Elevance Health Inc. (NYSE:ELV)

The financial performance, as measured by economic profit, exhibits a declining trend over the five-year period. While net operating profit after taxes (NOPAT) demonstrates some fluctuation, the increasing invested capital and changes in the cost of capital significantly impact the overall economic profit.

Net Operating Profit After Taxes (NOPAT)

NOPAT decreased from US$7,193 million in 2021 to US$6,841 million in 2022, and further to US$6,415 million in 2023. A modest recovery to US$7,015 million occurred in 2024, followed by a slight decrease to US$6,650 million in 2025. This suggests some volatility in core operational profitability.

Cost of Capital

The cost of capital initially increased from 9.46% in 2021 to 9.76% in 2023, before decreasing to 9.21% in 2024 and further to 8.90% in 2025. This indicates a shifting risk profile or changes in market conditions affecting the company’s funding costs.

Invested Capital

Invested capital consistently increased throughout the period, rising from US$63,876 million in 2021 to US$80,815 million in 2025. This substantial growth in capital employed suggests ongoing investment in operations or acquisitions.

Economic Profit

Economic profit started at US$1,147 million in 2021, then decreased significantly to US$325 million in 2022. It turned negative in 2023, reaching -US$385 million, and remained negative in subsequent years, declining to -US$544 million in 2025. This indicates that the returns generated from invested capital are increasingly failing to cover the cost of that capital.

The divergence between the increasing invested capital and the fluctuating, but generally declining, NOPAT is the primary driver of the negative trend in economic profit. While the cost of capital decreased in the later years, it was insufficient to offset the impact of the growing capital base and the limited NOPAT growth.

Analysis of the presented financial information reveals trends in both shareholders’ net income and net operating profit after taxes (NOPAT) over a five-year period. While shareholders’ net income demonstrates a consistent, albeit gradual, decline, NOPAT exhibits more fluctuation.

Shareholders’ Net Income

Shareholders’ net income decreased steadily from US$6,104 million in 2021 to US$5,662 million in 2025. This represents a cumulative decrease of approximately 7.9% over the five-year period. The annual declines were relatively consistent, ranging from approximately 0.7% to 2.2% year-over-year.

Net Operating Profit After Taxes (NOPAT)

NOPAT experienced a more varied trajectory. It decreased from US$7,193 million in 2021 to US$6,415 million in 2023, representing a decline of approximately 10.8%. However, NOPAT then increased significantly to US$7,015 million in 2024, before decreasing again to US$6,650 million in 2025. The increase in 2024 suggests a potential improvement in operational efficiency or a favorable shift in the business environment during that year. The subsequent decrease in 2025 partially offsets the gains made in 2024.

The divergence between the trends in shareholders’ net income and NOPAT is noteworthy. While net income consistently declined, NOPAT demonstrated volatility, including a substantial increase in 2024. This suggests that factors beyond core operational profitability, such as changes in financing costs, non-operating income/expenses, or tax rates, may be influencing shareholders’ net income. Further investigation into these areas would be beneficial to understand the drivers behind the observed trends.

Relationship between NOPAT and Net Income

In 2021, NOPAT exceeded shareholders’ net income by US$1,089 million. This difference narrowed in 2022 to US$816 million, and further to US$502 million in 2023. In 2024, NOPAT exceeded net income by US$1,035 million, and in 2025, the difference was US$988 million. The fluctuating difference between these two metrics indicates changes in the proportion of earnings attributable to shareholders versus operational performance.

Overall, the financial information indicates a weakening trend in shareholders’ net income coupled with fluctuating operational profitability as measured by NOPAT. The increase in NOPAT in 2024 is a positive sign, but the subsequent decline in 2025 warrants further scrutiny.

The reported income tax expense and cash operating taxes exhibit distinct patterns over the five-year period. While income tax expense generally remains relatively stable, cash operating taxes demonstrate more significant fluctuations.

Income Tax Expense

Income tax expense decreased from US$1,830 million in 2021 to US$1,750 million in 2022, followed by a further slight decrease to US$1,724 million in 2023. A subsequent increase is observed in 2024, reaching US$1,933 million, before a substantial decline to US$1,049 million in 2025. This suggests potential impacts from changes in tax regulations, accounting adjustments, or profitability levels.

Cash Operating Taxes

Cash operating taxes increased from US$1,823 million in 2021 to US$1,931 million in 2022. A notable increase occurred in 2023, with cash operating taxes reaching US$2,637 million, followed by a slight decrease to US$2,550 million in 2024. A significant decrease is then observed in 2025, with cash operating taxes falling to US$1,627 million. This pattern indicates a greater sensitivity to underlying business operations and potentially timing differences between reported income tax expense and actual cash outflows for taxes.

