing slightly to 836 million in 2023. Overall, the provision demonstrates volatility, with a peak in 2020 and a relative stabilization in the last two reported years, albeit at levels higher than in 2019 and 2021.
- Cash Operating Taxes
- The trend for cash operating taxes similarly shows variability but with a generally upward movement over the period. Beginning at 656 million US dollars in 2019, cash operating taxes surged to 1,175 million in 2020. In 2021, there was a marked decline to 543 million, mirroring the fall seen in the provision for income taxes. However, the taxes paid increased substantially again in 2022 to 950 million and further to 1,108 million in 2023, reaching the highest point in the dataset. This suggests an increase in cash outflows related to tax operations in recent years compared to the earlier periods.
In summary, both provision for income taxes and cash operating taxes demonstrate irregular patterns with notable peaks in 2020, sharp declines in 2021, and subsequent increases through 2022 and 2023. This pattern may reflect changes in profitability, tax strategies, or regulatory impacts affecting the company's tax liabilities and payments across these years.
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Invested Capital
Humana Inc., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
1 Addition of capitalized operating leases.
2 Elimination of deferred taxes from assets and liabilities. See details »
3 Addition of allowance for doubtful accounts receivable.
4 Addition of unearned revenues.
5 Addition of equity equivalents to stockholders’ equity.
6 Removal of accumulated other comprehensive income.
- Total Reported Debt & Leases
- The total reported debt and leases increased significantly from 2019 through 2021, rising from 6,339 million USD in 2019 to a peak of 13,551 million USD in 2021. This represents more than a doubling within two years. However, from 2021 to 2022, there was a notable reduction to 12,032 million USD, followed by a slight increase again to 12,602 million USD in 2023. This suggests a phase of aggressive leverage build-up followed by some deleveraging or stabilization in recent years.
- Stockholders’ Equity
- Stockholders’ equity exhibited steady growth over the five-year period, increasing from 12,037 million USD in 2019 to 16,262 million USD in 2023. While there was a minor dip in 2022 to 15,311 million USD from the prior year’s high of 16,080 million USD, the overall trend shows continuous capital accumulation and potentially retained earnings growth contributing to the equity base.
- Invested Capital
- Invested capital followed a trend similar to that of total debt and leases, with a sharp increase from 18,877 million USD in 2019 to 30,647 million USD in 2021. After peaking in 2021, invested capital declined moderately to 29,089 million USD in 2022 and then edged up slightly to 30,225 million USD in 2023. This pattern indicates a significant expansion in total capital invested until 2021 with a partial contraction and then stabilization thereafter.
- Summary of Trends
- Across the analyzed periods, there is a clear expansion in total invested capital driven primarily by rising debt and leases structures until 2021. The subsequent years showed attempts to moderate leverage levels while maintaining growth in stockholders’ equity. The growth in equity suggests an increasing net worth of the company, providing a balancing counterweight to increased liabilities. The fluctuations in invested capital align closely with the changes in debt, indicating the company was likely pursuing growth strategies requiring substantial external financing up to 2021, and has since moved towards stabilizing its capital base.
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Cost of Capital
Humana Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 43,915) | 43,915) | ÷ | 56,332) | = | 0.78 | 0.78 | × | 11.14% | = | 8.69% | ||
| Debt3 | 11,824) | 11,824) | ÷ | 56,332) | = | 0.21 | 0.21 | × | 4.63% × (1 – 21.00%) | = | 0.77% | ||
| Operating lease liability4 | 593) | 593) | ÷ | 56,332) | = | 0.01 | 0.01 | × | 3.90% × (1 – 21.00%) | = | 0.03% | ||
| Total: | 56,332) | 1.00 | 9.49% | ||||||||||
Based on: 10-K (reporting date: 2023-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 63,199) | 63,199) | ÷ | 74,600) | = | 0.85 | 0.85 | × | 11.14% | = | 9.44% | ||
| Debt3 | 10,793) | 10,793) | ÷ | 74,600) | = | 0.14 | 0.14 | × | 3.69% × (1 – 21.00%) | = | 0.42% | ||
| Operating lease liability4 | 608) | 608) | ÷ | 74,600) | = | 0.01 | 0.01 | × | 3.20% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 74,600) | 1.00 | 9.88% | ||||||||||
Based on: 10-K (reporting date: 2022-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 53,783) | 53,783) | ÷ | 68,295) | = | 0.79 | 0.79 | × | 11.14% | = | 8.78% | ||
| Debt3 | 13,781) | 13,781) | ÷ | 68,295) | = | 0.20 | 0.20 | × | 2.97% × (1 – 21.00%) | = | 0.47% | ||
| Operating lease liability4 | 731) | 731) | ÷ | 68,295) | = | 0.01 | 0.01 | × | 3.20% × (1 – 21.00%) | = | 0.03% | ||
| Total: | 68,295) | 1.00 | 9.28% | ||||||||||
Based on: 10-K (reporting date: 2021-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 48,752) | 48,752) | ÷ | 57,508) | = | 0.85 | 0.85 | × | 11.14% | = | 9.45% | ||
| Debt3 | 8,272) | 8,272) | ÷ | 57,508) | = | 0.14 | 0.14 | × | 3.90% × (1 – 21.00%) | = | 0.44% | ||
| Operating lease liability4 | 484) | 484) | ÷ | 57,508) | = | 0.01 | 0.01 | × | 3.70% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 57,508) | 1.00 | 9.92% | ||||||||||
Based on: 10-K (reporting date: 2020-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 49,010) | 49,010) | ÷ | 55,899) | = | 0.88 | 0.88 | × | 11.14% | = | 9.77% | ||
| Debt3 | 6,441) | 6,441) | ÷ | 55,899) | = | 0.12 | 0.12 | × | 3.94% × (1 – 21.00%) | = | 0.36% | ||
| Operating lease liability4 | 448) | 448) | ÷ | 55,899) | = | 0.01 | 0.01 | × | 4.10% × (1 – 21.00%) | = | 0.03% | ||
| Total: | 55,899) | 1.00 | 10.16% | ||||||||||
Based on: 10-K (reporting date: 2019-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Humana Inc., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | (142) | 178) | 329) | 1,707) | 1,112) | |
| Invested capital2 | 30,225) | 29,089) | 30,647) | 21,850) | 18,877) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -0.47% | 0.61% | 1.07% | 7.81% | 5.89% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Abbott Laboratories | -4.65% | -2.40% | -1.92% | — | — | |
| Elevance Health Inc. | -0.85% | 0.18% | 1.50% | — | — | |
| Intuitive Surgical Inc. | -2.99% | -3.27% | 12.34% | — | — | |
| Medtronic PLC | -6.29% | -5.04% | -6.68% | — | — | |
| UnitedHealth Group Inc. | 5.07% | 4.11% | 3.96% | — | — | |
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2023 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -142 ÷ 30,225 = -0.47%
