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.
Economic Profit
Humana Inc., economic profit 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 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
= 2,726 – 9.66% × 30,225 = -195
The company experienced a significant deterioration in economic value creation between 2019 and 2023. While economic profit peaked in 2020, a subsequent and consistent decline led to a transition from value creation to value destruction by the end of the period.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT demonstrated a peaking pattern, reaching 3,874 million in 2020 before entering a steady decline. By December 31, 2023, NOPAT fell to 2,726 million, representing a 29.6% decrease from its 2020 peak. This downward trajectory indicates a weakening in the company's ability to generate operating earnings after taxes.
- Invested Capital
- A substantial expansion of the capital base occurred between 2019 and 2021, with invested capital rising from 18,877 million to 30,647 million. Following this rapid growth, the capital base plateaued, ending at 30,225 million in 2023. The significant increase in capital deployed during the early part of the period created a higher threshold for the company to achieve positive economic profit.
- Cost of Capital
- The cost of capital remained relatively stable throughout the five-year period, fluctuating within a narrow range between 9.46% and 10.35%. Because these fluctuations were minimal, the cost of capital was not the primary driver of the changes in economic profit.
- Economic Profit Trajectory
- Economic profit declined sharply from a peak of 1,665 million in 2020 to a negative value of 195 million in 2023. The most pronounced drop occurred in 2021, coinciding with the surge in invested capital. The convergence of declining NOPAT and an expanded capital base resulted in a negative spread, indicating that by 2023, the company's operating returns were no longer sufficient to cover the cost of the capital employed.
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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
= 593 × 3.90% = 23
6 2023 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 516 × 21.00% = 108
7 Addition of after taxes interest expense to net income attributable to Humana.
Humana's financial performance from 2019 to 2023 is characterized by a sharp increase in profitability during 2020, followed by a multi-year period of contraction. Both net income and net operating profit after taxes (NOPAT) demonstrate a closely correlated trajectory, indicating that the drivers of operating profit were largely reflective of the final bottom-line results.
- Net Operating Profit After Taxes (NOPAT) Trend
- NOPAT experienced a significant surge in 2020, rising to $3,874 million from $3,029 million in 2019. However, this peak was followed by a consistent downward trend over the subsequent three years, ending at $2,726 million in 2023. This represents a total decrease of approximately 29.6% from the 2020 high.
- Net Income Performance
- Net income attributable to the company mirrored the NOPAT trend, peaking at $3,367 million in 2020. Following this peak, net income declined steadily to $2,933 million in 2021, $2,806 million in 2022, and finally to $2,489 million in 2023. The value in 2023 is lower than the initial 2019 figure, indicating a net erosion of bottom-line profitability over the five-year window.
- Relationship Between Operating and Net Profit
- A consistent positive variance exists between NOPAT and net income throughout the reporting period. NOPAT remained higher than net income in every year analyzed, which indicates that the core operating profitability of the entity is consistently higher than the final net profit after all financial obligations, including interest and non-operating expenses, are accounted for.
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Cash Operating Taxes
Humana Inc., cash operating taxes calculation
US$ 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 trajectory of tax-related obligations between 2019 and 2023 is characterized by significant volatility, featuring a pronounced spike in 2020 and a sharp contraction in 2021. Since the 2021 trough, both the provision for income taxes and cash operating taxes have exhibited a consistent upward trend, though the rate of increase differs between the two metrics.
- Cash Operating Tax Trends
- Cash operating taxes rose from 656 million USD in 2019 to a peak of 1,175 million USD in 2020, before declining sharply to 543 million USD in 2021. A sustained recovery followed, with cash tax outflows increasing to 950 million USD in 2022 and reaching 1,108 million USD by 2023, representing a 103% increase from the 2021 low.
- Provision for Income Taxes Analysis
- The provision for income taxes followed a similar cyclical pattern, peaking at 1,307 million USD in 2020 and dropping to 485 million USD in 2021. The subsequent growth through 2023 has been more moderate than that of cash taxes, ending the period at 836 million USD.
- Divergence Between Accrual and Cash Tax Payments
- A significant shift is observed in the relationship between the tax provision and actual cash payments. In 2019 and 2020, the provision for income taxes exceeded cash operating taxes. However, from 2021 onward, this trend reversed. By 2023, cash operating taxes surpassed the provision by 272 million USD, indicating that actual cash outflows for taxes have consistently exceeded the reported tax expense in the most recent three fiscal years.
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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.
