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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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CVS Health Corp. pages available for free this week:
- Balance Sheet: Assets
- Common-Size Income Statement
- Analysis of Profitability Ratios
- Analysis of Long-term (Investment) Activity Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Analysis of Reportable Segments
- Capital Asset Pricing Model (CAPM)
- Operating Profit Margin since 2005
- Price to Sales (P/S) since 2005
- Aggregate Accruals
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Economic Profit
12 months ended: | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | |
---|---|---|---|---|---|---|
Net operating profit after taxes (NOPAT)1 | ||||||
Cost of capital2 | ||||||
Invested capital3 | ||||||
Economic profit4 |
Based on: 10-K (reporting date: 2024-12-31), 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).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2024 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= – × =
- Net Operating Profit After Taxes (NOPAT)
- The NOPAT demonstrated fluctuations over the five-year period. Initially, it slightly increased from 9067 million USD in 2020 to 9170 million USD in 2021. However, in 2022, there was a significant decline to 3871 million USD. This was followed by a recovery in 2023 to 9523 million USD, before dropping again to 5319 million USD in 2024. This variability suggests periods of both operational challenges and recovery within the company.
- Cost of Capital
- The cost of capital showed an upward trend from 6.9% in 2020 to a peak of 8.02% in 2022, indicating increasing financing or investment costs during this period. After 2022, it decreased gradually to 7.51% in 2023 and further to 7.26% in 2024. This reduction may reflect improved market conditions or financing arrangements.
- Invested Capital
- Invested capital decreased from 136,669 million USD in 2020 to 123,703 million USD in 2022, revealing a deliberate reduction or asset optimization over the first three years. Subsequently, it rose again to 134,694 million USD in 2023 before tapering slightly to 131,642 million USD in 2024. Overall, this suggests active management of invested assets with some reinvestment following the initial decline.
- Economic Profit
- Economic profit was negative throughout the entire period, indicating the company did not generate returns above its cost of capital at any point. The largest negative value occurred in 2022 at -6051 million USD, concurrent with the NOPAT trough and cost of capital peak. While there were reductions in negative economic profit in 2023 (-597 million USD), it worsened again in 2024 (-4238 million USD). This pattern reflects persistent value destruction with some fluctuations potentially linked to operational performance and capital costs.
Net Operating Profit after Taxes (NOPAT)
Based on: 10-K (reporting date: 2024-12-31), 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).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowance for credit losses.
3 Addition of increase (decrease) in equity equivalents to net income attributable to CVS Health.
4 2024 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= × =
5 2024 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= × 21.00% =
6 Addition of after taxes interest expense to net income attributable to CVS Health.
7 2024 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= × 21.00% =
8 Elimination of after taxes investment income.
9 Elimination of discontinued operations.
- Net income attributable to CVS Health
- The net income exhibited fluctuations over the five-year period. Starting at $7,179 million in 2020, there was an increase to $7,910 million in 2021, indicating growth. However, in 2022, net income notably declined to $4,149 million, reflecting a significant drop. This was followed by a rebound in 2023, reaching $8,344 million, which represents the highest point in the period. In 2024, net income once again decreased to $4,614 million, showing volatility and an overall irregular pattern in earnings.
- Net operating profit after taxes (NOPAT)
- NOPAT followed a pattern broadly similar to net income but with less pronounced volatility. It began at $9,067 million in 2020 and slightly increased to $9,170 million in 2021. In 2022, there was a sharp decline to $3,871 million, mirroring the net income decline of that year. The subsequent year, 2023, saw a recovery to $9,523 million, the highest level observed in this timeframe. By 2024, NOPAT decreased again to $5,319 million. This trend suggests that while operating profitability is subject to cyclical pressures, it remains relatively strong when it rebounds.
- Insights
- The data reveals substantial volatility in both net income and NOPAT with synchronous fluctuations particularly pronounced in 2022 and 2024. These troughs could indicate periods of operational or market challenges impacting profitability. Despite these downturns, the company demonstrated resilience with robust recoveries in 2023, suggesting effective management responses or favorable market conditions during that year. The gap between net income and NOPAT levels also suggests that non-operating factors or tax impacts may play a role in overall profitability fluctuations. The irregular pattern underscores the importance of closely monitoring operational efficiency and external factors influencing financial performance.
Cash Operating Taxes
Based on: 10-K (reporting date: 2024-12-31), 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).
- Income Tax Provision
- The income tax provision exhibited a fluctuating trend over the years observed. It decreased from $2,569 million in 2020 to $2,522 million in 2021, indicating a slight reduction. This was followed by a more significant decline to $1,463 million in 2022. However, in 2023, the provision increased sharply to $2,805 million, before decreasing again to $1,562 million in 2024. Overall, the income tax provision shows variability with notable peaks and troughs during the five-year period.
- Cash Operating Taxes
- Cash operating taxes showed a moderate decline from $3,769 million in 2020 to $3,407 million in 2021. In 2022, there was an increase to $4,013 million, marking the highest point in the period reviewed. Subsequently, the amount slightly decreased to $3,965 million in 2023, followed by a significant drop to $2,464 million in 2024. This pattern indicates some volatility with an overall downward movement towards the end of the period.
