Cigna Group (NYSE:CI)

The period under review demonstrates a declining trend in economic profit. While net operating profit after taxes (NOPAT) fluctuated, it generally decreased over the five-year span. Simultaneously, the cost of capital remained relatively stable, with a slight increase in the middle of the period, while invested capital experienced a consistent, albeit gradual, reduction.

Net Operating Profit After Taxes (NOPAT)

NOPAT began at US$9,227 million in 2020, decreased significantly to US$6,235 million in 2021, recovered somewhat to US$7,303 million in 2022, and then declined again to US$4,831 million in 2023. A marginal increase to US$4,868 million was observed in 2024, but remained substantially below the 2020 level. This suggests increasing challenges in generating operating profits.

Cost of Capital

The cost of capital exhibited relative stability, starting at 8.56% in 2020 and reaching 8.49% in 2021. It then increased to 9.37% in 2022 and 9.55% in 2023 before decreasing slightly to 9.36% in 2024. These fluctuations, while present, were not drastic and do not appear to be the primary driver of the observed economic profit trend.

Invested Capital

Invested capital decreased steadily throughout the period, moving from US$93,748 million in 2020 to US$81,638 million in 2024. This reduction in capital employed may reflect strategic divestitures, improved capital efficiency, or other capital allocation decisions. However, the decrease in invested capital did not offset the decline in NOPAT.

Economic Profit

Economic profit began at US$1,198 million in 2020, indicating value creation. However, it transitioned to a loss of US$-1,465 million in 2021. Losses continued in subsequent years, reaching US$-3,361 million in 2023 and US$-2,774 million in 2024. The consistent negative economic profit suggests that the company’s returns are not exceeding its cost of capital, indicating a destruction of shareholder value.

The combined effect of declining NOPAT and a relatively stable cost of capital, despite decreasing invested capital, resulted in a sustained period of negative economic profit. The trend suggests a weakening ability to generate returns above the required rate of return.

Shareholders’ Net Income

The shareholders’ net income demonstrates a fluctuating but overall downward trend over the five-year period. Starting at US$ 8,458 million in 2020, it declined significantly in 2021 to US$ 5,365 million. A recovery is observed in 2022, with an increase to US$ 6,668 million, but this is followed by consecutive decreases in 2023 and 2024, reaching US$ 5,164 million and US$ 3,434 million respectively. The decline from 2020 to 2024 amounts to approximately 59%, indicating decreasing profitability returned to shareholders.

Net Operating Profit After Taxes (NOPAT)

NOPAT exhibits a somewhat similar pattern to shareholders’ net income, with a decline from US$ 9,227 million in 2020 to US$ 6,235 million in 2021. It improved moderately in 2022 to US$ 7,303 million, but then experienced a marked drop to US$ 4,831 million in 2023. Contrary to shareholders’ net income, NOPAT shows a slight recovery in 2024, increasing marginally to US$ 4,868 million. Despite the recovery in 2024, NOPAT decreased by roughly 47% when comparing 2020 to 2024, signaling reduced operational efficiency or increased costs impacting the company’s profitability after tax.

Comparative Observations

Both financial indicators show volatility, with notable declines early in the period followed by partial recoveries and subsequent decreases. Shareholders’ net income declined more steeply than NOPAT over the five years, particularly between 2023 and 2024. The divergence in trends for 2023 and 2024, where shareholders’ net income continued falling while NOPAT rebounded slightly, suggests potential impacts from non-operating items, taxes, or other extraordinary factors affecting net income specifically. Overall, the trends point to challenges in maintaining consistent profitability and returns to shareholders over the recent years.

Income Taxes

The income taxes exhibit significant fluctuations over the years. In 2020, the amount stood at 2,379 million US dollars before experiencing a notable decline to 1,367 million in 2021. Subsequently, there was an increase to 1,607 million in 2022, followed by a sharp drop to 141 million in 2023. In 2024, income taxes rose again to 1,491 million. The volatility suggests changes in taxable income, tax planning strategies, or legislative impacts during this period.

Cash Operating Taxes

Cash operating taxes show a downward trend with some fluctuations. Starting at 3,064 million US dollars in 2020, the value fell sharply to 1,864 million in 2021. There was then an increase to 2,363 million in 2022, followed by a decline to 2,097 million in 2023 and further to 1,901 million in 2024. Despite the fluctuations, the overall pattern points towards a reduction in cash tax outflows over the five-year period.