Invested capital exhibited a significant overall increase between 2019 and 2023, rising from US$ 18,877 million to US$ 30,225 million. The most pronounced growth occurred between 2020 and 2021, where invested capital expanded by approximately 40.3%, before entering a period of relative stabilization through 2023.
- Total Reported Debt and Leases
- A sharp upward trajectory was observed in debt and lease obligations, which grew from US$ 6,339 million in 2019 to a peak of US$ 13,551 million in 2021. Following this peak, a moderate reduction occurred in 2022 to US$ 12,032 million, with a subsequent slight increase to US$ 12,602 million by the end of 2023. This indicates a permanent shift to a higher leverage baseline compared to the 2019 starting point.
- Stockholders' Equity
- Equity demonstrated steady growth, increasing from US$ 12,037 million in 2019 to US$ 16,262 million in 2023. The growth was most consistent during the first three years of the period, followed by a minor contraction in 2022 and a recovery in 2023, suggesting a generally stable internal funding base.
- Capital Structure Dynamics
- The expansion of invested capital was disproportionately driven by debt rather than equity, particularly during the 2021 surge. The rapid increase in total reported debt and leases was the primary catalyst for the peak in invested capital. The stabilization observed in 2022 and 2023 reflects a period of consolidation where debt reductions and equity fluctuations offset one another, maintaining the total capital base near the US$ 30 billion mark.
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Cost of Capital
Humana Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 43,915) | 43,915) | ÷ | 56,332) | = | 0.78 | 0.78 | × | 11.37% | = | 8.86% | ||
| Debt3 | 11,824) | 11,824) | ÷ | 56,332) | = | 0.21 | 0.21 | × | 4.63% × (1 – 21.00%) | = | 0.77% | ||
| Operating lease liability4 | 593) | 593) | ÷ | 56,332) | = | 0.01 | 0.01 | × | 3.90% × (1 – 21.00%) | = | 0.03% | ||
| Total: | 56,332) | 1.00 | 9.66% | ||||||||||
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 | 63,199) | 63,199) | ÷ | 74,600) | = | 0.85 | 0.85 | × | 11.37% | = | 9.63% | ||
| Debt3 | 10,793) | 10,793) | ÷ | 74,600) | = | 0.14 | 0.14 | × | 3.69% × (1 – 21.00%) | = | 0.42% | ||
| Operating lease liability4 | 608) | 608) | ÷ | 74,600) | = | 0.01 | 0.01 | × | 3.20% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 74,600) | 1.00 | 10.08% | ||||||||||
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 | 53,783) | 53,783) | ÷ | 68,295) | = | 0.79 | 0.79 | × | 11.37% | = | 8.95% | ||
| Debt3 | 13,781) | 13,781) | ÷ | 68,295) | = | 0.20 | 0.20 | × | 2.97% × (1 – 21.00%) | = | 0.47% | ||
| Operating lease liability4 | 731) | 731) | ÷ | 68,295) | = | 0.01 | 0.01 | × | 3.20% × (1 – 21.00%) | = | 0.03% | ||
| Total: | 68,295) | 1.00 | 9.46% | ||||||||||
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 | 48,752) | 48,752) | ÷ | 57,508) | = | 0.85 | 0.85 | × | 11.37% | = | 9.64% | ||
| Debt3 | 8,272) | 8,272) | ÷ | 57,508) | = | 0.14 | 0.14 | × | 3.90% × (1 – 21.00%) | = | 0.44% | ||
| Operating lease liability4 | 484) | 484) | ÷ | 57,508) | = | 0.01 | 0.01 | × | 3.70% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 57,508) | 1.00 | 10.11% | ||||||||||
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 | 49,010) | 49,010) | ÷ | 55,899) | = | 0.88 | 0.88 | × | 11.37% | = | 9.97% | ||
| Debt3 | 6,441) | 6,441) | ÷ | 55,899) | = | 0.12 | 0.12 | × | 3.94% × (1 – 21.00%) | = | 0.36% | ||
| Operating lease liability4 | 448) | 448) | ÷ | 55,899) | = | 0.01 | 0.01 | × | 4.10% × (1 – 21.00%) | = | 0.03% | ||
| Total: | 55,899) | 1.00 | 10.35% | ||||||||||
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 | (195) | 122) | 274) | 1,665) | 1,074) | |
| Invested capital2 | 30,225) | 29,089) | 30,647) | 21,850) | 18,877) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -0.65% | 0.42% | 0.89% | 7.62% | 5.69% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Abbott Laboratories | -4.75% | -2.51% | -2.02% | — | — | |
