CVS Health Corp. (NYSE:CVS)

The financial data highlights several key trends regarding profitability, capital efficiency, and cost management over the five-year period.

Net Operating Profit After Taxes (NOPAT)

The NOPAT shows variability with a general pattern of fluctuation rather than steady growth or decline. Initial years, 2020 and 2021, reflect stable NOPAT values around 9,000 million US dollars. A significant decrease occurs in 2022, dropping sharply to approximately 3,871 million US dollars. This decline is followed by a recovery in 2023 reaching over 9,500 million, before another sizeable drop in 2024 to around 5,319 million. The sharp decline in 2022 and partial recovery in 2023 indicates possible operational challenges or restructuring efforts affecting profitability.

Cost of Capital

The cost of capital exhibits a gradual upward trend from 6.93% in 2020 to a peak of 8.06% in 2022, followed by a slight decrease to 7.29% in 2024. This rising cost through 2022 could point to increased financing expenses or higher risk assessments from the market during this period, before a modest easing in subsequent years.

Invested Capital

Invested capital shows an inconsistent pattern with an initial decrease from roughly 136,669 million US dollars in 2020 to 123,703 million in 2022. The following years see a rebound with increases in 2023 and a slight reduction by the end of 2024. This could suggest divestitures or asset optimization during the early years, followed by new investments or capital deployment in later years.

Economic Profit

Economic profit remains negative across all years, indicating that the company consistently underperforms relative to its cost of capital. The most severe negative economic profit occurs in 2022 with a loss exceeding 6,000 million US dollars, aligning with the sharp dip in NOPAT and elevated cost of capital. While some improvement is noted in 2023, the economic profit still reflects a loss, and a subsequent deterioration is observed in 2024. This suggests challenges in generating returns above the company’s capital costs, impacting value creation negatively.

Overall, the data conveys a period marked by volatility in profitability and capital management. The sharp dips and recoveries in operating profit, combined with rising and then slightly decreased capital costs, have contributed to consistent negative economic profits. This indicates difficulties in achieving efficient operational performance and satisfactory returns on invested capital over the observed timeframe.

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.

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.

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.

Economic Profit

The economic profit demonstrates significant fluctuations over the observed periods. It begins with a negative value of -401 million US dollars in 2020, worsening substantially to -1,225 million in 2021. This deterioration peaks dramatically in 2022 at -6,095 million, indicating a considerable decline in value creation during this year. In 2023, there is a notable improvement to -639 million, suggesting some recovery, but the value deteriorates again in 2024 to -4,276 million. Overall, economic profit remains consistently negative, with pronounced volatility and large losses particularly in 2022 and 2024.

Invested Capital

The invested capital shows a generally declining trend from 2020 through 2022, moving from 136,669 million US dollars down to 123,703 million in 2022. This downward movement suggests a reduction in the amount of capital employed in the business over these years. However, in 2023, invested capital increases to 134,694 million, indicating an expansion or reinvestment phase. In 2024, it declines slightly again to 131,642 million, but remains above the 2022 trough. The fluctuating pattern implies adjustments in capital allocation strategy within the firm.

Economic Spread Ratio

The economic spread ratio, representing the difference between return on invested capital and the cost of capital, consistently resides in negative territory throughout the periods considered. It starts at -0.29% in 2020 and deteriorates to -0.94% in 2021, reflecting worsening capital efficiency. A critical decline occurs in 2022 where the spread drops significantly to -4.93%, signifying poor value generation relative to the cost of capital. The ratio improves substantially in 2023 to -0.47%, indicating a temporary performance recovery. Despite this, it again declines sharply to -3.25% in 2024, corroborating instability and ongoing challenges in generating adequate returns on invested capital.

Revenue Trends

The company exhibited a consistent upward trend in revenues over the five-year period. Starting from approximately 267.9 billion USD at the end of 2020, revenues increased annually, reaching about 370.7 billion USD by the end of 2024. This steady growth suggests effective sales expansion or service uptake.

Economic Profit Patterns

The economic profit demonstrated significant volatility throughout the same period. In 2020, economic profit was negative 401 million USD, deepening to a more substantial loss of 1.225 billion USD in 2021. The financial performance deteriorated further in 2022, with economic profit plunging to a negative 6.095 billion USD. Notably, 2023 saw a marked improvement with economic profit reducing the loss to negative 639 million USD, only to experience another decline in 2024 back to negative 4.276 billion USD. These fluctuations highlight challenges in generating sustainable economic profit despite increasing revenue.

Economic Profit Margin Insights

The economic profit margin, which measures economic profit relative to revenue, mirrored the volatility seen in absolute economic profit figures. Starting at -0.15% in 2020, the margin worsened significantly to -0.42% in 2021 and plummeted to -1.9% in 2022 indicating increased inefficiencies or costs relative to revenues. A notable recovery occurred in 2023 with the margin improving to -0.18%, though this improvement was not sustained as it again declined to -1.15% by the end of 2024. The negative values throughout confirm consistent economic losses despite revenue growth.

Overall Observations

Though the company’s revenue has increased steadily, the economic profit and economic profit margin indicate persistent economic losses, with notable irregularities year-over-year. The sharp declines in economic profit and margin in 2022 and again in 2024 suggest underlying challenges such as rising costs, pricing pressures, or investments that have not yet translated into positive economic value. The temporary improvement in 2023 implies possible internal adjustments or favorable conditions during that year. The data suggests a need for focused strategies on cost control, operational efficiencies, or value creation to convert growing revenues into positive economic profit.