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 – 9.53% × 30,225 = -154
The financial performance from 2019 to 2023 indicates a significant erosion in economic value creation, culminating in a transition from substantial economic profit to economic loss. While the company demonstrated strong value generation through 2020, a combination of declining operational profitability and a significantly expanded capital base has negatively impacted the overall economic profit trajectory.
- Net Operating Profit After Taxes (NOPAT)
- A peak in NOPAT was observed in 2020 at 3,874 million US$, followed by a consistent year-over-year decline. By December 31, 2023, NOPAT decreased to 2,726 million US$, representing a contraction in the company's ability to generate operational earnings after tax.
- Invested Capital
- There was a substantial increase in invested capital, particularly between 2020 and 2021, where the figure rose from 21,850 million US$ to 30,647 million US$. The capital base remained elevated through 2023, ending at 30,225 million US$, which effectively raised the threshold of profit required to cover the cost of capital.
- Cost of Capital
- The cost of capital exhibited relative stability over the period, fluctuating within a narrow range between a high of 10.20% in 2019 and a low of 9.32% in 2021. This stability indicates that the decline in economic profit was driven by internal operational and capital efficiency factors rather than external shifts in the required rate of return.
- Economic Profit Trajectory
- Economic profit experienced a sharp reversal, moving from a maximum of 1,698 million US$ in 2020 to a deficit of -154 million US$ by 2023. This trend confirms that the company's return on invested capital has fallen below its cost of capital, shifting the company from a state of value creation to 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.
Humana's financial performance from 2019 to 2023 is characterized by a sharp increase in profitability during 2020, followed by a multi-year period of contraction. Both net income and net operating profit after taxes (NOPAT) demonstrate a closely correlated trajectory, indicating that the drivers of operating profit were largely reflective of the final bottom-line results.
- Net Operating Profit After Taxes (NOPAT) Trend
- NOPAT experienced a significant surge in 2020, rising to $3,874 million from $3,029 million in 2019. However, this peak was followed by a consistent downward trend over the subsequent three years, ending at $2,726 million in 2023. This represents a total decrease of approximately 29.6% from the 2020 high.
- Net Income Performance
- Net income attributable to the company mirrored the NOPAT trend, peaking at $3,367 million in 2020. Following this peak, net income declined steadily to $2,933 million in 2021, $2,806 million in 2022, and finally to $2,489 million in 2023. The value in 2023 is lower than the initial 2019 figure, indicating a net erosion of bottom-line profitability over the five-year window.
- Relationship Between Operating and Net Profit
- A consistent positive variance exists between NOPAT and net income throughout the reporting period. NOPAT remained higher than net income in every year analyzed, which indicates that the core operating profitability of the entity is consistently higher than the final net profit after all financial obligations, including interest and non-operating expenses, are accounted for.
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Cash Operating Taxes
Humana Inc., cash operating taxes calculation
US$ 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 trajectory of tax-related obligations between 2019 and 2023 is characterized by significant volatility, featuring a pronounced spike in 2020 and a sharp contraction in 2021. Since the 2021 trough, both the provision for income taxes and cash operating taxes have exhibited a consistent upward trend, though the rate of increase differs between the two metrics.
- Cash Operating Tax Trends
- Cash operating taxes rose from 656 million USD in 2019 to a peak of 1,175 million USD in 2020, before declining sharply to 543 million USD in 2021. A sustained recovery followed, with cash tax outflows increasing to 950 million USD in 2022 and reaching 1,108 million USD by 2023, representing a 103% increase from the 2021 low.
- Provision for Income Taxes Analysis
- The provision for income taxes followed a similar cyclical pattern, peaking at 1,307 million USD in 2020 and dropping to 485 million USD in 2021. The subsequent growth through 2023 has been more moderate than that of cash taxes, ending the period at 836 million USD.
- Divergence Between Accrual and Cash Tax Payments
- A significant shift is observed in the relationship between the tax provision and actual cash payments. In 2019 and 2020, the provision for income taxes exceeded cash operating taxes. However, from 2021 onward, this trend reversed. By 2023, cash operating taxes surpassed the provision by 272 million USD, indicating that actual cash outflows for taxes have consistently exceeded the reported tax expense in the most recent three fiscal 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.
Invested capital exhibited a significant overall increase between 2019 and 2023, rising from US$ 18,877 million to US$ 30,225 million. The most pronounced growth occurred between 2020 and 2021, where invested capital expanded by approximately 40.3%, before entering a period of relative stabilization through 2023.
- Total Reported Debt and Leases
- A sharp upward trajectory was observed in debt and lease obligations, which grew from US$ 6,339 million in 2019 to a peak of US$ 13,551 million in 2021. Following this peak, a moderate reduction occurred in 2022 to US$ 12,032 million, with a subsequent slight increase to US$ 12,602 million by the end of 2023. This indicates a permanent shift to a higher leverage baseline compared to the 2019 starting point.
- Stockholders' Equity
- Equity demonstrated steady growth, increasing from US$ 12,037 million in 2019 to US$ 16,262 million in 2023. The growth was most consistent during the first three years of the period, followed by a minor contraction in 2022 and a recovery in 2023, suggesting a generally stable internal funding base.