Comparative Analysis

Comparing income taxes and cash operating taxes reveals that cash operating taxes consistently remain higher than income taxes across all years. Both metrics have experienced declines from 2020 to 2021, followed by recoveries in 2022. However, while income taxes sharply fell in 2023 to a very low level, cash operating taxes decreased more moderately that year. The 2024 data indicates a recovery in income taxes to near previous levels, whereas cash operating taxes continued a slight downward trend. This pattern may reflect timing differences between tax accruals and payments, or changes in tax assets and liabilities.

Total reported debt & leases

The total reported debt and leases showed an overall downward trend from 2020 to 2023, decreasing from 33,562 million US dollars in 2020 to 31,375 million US dollars in 2023. However, in 2024, there was a slight increase to 31,972 million US dollars. This indicates a general reduction in debt levels over the period with a minor reversal in the final year.

Shareholders’ equity

Shareholders’ equity consistently declined over the analyzed period, starting at 50,321 million US dollars in 2020 and decreasing each year to reach 41,033 million US dollars in 2024. This represents a significant reduction, suggesting that the company's net assets or retained earnings diminished over time, which might impact its financial stability and capital structure.

Invested capital

Invested capital exhibited a steady decline from 93,748 million US dollars in 2020 to 81,638 million US dollars in 2024. The decrease was gradual without any abrupt changes, reflecting a possible contraction in the total capital used for business operations. This trend corresponds with the reductions seen in both debt and equity, implying overall scaling down of the company's capital base.

The economic spread ratio exhibited a declining trend over the five-year period. Initially positive, the ratio transitioned to negative values and continued to decrease in magnitude. This indicates a worsening relationship between returns generated from invested capital and the cost of that capital.

Economic Spread Ratio

In 2020, the economic spread ratio stood at 1.28%, signifying that the company generated returns exceeding its cost of capital. However, this positive spread reversed in 2021, with the ratio falling to -1.62%.

The negative trend persisted through 2022 and 2023, with the ratio reaching -0.84% and -3.92% respectively. This suggests an increasing gap between the cost of capital and the returns generated.

The ratio experienced a slight improvement in 2024, moving to -3.40%, although it remained negative, indicating that returns still fell short of the cost of capital. The magnitude of the negative spread, while lessened, remained substantial.

The economic profit mirrored the trend in the economic spread ratio. Starting with a positive value of US$1,198 million in 2020, economic profit became negative in 2021 and continued to decline through 2023, reaching -US$3,361 million. A modest increase in economic profit to -US$2,774 million was observed in 2024, but it remained significantly below the 2020 level.

Invested Capital

Invested capital decreased over the period, from US$93,748 million in 2020 to US$81,638 million in 2024. This reduction in capital employed occurred alongside declining economic profitability, potentially exacerbating the negative economic spread.

The combined trends suggest a weakening financial performance. While the reduction in invested capital might be viewed as a capital discipline measure, it did not translate into improved profitability relative to the cost of capital. The consistently negative economic profit and declining economic spread ratio indicate that the company’s investments are not generating sufficient returns to cover their cost.

The economic profit margin exhibited a declining trend over the five-year period. Initially positive, it transitioned to negative values and subsequently increased in magnitude before showing a slight moderation in the most recent year. This pattern is closely linked to the fluctuations in economic profit and the concurrent growth in revenues from external customers.

Economic Profit Margin

In 2020, the economic profit margin stood at 0.75%. This indicates that for every dollar of revenue generated, the company created 0.75 cents of economic profit. However, the margin decreased significantly to -0.85% in 2021, signaling a shift to economic loss.

The negative trend continued in 2022, with the margin reaching -0.40%. While still negative, this represented a slight improvement compared to the prior year.

2023 witnessed the largest decline, with the economic profit margin falling to -1.73%. This suggests a substantial erosion of economic profit relative to revenue.

In 2024, the margin experienced a modest recovery to -1.13%, indicating a partial reversal of the decline observed in the previous year. Despite this improvement, the company still operated at an economic loss.

Revenues from external customers consistently increased throughout the period, rising from US$159,157 million in 2020 to US$246,148 million in 2024. However, this revenue growth was not sufficient to offset the decline in economic profit, as evidenced by the increasingly negative economic profit margin, particularly in 2023. The slight improvement in the margin in 2024 suggests a potential stabilization, but further monitoring is warranted to confirm a sustained positive trend.

Economic profit itself moved from a positive US$1,198 million in 2020 to negative values in subsequent years, reaching a low of negative US$3,361 million in 2023 before improving to negative US$2,774 million in 2024. This demonstrates a clear deterioration in the company’s ability to generate returns exceeding its cost of capital, despite growing revenues.