The divergence between income tax expense and cash operating taxes is particularly pronounced in 2023, 2024, and 2025. This difference could be attributed to factors such as deferred tax assets or liabilities, changes in tax credits utilized, or variations in the timing of tax payments relative to reported income. The substantial decrease in both income tax expense and cash operating taxes in 2025 warrants further investigation to understand the underlying drivers.

Relationship between Metrics

In 2021 and 2022, cash operating taxes closely mirrored income tax expense. However, from 2023 onwards, a growing disparity emerges. This suggests that non-cash tax items are becoming increasingly influential in the overall tax profile. The largest difference is seen in 2025, where cash operating taxes are significantly lower than income tax expense.

The invested capital of the organization demonstrates a consistent upward trend over the five-year period. Total reported debt & leases and shareholders’ equity both contribute to this increase, with invested capital representing the sum of these two components.

Total Reported Debt & Leases

Total reported debt & leases increased from US$24,028 million in 2021 to US$32,706 million in 2025. The rate of increase accelerated between 2022 and 2024, growing by US$6,074 million, significantly larger than the increase observed between 2021 and 2022 (US$1,018 million). The increase from 2024 to 2025 was more moderate, at US$663 million.

Shareholders’ Equity

Shareholders’ equity also exhibited growth throughout the period, rising from US$36,060 million in 2021 to US$43,882 million in 2025. The growth was relatively consistent year-over-year, with increases ranging from US$247 million to US$2,509 million annually. The largest single-year increase occurred between 2022 and 2023.

Invested Capital

As a result of the increases in both debt & leases and shareholders’ equity, invested capital grew from US$63,876 million in 2021 to US$80,815 million in 2025. The growth rate of invested capital mirrors the trends in its components, with a notable acceleration between 2023 and 2024, increasing by US$8,572 million. The increase from 2024 to 2025 was US$2,564 million, representing a deceleration in growth.

The consistent growth in invested capital suggests ongoing investment in the organization’s operations and expansion. The increasing reliance on debt financing, particularly between 2022 and 2024, warrants further investigation to assess the associated financial risk and the effectiveness of capital allocation.

The economic spread ratio demonstrates a declining trend over the five-year period. Initially positive, the ratio transitions to negative values, indicating a diminishing ability to generate returns exceeding the cost of capital.

Economic Spread Ratio

In 2021, the economic spread ratio stood at 1.80%, signifying a substantial margin by which returns exceeded the cost of invested capital. This ratio experienced a significant decrease in 2022, falling to 0.49%. The trend continued downward, with the ratio becoming negative in 2023 at -0.55% and remaining negative through 2025, reaching -0.67%. This progression suggests a weakening of the company’s profitability relative to its capital costs.

Economic profit mirrors the trend observed in the economic spread ratio. A substantial decrease is noted from US$1,147 million in 2021 to US$325 million in 2022, followed by a loss of US$385 million in 2023. Losses continue in subsequent years, reaching US$544 million by 2025.

Invested Capital

Invested capital consistently increased throughout the period, rising from US$63,876 million in 2021 to US$80,815 million in 2025. This increase in capital employed did not translate into corresponding gains in economic profit, contributing to the declining economic spread ratio.

The combination of decreasing economic profit and increasing invested capital resulted in the observed deterioration of the economic spread ratio. The shift from positive to negative values in the economic spread ratio indicates that the company’s investments are generating returns that are less than the cost of the capital employed, potentially signaling a need for strategic review and improved capital allocation.

The economic profit margin demonstrates a clear declining trend over the five-year period. Initially positive, it transitioned to negative values, with the magnitude of the negative margin increasing over time. This suggests a diminishing ability to generate returns exceeding the cost of capital.

Economic Profit Margin

In 2021, the economic profit margin stood at 0.84%, indicating that for every dollar of operating revenue, the company generated 0.84 cents of economic profit. This margin experienced a substantial decrease in 2022, falling to 0.21%.

The trend continued negatively in 2023, with the economic profit margin becoming negative at -0.23%. This signifies that the company’s operating revenue was insufficient to cover its cost of capital.

Further deterioration was observed in 2024 and 2025, with the economic profit margin reaching -0.11% and -0.28% respectively. The increasing negativity suggests a widening gap between revenue generation and the cost of capital employed.

The movement in economic profit parallels the economic profit margin. A significant decrease in economic profit is evident from US$1,147 million in 2021 to US$325 million in 2022. This was followed by a loss of US$385 million in 2023, and losses of US$190 million and US$544 million in 2024 and 2025, respectively. This decline directly contributes to the observed negative economic profit margins.

Operating revenue consistently increased throughout the period, rising from US$136,943 million in 2021 to US$197,584 million in 2025. However, this revenue growth was not sufficient to offset the increasing cost of capital or maintain positive economic profit. The widening discrepancy between revenue and economic profit suggests potential issues with cost management, capital allocation, or competitive pressures impacting profitability.