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 – 9.35% × 30,225 = -101
An analysis of the economic value added over the five-year period from 2019 to 2023 reveals a significant deterioration in the company's ability to generate value above its cost of capital. While the period began with positive economic profit, a combination of declining operational earnings and a substantial increase in the capital base led to a transition into negative economic profit by the end of 2023.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited 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 contraction of approximately 29.6% from its 2020 high. This downward trend indicates a weakening in the operational profitability of the core business activities.
- Invested Capital and Capital Efficiency
- Invested capital grew aggressively between 2019 and 2021, rising from 18,877 million US$ to a peak of 30,647 million US$. Despite a slight correction in 2022, the capital base remained elevated at 30,225 million US$ by 2023. The misalignment between the expanding capital base and the declining NOPAT suggests a decrease in capital efficiency, as additional investments failed to yield proportional increases in operating profit.
- Cost of Capital
- The cost of capital remained relatively stable throughout the period, fluctuating within a narrow range between 9.14% and 10.00%. Because the cost of capital did not experience significant volatility, the decline in economic profit is attributable to operational performance and capital allocation rather than changes in the external financing environment or risk profile.
- Economic Profit Trend
- Economic profit followed a sharp downward trajectory after peaking at 1,739 million US$ in 2020. The most precipitous drop occurred between 2020 and 2021, where economic profit fell to 371 million US$. This decline culminated in 2023 with an economic profit of -101 million US$, indicating that the company's operating returns are no longer sufficient to cover the cost of the capital employed, resulting in value destruction.
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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 | × | 10.97% | = | 8.55% | ||
| 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 | 9.35% | ||||||||||
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 | × | 10.97% | = | 9.29% | ||
| 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 | 9.74% | ||||||||||
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 | × | 10.97% | = | 8.64% | ||
| 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 | 9.14% | ||||||||||
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 | × | 10.97% | = | 9.30% | ||
| 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 | 9.77% | ||||||||||
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 | × | 10.97% | = | 9.62% | ||
| 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 | 10.00% | ||||||||||
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 | (101) | 221) | 371) | 1,739) | 1,140) | |
| Invested capital2 | 30,225) | 29,089) | 30,647) | 21,850) | 18,877) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -0.33% | 0.76% | 1.21% | 7.96% | 6.04% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Abbott Laboratories | -4.52% | -2.28% | -1.81% | — | — | |
| Elevance Health Inc. | -0.71% | 0.32% | 1.64% | — | — | |
| Intuitive Surgical Inc. | -3.00% | -3.28% | 12.33% | — | — | |
| Medtronic PLC | -6.17% | -4.93% | -6.57% | — | — | |
| UnitedHealth Group Inc. | 5.23% | 4.27% | 4.12% | — | — | |
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 × -101 ÷ 30,225 = -0.33%
4 Click competitor name to see calculations.
The financial trajectory concerning economic value addition reveals a significant reversal in value creation between 2019 and 2023. While the period began with positive economic gains, there is a clear and accelerating trend toward value destruction, as evidenced by the transition of both economic profit and the economic spread ratio into negative territory by the end of the analyzed period.
- Economic Profit
- A peak in economic profit was reached in 2020 at 1,739 million US$, representing a substantial increase from 1,140 million US$ in 2019. However, a sharp contraction followed, with profit falling to 371 million US$ in 2021 and continuing a downward trajectory to 221 million US$ in 2022. By December 31, 2023, economic profit became negative, reaching -101 million US$, indicating that the company failed to generate returns above its cost of capital.
- Invested Capital
- Invested capital exhibited a general upward trend, growing from 18,877 million US$ in 2019 to 30,225 million US$ in 2023. A notable expansion occurred in 2021, where capital increased to 30,647 million US$. This increase in the capital base did not correlate with improved economic performance, as the expansion in invested capital coincided with a precipitous drop in economic profit.
- Economic Spread Ratio
- The economic spread ratio mirrors the decline seen in economic profit, moving from 6.04% in 2019 to a peak of 7.96% in 2020. A drastic reduction is observed in 2021, where the ratio fell to 1.21%, followed by a further decline to 0.76% in 2022. The ratio ultimately turned negative in 2023, ending at -0.33%, which confirms that the return on invested capital has fallen below the required cost of capital.
The convergence of increasing invested capital and decreasing economic profit suggests a diminishing efficiency in capital deployment. The shift to a negative economic spread ratio in 2023 indicates a critical inflection point where the business operations ceased to create economic value and instead began destroying it.
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Economic Profit Margin
Humana Inc., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | (101) | 221) | 371) | 1,739) | 1,140) | |
| 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 | -0.10% | 0.24% | 0.45% | 2.29% | 1.77% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Abbott Laboratories | -6.73% | -3.21% | -2.60% | — | — | |
| Elevance Health Inc. | -0.29% | 0.14% | 0.76% | — | — | |
| Intuitive Surgical Inc. | -2.99% | -2.83% | 9.70% | — | — | |
| Medtronic PLC | -13.94% | -10.82% | -15.76% | — | — | |
| UnitedHealth Group Inc. | 2.60% | 2.19% | 2.02% | — | — | |
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 × -101 ÷ 105,285 = -0.10%
3 Click competitor name to see calculations.
A significant divergence is observed between revenue growth and value creation from 2019 through 2023. While top-line expansion remained consistent throughout the period, the ability to generate economic profit experienced a sharp decline, culminating in a negative value by the end of the period.
- Economic Profit Trends
- Economic profit peaked in 2020 at 1,739 million USD, an increase from 1,140 million USD in 2019. Subsequently, a steep contraction occurred, with values falling to 371 million USD in 2021 and further to 221 million USD in 2022. By December 31, 2023, economic profit shifted to a negative value of -101 million USD, indicating that returns failed to exceed the cost of capital.
- Revenue Expansion
- Adjusted external revenues exhibited a steady and uninterrupted upward trajectory over the five-year period. Starting at 64,351 million USD in 2019, revenues grew annually to reach 105,285 million USD by 2023. This demonstrates a consistent increase in the scale of operations.
- Economic Profit Margin Analysis
- The economic profit margin mirrored the decline seen in absolute economic profit. After reaching a high of 2.29% in 2020, the margin contracted significantly to 0.45% in 2021 and 0.24% in 2022. The period concluded with a negative margin of -0.10% in 2023, confirming that the growth in external revenues was not matched by efficient value generation, resulting in a degradation of capital efficiency.
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