- Capital Structure Dynamics
- The expansion of invested capital was disproportionately driven by debt rather than equity, particularly during the 2021 surge. The rapid increase in total reported debt and leases was the primary catalyst for the peak in invested capital. The stabilization observed in 2022 and 2023 reflects a period of consolidation where debt reductions and equity fluctuations offset one another, maintaining the total capital base near the US$ 30 billion mark.
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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 | × | 11.20% | = | 8.73% | ||
| 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 | 9.53% | ||||||||||
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 | × | 11.20% | = | 9.48% | ||
| 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 | 9.93% | ||||||||||
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 | × | 11.20% | = | 8.82% | ||
| 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 | 9.32% | ||||||||||
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 | × | 11.20% | = | 9.49% | ||
| 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 | 9.96% | ||||||||||
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 | × | 11.20% | = | 9.82% | ||
| 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 | 10.20% | ||||||||||
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 | (154) | 165) | 317) | 1,698) | 1,103) | |
| Invested capital2 | 30,225) | 29,089) | 30,647) | 21,850) | 18,877) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -0.51% | 0.57% | 1.03% | 7.77% | 5.84% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Abbott Laboratories | -4.67% | -2.43% | -1.95% | — | — | |
| Elevance Health Inc. | -0.90% | 0.14% | 1.46% | — | — | |
| Intuitive Surgical Inc. | -2.92% | -3.21% | 12.41% | — | — | |
| Medtronic PLC | -6.31% | -5.06% | -6.71% | — | — | |
| UnitedHealth Group Inc. | 5.02% | 4.06% | 3.91% | — | — | |
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 × -154 ÷ 30,225 = -0.51%
4 Click competitor name to see calculations.
The financial trajectory between 2019 and 2023 indicates a significant decline in value creation, transitioning from a period of positive economic profit to a state of economic value destruction.
- Economic Profit Trends
- Economic profit peaked in 2020 at 1,698 million US dollars, following a 2019 value of 1,103 million US dollars. Subsequently, a sharp contraction occurred, with profit falling to 317 million US dollars in 2021 and further decreasing to 165 million US dollars in 2022. By December 31, 2023, the figure transitioned into negative territory, reaching -154 million US dollars.
- Invested Capital Expansion
- Invested capital exhibited a general upward trend over the five-year period, growing from 18,877 million US dollars in 2019 to 30,225 million US dollars by 2023. A substantial increase was recorded between 2020 and 2021, where capital rose from 21,850 million US dollars to 30,647 million US dollars, after which the balance remained relatively stable above 29 billion US dollars.
- Economic Spread Ratio Performance
- The economic spread ratio mirrored the decline seen in economic profit. After achieving a peak of 7.77% in 2020, the ratio experienced a severe drop to 1.03% in 2021. This downward momentum continued through 2022 at 0.57%, eventually resulting in a negative ratio of -0.51% by the end of 2023.
The divergence between increasing invested capital and decreasing economic profit suggests a diminishing efficiency in capital utilization. The shift to a negative economic spread ratio in 2023 confirms that the returns generated on invested capital are no longer sufficient to cover the company's cost of capital, leading to a destruction of economic value.
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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 | (154) | 165) | 317) | 1,698) | 1,103) | |
| 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 | -0.15% | 0.18% | 0.38% | 2.23% | 1.71% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Abbott Laboratories | -6.94% | -3.41% | -2.81% | — | — | |
| Elevance Health Inc. | -0.37% | 0.06% | 0.68% | — | — | |
| Intuitive Surgical Inc. | -2.92% | -2.77% | 9.76% | — | — | |
| Medtronic PLC | -14.24% | -11.11% | -16.09% | — | — | |
| UnitedHealth Group Inc. | 2.50% | 2.08% | 1.92% | — | — | |
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 × -154 ÷ 105,285 = -0.15%
3 Click competitor name to see calculations.
An analysis of the financial performance from 2019 through 2023 reveals a significant divergence between the growth of adjusted external revenues and the company's ability to generate economic value.
- Revenue Growth Trajectory
- Adjusted external revenues demonstrated consistent and linear growth over the five-year period. Starting at 64,351 million US dollars in 2019, revenues increased annually, reaching 105,285 million US dollars by December 31, 2023. This indicates a substantial expansion of the company's operational scale.
- Economic Profit Trends
- In contrast to revenue growth, economic profit followed a volatile and ultimately downward path. After an initial increase from 1,103 million US dollars in 2019 to a peak of 1,698 million US dollars in 2020, a sharp decline occurred. Economic profit fell to 317 million US dollars in 2021 and 165 million US dollars in 2022, eventually turning negative at -154 million US dollars by the end of 2023.
- Economic Profit Margin Erosion
- The economic profit margin experienced a severe contraction, mirroring the trend in absolute economic profit. The margin peaked at 2.23% in 2020 before dropping precipitously to 0.38% in 2021 and 0.18% in 2022. The period concluded with a negative margin of -0.15% in 2023, indicating that the company is no longer generating returns in excess of its cost of capital.
The data indicates a trend of diminishing economic efficiency. While the organization successfully scaled its external revenues, this growth did not translate into increased economic value. The transition from a positive to a negative economic profit margin suggests that the costs associated with the capital employed to generate these revenues have outpaced the operating gains achieved.
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