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.
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Humana Inc. pages available for free this week:
- Balance Sheet: Assets
- Balance Sheet: Liabilities and Stockholders’ Equity
- Cash Flow Statement
- Analysis of Liquidity Ratios
- Analysis of Long-term (Investment) Activity Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Analysis of Reportable Segments
- Price to FCFE (P/FCFE)
- Price to Book Value (P/BV) since 2005
- Aggregate Accruals
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Economic Profit
Humana Inc., economic profit calculation
US$ in millions
| 12 months ended: | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | |
|---|---|---|---|---|---|---|
| Net operating profit after taxes (NOPAT)1 | ||||||
| Cost of capital2 | ||||||
| Invested capital3 | ||||||
| Economic profit4 | ||||||
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
= – × =
The financial data reveals several noteworthy trends over the five-year period from 2019 to 2023.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT experienced growth from 2019 to 2020, increasing from 3,029 million USD to 3,874 million USD. This was followed by a decline in subsequent years: dropping to 3,172 million in 2021, further down to 3,053 million in 2022, and reaching 2,726 million in 2023. The overall trend after 2020 indicates a reduction in net operating profitability.
- Cost of Capital
- The cost of capital decreased moderately from 8.79% in 2019 to 8.6% in 2020, and further down to 8.05% in 2021, suggesting possibly more favorable financing conditions during this period. However, it reversed upticks in 2022 and 2023 to 8.57% and 8.28%, respectively, reflecting some volatility but remaining in a relatively narrow range between 8.05% and 8.79% overall.
- Invested Capital
- Invested capital increased substantially over the five years, starting at 18,877 million USD in 2019 and reaching 30,225 million USD in 2023. The investment growth was particularly strong from 2020 to 2021, coinciding with a sharp rise from 21,850 million to 30,647 million USD. There was a slight decrease in 2022 to 29,089 million USD, but it rebounded again in 2023. This indicates ongoing capital deployment, perhaps to support expansion or operational needs.
- Economic Profit
- Economic profit showed positive growth early in the period, increasing from 1,369 million USD in 2019 to 1,995 million USD in 2020. From that peak, it declined sharply to 704 million in 2021, and continued decreasing to 561 million in 2022 and 224 million in 2023. The consistent decrease in economic profit implies that the returns generated on the invested capital are diminishing relative to the cost of capital over time.
Overall, the data indicates an initial phase of improving profitability and returns in 2020, followed by a multi-year trend of declining profitability despite increasing invested capital. The gradually decreasing economic profit suggests that the company’s incremental investments are generating lower returns relative to their cost, highlighting potential concerns about capital efficiency or market conditions impacting profitability.
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
= × =
6 2023 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= × 21.00% =
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.
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.
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.
Cost of Capital
Humana Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ||||||
| Invested capital2 | ||||||
| Performance Ratio | ||||||
| Economic spread ratio3 | ||||||
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Abbott Laboratories | ||||||
| Elevance Health Inc. | ||||||
| Intuitive Surgical Inc. | ||||||
| Medtronic PLC | ||||||
| UnitedHealth Group Inc. | ||||||
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 × ÷ =
4 Click competitor name to see calculations.
The analyzed financial data reveals several notable trends over the five-year period from the end of 2019 through the end of 2023. There is a consistent downward trajectory in the economic profit figures, which declines from a peak of 1,995 million US dollars at the end of 2020 to just 224 million US dollars by the end of 2023. This represents a significant reduction in value creation over the period, implying diminishing returns or increasing costs that outweigh profits.
Conversely, the invested capital displays an overall increasing trend. The capital invested rises substantially from 18,877 million US dollars at the end of 2019 to a high of 30,647 million by the end of 2021, with slight fluctuations thereafter, settling at 30,225 million in 2023. The growing capital base suggests ongoing or increasing investments and asset accumulation during this time, which may contribute to the declining economic profit if returns on this capital diminish.
The economic spread ratio, which measures the difference between return on invested capital and cost of capital expressed as a percentage, exhibits a sharp decline throughout the period. Starting at 7.25% in 2019, it climbs briefly to 9.13% in 2020, indicating a relatively strong ability to generate returns above the cost of capital in that year. However, from 2021 onwards, it plummets to 2.3%, then further drops to 1.93% in 2022, and finally reaches 0.74% by 2023. This declining spread ratio aligns with the reduction in economic profit and suggests that returns on invested capital have eroded, coming closer to the cost of capital.
Overall, the data indicates that while investment levels have increased or remained elevated, the effectiveness in generating economic profit has diminished significantly. The diminishing economic spread ratio supports the conclusion that new investments may not be generating sufficient incremental returns, pointing to potential efficiency issues or more challenging market or operational conditions between 2021 and 2023.
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 | ||||||
| External revenues | ||||||
| Add: Increase (decrease) in unearned revenues | ||||||
| Adjusted external revenues | ||||||
| Performance Ratio | ||||||
| Economic profit margin2 | ||||||
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Abbott Laboratories | ||||||
| Elevance Health Inc. | ||||||
| Intuitive Surgical Inc. | ||||||
| Medtronic PLC | ||||||
| UnitedHealth Group Inc. | ||||||
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 × ÷ =
3 Click competitor name to see calculations.
- Economic Profit
- The economic profit exhibited a fluctuating pattern over the five-year period. It increased from 1,369 million USD in 2019 to a peak of 1,995 million USD in 2020, followed by a substantial decline to 704 million USD in 2021. This downward trend continued in subsequent years, reaching 561 million USD in 2022 and further decreasing to 224 million USD in 2023. The data indicates a significant drop in economic profit after the high point in 2020.
- Adjusted External Revenues
- The adjusted external revenues showed consistent growth throughout the period. Starting at 64,351 million USD in 2019, revenues increased annually, reaching 76,072 million USD in 2020, 82,813 million USD in 2021, 92,520 million USD in 2022, and finally 105,285 million USD in 2023. This steady upward trend reflects continuous expansion in revenue generation capabilities over the years.
- Economic Profit Margin
- The economic profit margin followed a declining trajectory during the analyzed timeframe. It began at 2.13% in 2019, rose slightly to 2.62% in 2020, but then experienced a sharp decrease to 0.85% in 2021. The margin continued to decrease to 0.61% in 2022 and dropped even further to 0.21% in 2023. This decline suggests diminishing efficiency or profitability relative to the adjusted external revenues.
- Overall Insights
- Despite the consistent growth in adjusted external revenues, both economic profit and economic profit margin experienced significant declines after 2020. This divergence suggests that rising revenues did not translate into proportional economic profit. Factors such as increased costs, reduced operational efficiency, or other financial pressures may have contributed to the shrinking profitability margins. The decreasing economic profit margin in particular signals that the company earned less economic value on its revenues over time, indicating the need for further analysis into cost structures or strategic adjustments to improve profitability.