4 Click competitor name to see calculations.
A comprehensive analysis of the economic value added metrics reveals a significant deterioration in value creation over the five-year period ending December 31, 2023. While the organization initially generated positive economic profit and maintained a healthy economic spread, the trend reversed sharply after 2020, culminating in economic value destruction by the end of 2023.
- Economic Profit Trends
- Economic profit exhibited a peak of 1,707 million US dollars in 2020, following a baseline of 1,112 million US dollars in 2019. However, a steep decline followed, with profit falling to 329 million US dollars in 2021 and continuing to erode to 178 million US dollars in 2022. By December 31, 2023, economic profit transitioned into negative territory, reaching -142 million US dollars, indicating that the returns generated were insufficient to cover the cost of capital.
- Invested Capital Growth
- Invested capital demonstrated a general upward trajectory, increasing from 18,877 million US dollars in 2019 to 30,225 million US dollars in 2023. A notable surge occurred between 2020 and 2021, where capital grew from 21,850 million US dollars to 30,647 million US dollars. This substantial increase in the capital base coincided with the period of most rapid decline in economic profit.
- Economic Spread Ratio Performance
- The economic spread ratio, which measures the difference between the return on invested capital and the cost of capital, mirrored the decline in economic profit. The ratio peaked at 7.81% in 2020 but collapsed to 1.07% in 2021. This downward trend persisted through 2022 at 0.61%, ultimately falling to -0.47% in 2023. The negative spread in the final year confirms that the return on invested capital has fallen below the weighted average cost of capital, signifying a transition from value creation to value destruction.
The correlation between the sharp increase in invested capital in 2021 and the subsequent collapse of the economic spread ratio suggests that the additional capital deployed did not generate proportional returns. The trajectory indicates a systemic failure to maintain economic efficiency, as the spread ratio moved from a high of 7.81% to a negative position over a three-year window.
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Economic Profit Margin
Humana Inc., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | (142) | 178) | 329) | 1,707) | 1,112) | |
| External revenues | 105,305) | 92,488) | 82,877) | 76,001) | 64,387) | |
| Add: Increase (decrease) in unearned revenues | (20) | 32) | (64) | 71) | (36) | |
| Adjusted external revenues | 105,285) | 92,520) | 82,813) | 76,072) | 64,351) | |
| Performance Ratio | ||||||
| Economic profit margin2 | -0.13% | 0.19% | 0.40% | 2.24% | 1.73% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Abbott Laboratories | -6.91% | -3.38% | -2.77% | — | — | |
| Elevance Health Inc. | -0.35% | 0.08% | 0.70% | — | — | |
| Intuitive Surgical Inc. | -2.98% | -2.82% | 9.71% | — | — | |
| Medtronic PLC | -14.19% | -11.06% | -16.04% | — | — | |
| UnitedHealth Group Inc. | 2.52% | 2.10% | 1.94% | — | — | |
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
1 Economic profit. See details »
2 2023 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted external revenues
= 100 × -142 ÷ 105,285 = -0.13%
3 Click competitor name to see calculations.
Between 2019 and 2023, a significant divergence emerged between revenue growth and the company's ability to generate economic value.
- Revenue Trajectory
- Adjusted external revenues exhibited consistent and substantial growth over the analyzed period. Revenues rose from 64,351 million US dollars in 2019 to 105,285 million US dollars by 2023, indicating a steady expansion of the operational scale.
- Economic Profit Trends
- Economic profit followed a volatile path, peaking in 2020 at 1,707 million US dollars. Following this peak, a sharp downward trend occurred, with profit falling to 329 million US dollars in 2021 and further decreasing to 178 million US dollars in 2022. By 2023, economic profit turned negative, reaching -142 million US dollars.
- Economic Profit Margin Analysis
- The economic profit margin closely mirrored the trend of absolute economic profit. After reaching a high of 2.24% in 2020, the margin compressed significantly to 0.40% in 2021 and 0.19% in 2022. The margin ultimately dropped to -0.13% in 2023, signaling that the company is no longer generating returns in excess of its cost of capital.
The analysis reveals that top-line growth did not correlate with value creation. Despite the consistent increase in adjusted external revenues, the decline and eventual inversion of the economic profit margin suggest a deterioration in capital efficiency or an increase in the cost of capital that outpaced operating gains.
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