| Elevance Health Inc. | -1.03% | 0.01% | 1.33% | — | — | |
| Intuitive Surgical Inc. | -2.71% | -2.99% | 12.62% | — | — | |
| Medtronic PLC | -6.38% | -5.14% | -6.78% | — | — | |
| UnitedHealth Group Inc. | 4.85% | 3.88% | 3.74% | — | — | |
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 × -195 ÷ 30,225 = -0.65%
4 Click competitor name to see calculations.
A comprehensive analysis of the financial data from 2019 to 2023 reveals a significant deterioration in economic value creation. While the period began with positive economic gains, the subsequent years show a consistent decline in profitability relative to the cost of capital, culminating in negative economic value in the final year of the period.
- Economic Profit Trends
- Economic profit experienced an initial increase, peaking at 1,665 million US dollars in 2020. However, a sharp reversal occurred in 2021, where profit dropped to 274 million US dollars. This downward trajectory continued through 2022 and reached a critical point in 2023, when economic profit turned negative at -195 million US dollars, signaling that the company ceased to generate returns above its cost of capital.
- Invested Capital Expansion
- Invested capital exhibited a general upward trend over the five-year horizon. The most substantial increase occurred between 2020 and 2021, rising from 21,850 million US dollars to 30,647 million US dollars. Despite a minor contraction in 2022, capital levels remained elevated, ending 2023 at 30,225 million US dollars. The growth in the capital base did not correlate with an increase in economic profit, suggesting diminishing marginal returns on invested capital.
- Economic Spread Ratio Analysis
- The economic spread ratio serves as a primary indicator of value creation efficiency. It reached its zenith in 2020 at 7.62%, indicating a strong spread over the cost of capital. Following this peak, the ratio collapsed to 0.89% in 2021 and further eroded to 0.42% in 2022. By December 31, 2023, the ratio fell to -0.65%, confirming a transition from value creation to value destruction.
The convergence of rising invested capital and plummeting economic profit suggests a systemic decline in the efficiency of capital deployment. The shift to a negative economic spread ratio indicates that the returns generated by the invested capital are no longer sufficient to cover the company's weighted average cost of capital.
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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 | (195) | 122) | 274) | 1,665) | 1,074) | |
| External revenues | 105,305) | 92,488) | 82,877) | 76,001) | 64,387) | |
| Add: Increase (decrease) in unearned revenues | (20) | 32) | (64) | 71) | (36) | |
| Adjusted external revenues | 105,285) | 92,520) | 82,813) | 76,072) | 64,351) | |
| Performance Ratio | ||||||
| Economic profit margin2 | -0.19% | 0.13% | 0.33% | 2.19% | 1.67% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Abbott Laboratories | -7.06% | -3.52% | -2.92% | — | — | |
| Elevance Health Inc. | -0.42% | 0.00% | 0.62% | — | — | |
| Intuitive Surgical Inc. | -2.70% | -2.58% | 9.93% | — | — | |
| Medtronic PLC | -14.41% | -11.28% | -16.28% | — | — | |
| UnitedHealth Group Inc. | 2.41% | 1.99% | 1.83% | — | — | |
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 × -195 ÷ 105,285 = -0.19%
3 Click competitor name to see calculations.
A divergence is observed between revenue growth and value creation. While adjusted external revenues grew consistently throughout the five-year period, economic profit experienced a severe decline, transitioning from a period of peak value creation to a state of value destruction by 2023.
- Revenue Growth Trajectory
- Adjusted external revenues exhibited a steady upward trend, increasing from 64,351 million US dollars in 2019 to 105,285 million US dollars in 2023. This represents a continuous expansion in scale and top-line performance over the analyzed timeframe.
- Economic Profit Volatility
- Economic profit reached a peak of 1,665 million US dollars in 2020, up from 1,074 million US dollars in 2019. However, a sharp reversal followed, with profit dropping to 274 million US dollars in 2021 and further declining to 122 million US dollars in 2022. By December 31, 2023, economic profit became negative, reaching -195 million US dollars.
- Economic Profit Margin Compression
- The economic profit margin followed a mirroring path of erosion. After an initial increase to 2.19% in 2020, the margin contracted sharply to 0.33% in 2021 and 0.13% in 2022. The trend concluded in 2023 with a negative margin of -0.19%, indicating that the company's operational returns failed to cover its cost of capital during the final year of the period.
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