- Comparative Insights
- Both income tax provision and cash operating taxes demonstrate considerable year-to-year fluctuations. Cash operating taxes consistently remained higher than the income tax provision across all years. The disparity between the two measures also varied, with the smallest gap occurring in 2024. This suggests possible changes in tax planning, timing differences, or cash tax payments relative to accounting tax expense over the evaluated periods.
Invested Capital
Based on: 10-K (reporting date: 2024-12-31), 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).
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 equity equivalents to total CVS Health shareholders’ equity.
5 Removal of accumulated other comprehensive income.
6 Subtraction of investments.
- Total reported debt & leases
- The total reported debt and leases decreased from 85,042 million US dollars at the end of 2020 to 70,732 million US dollars by the end of 2022. This decline indicates a reduction in leverage during this period. However, starting from 2023, there is a notable increase, rising to 79,385 million US dollars and further to 82,920 million US dollars by the end of 2024, suggesting renewed borrowing or leasing commitments.
- Total CVS Health shareholders’ equity
- Shareholders’ equity showed a rising trend from 69,389 million US dollars in 2020, peaking at 75,075 million in 2021. Following this peak, equity experienced a slight pullback to 71,015 million in 2022 but recovered to 76,461 million in 2023. By 2024, it marginally declined again to 75,560 million US dollars. Overall, equity levels remained relatively stable with moderate fluctuations around the mid-70 billion range in the most recent years.
- Invested capital
- Invested capital declined steadily from 136,669 million US dollars in 2020 to 123,703 million in 2022, reflecting overall reductions in capital employed. This trend reversed in 2023 with an increase to 134,694 million followed by a slight decrease to 131,642 million in 2024. The pattern suggests a cycle of divestments or asset optimization up to 2022 and subsequent reinvestment or capital expansion over the following years, indicating adjustments in capital structure or operational focus.
Cost of Capital
CVS Health Corp., 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: 2024-12-31).
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: 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 »
Economic Spread Ratio
Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
---|---|---|---|---|---|---|
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: 2024-12-31), 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).
1 Economic profit. See details »
2 Invested capital. See details »
3 2024 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × ÷ =
4 Click competitor name to see calculations.
- Economic profit
- The economic profit shows significant volatility and predominantly negative values throughout the analyzed periods. Starting at -363 million US dollars in 2020, it deteriorated sharply in 2021 to -1179 million and then plummeted even further to -6051 million in 2022. Although there was an improvement to -597 million in 2023, it worsened again to -4238 million by 2024. This suggests persistent challenges in generating value beyond the cost of capital, with occasional short-term improvements that were not sustained.
- Invested capital
- Invested capital exhibits a generally declining trend from 2020 to 2022, decreasing from 136,669 million US dollars to 123,703 million US dollars. This decline indicates a gradual reduction in the invested base over these years. However, a reversal occurs in 2023, with invested capital increasing to 134,694 million, followed by a slight decrease in 2024 to 131,642 million. Overall, the invested capital demonstrates fluctuations but remains within a relatively narrow band.
- Economic spread ratio
- The economic spread ratio remains negative throughout all periods, indicating the company consistently earned below its cost of capital. The ratio worsened significantly from -0.27% in 2020 to -0.9% in 2021, and then sharply declined to -4.89% in 2022, coinciding with the large economic profit loss in that year. The ratio briefly improved to -0.44% in 2023 but declined again to -3.22% in 2024. This pattern underscores ongoing difficulties in achieving satisfactory returns on invested capital.
Economic Profit Margin
Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
---|---|---|---|---|---|---|
Selected Financial Data (US$ in millions) | ||||||
Economic profit1 | ||||||
Revenues from customers | ||||||
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: 2024-12-31), 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).
1 Economic profit. See details »
2 2024 Calculation
Economic profit margin = 100 × Economic profit ÷ Revenues from customers
= 100 × ÷ =
3 Click competitor name to see calculations.
- Revenue Growth
- The company's revenues from customers show a consistent upward trend over the five-year period. Starting from approximately $267.9 billion in 2020, revenues increased each year, reaching $370.7 billion by 2024. This reflects a strong and steady expansion in the company’s top line, with the most significant increases visible between 2021 and 2023.
- Economic Profit
- The economic profit exhibits significant volatility and persistent negativity throughout the period. In 2020, the economic profit was negative $363 million, which worsened markedly to a negative $1,179 million in 2021 and further declined dramatically to negative $6,051 million in 2022. After this sharp downturn, economic profit shows improvement in 2023 to negative $597 million but deteriorates again to negative $4,238 million in 2024. This pattern indicates ongoing challenges in generating returns above the cost of capital.
- Economic Profit Margin
- The economic profit margin mirrors the fluctuations observed in economic profit. It starts at -0.14% in 2020, deteriorates to -0.41% in 2021, and plummets significantly to -1.88% in 2022. Despite some recovery to -0.17% in 2023, it declines again to -1.14% in 2024. This indicates that despite revenue growth, profitability relative to invested capital remains negative and unstable, suggesting inefficiencies or external pressures affecting value creation.
- Overall Insights
- While the company experiences robust revenue growth over the five-year span, its ability to convert this growth into economic profit is inconsistent and predominantly negative. The large fluctuations in economic profit suggest periods of operational or financial stress, which may require management attention to improve efficiency, cost control, or strategic repositioning. The negative economic profit margins throughout indicate that the company is not consistently generating returns above its cost of capital, raising concerns about sustained value creation.