Cardinal Health Financial Model
Healthcare Services Company Financials Example (Free Excel Download)
Cardinal Health is a global healthcare services and products company that provides customised solutions for hospitals, healthcare systems, pharmacies, ambulatory surgery centres, and clinical laboratories.
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About this model
This model forecasts equity valuation and cash flow generation to determine whether Cardinal Health's margin expansion initiatives and specialty distribution growth can successfully offset generic drug deflation and fund its multi-year opioid settlement liabilities.
Cardinal Health is a global healthcare services and products company that provides customised solutions for hospitals, healthcare systems, pharmacies, ambulatory surgery centres, and clinical laboratories. The company primarily distributes pharmaceuticals and medical products while also manufacturing proprietary medical and surgical supplies.
- Business Segments: Pharmaceutical and Specialty Solutions (PSS) accounts for approximately 88% of revenue; Global Medical Products and Distribution (GMPD) accounts for approximately 10% of revenue; Other (including at-Home Solutions, Nuclear and Precision Health Solutions, and OptiFreight Logistics) accounts for the remaining 2%.
- Key Geographies: The vast majority of revenue is generated in the United States, with a smaller international footprint supporting the GMPD segment.
- Business Model Type: Asset-light, high-volume, low-margin distribution model that relies heavily on working capital efficiency and massive scale.
- Competitive Position: Cardinal Health is one of the "Big Three" pharmaceutical distributors in the US, holding a dominant market share alongside McKesson and Cencora.
- Recent Major Events: In January 2024, the company restructured its segments into PSS and GMPD. The company is also executing a GMPD Improvement Plan to restore profitability after severe inflation and supply chain disruptions. Furthermore, the company is making ongoing payments related to a $6.3 billion nationwide opioid settlement.
The downloadable Cardinal Health financial model includes SEC-sourced historical financials, forecast assumptions, core operating schedules, and valuation outputs in an Excel workbook built for review and scenario analysis.
A turnkey financial model
Live formulas, no hardcoded values
Outputs are driven by live formulas, so the workbook updates from its assumptions instead of relying on hardcoded results.
All assumptions in one tab
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Statements always balancing
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Distinct schedules for clarity
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Changes flow through the model
Update a key driver and see the impact carry through the forecast, financing, and return outputs. We never use hardcoded numbers in formulas.
Historicals & AssumptionsCardinal Health financial modelCompany, Historicals & Assumptions used
Source: SEC EDGAR · values in USD
| Line item | FY2022 | FY2023 | FY2024 | FY2025 | FY2026 |
|---|---|---|---|---|---|
| Revenue | $181.33B | $204.98B | $226.83B | $222.58B | $254.25B |
| Gross profit | $6.48B | $6.87B | $7.41B | $8.17B | $9.77B |
| Operating income | -$607.0M | $752.0M | $1.24B | $2.27B | $2.61B |
| Net income | -$938.0M | $330.0M | $852.0M | $1.56B | $1.71B |
Forecast assumptions
Defaults used in the downloadable model. Forecast horizon: FY2026–FY2030.
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How to build a detailed financial model for Cardinal Health
A complete walkthrough of every driver, margin, working-capital input, and capital-allocation assumption used in the downloadable model.
Revenue Deep Dive
Pharmaceutical and Specialty Solutions (PSS)
- Segment Name: Pharmaceutical and Specialty Solutions
- Revenue Driver Formula: Brand Volume + Generic Volume + Specialty Distribution Volume
- Historical Growth Rate: 10% to 13% CAGR over the last 3 years.
- Key Growth Levers and Headwinds: Growth is driven by the proliferation of high-cost specialty drugs, GLP-1 medications, and overall prescription volume. The primary headwind is generic drug price deflation, which compresses distribution margins.
- Pricing Dynamics: Highly contractual, often structured as a fee-for-service or a small percentage markup over the wholesale acquisition cost.
- Revenue Recognition Notes: Recognised upon delivery of pharmaceutical products to the customer.
- Seasonality: Relatively stable, though the winter respiratory season can drive slight upticks in acute medication volumes.
Global Medical Products and Distribution (GMPD)
- Segment Name: Global Medical Products and Distribution
- Revenue Driver Formula: Cardinal Health Brand Product Sales + Third-Party Medical Product Sales
- Historical Growth Rate: Flat to 2% CAGR recently, heavily impacted by post-pandemic normalisation.
- Key Growth Levers and Headwinds: Growth relies on hospital admission rates and surgical volumes. Headwinds include raw material inflation and global freight constraints.
- Pricing Dynamics: Competitive bidding for hospital network contracts, with Cardinal Health branded products commanding higher margins than third-party distributed goods.
- Revenue Recognition Notes: Recognised upon transfer of control of medical products to healthcare providers.
- Seasonality: Minor fluctuations tied to elective surgery schedules, which typically dip in the summer and peak in the fourth calendar quarter.
Other
- Segment Name: Other (at-Home Solutions, Nuclear and Precision Health Solutions, OptiFreight Logistics)
- Revenue Driver Formula: Direct-to-Patient Shipments + Radiopharmaceutical Doses + Logistics Freight Volume
- Historical Growth Rate: 12% to 15% CAGR.
- Key Growth Levers and Headwinds: Benefiting from the structural shift of care to the home and increased demand for precision diagnostics.
- Pricing Dynamics: Value-based and service-level pricing, yielding higher margins than traditional wholesale distribution.
- Revenue Recognition Notes: Recognised as services are rendered or products are delivered to the home.
- Seasonality: Generally non-seasonal.
Cost Structure
Variable Costs / COGS
- Line-by-line breakdown: The cost of pharmaceutical drugs purchased from manufacturers, cost of raw materials for proprietary medical products, and inbound freight costs.
- Gross margin range: 3.0% to 4.5% historically.
- Key input costs and commodity exposures: Branded and generic drug wholesale prices, plastics and resins for medical products, and transportation fuel costs.
- How COGS scales with revenue: Almost perfectly linear due to the pass-through nature of pharmaceutical distribution.
Operating Expenses
- R&D: Negligible as a percentage of revenue; mostly related to proprietary medical product development and healthcare IT platforms.
- SG&A: Includes distribution centre labour, warehouse facility costs, transportation to customers, legal reserves, and compliance costs. Runs at approximately 1.5% to 2.0% of revenue.
- Depreciation & Amortisation: Approximately 0.2% of revenue, primarily tied to distribution centre automation and capitalised software.
- Stock-Based Compensation: Minimal as a percentage of total revenue, but meaningful when compared to operating income.
- Restructuring / one-time charges: Frequent and material, including opioid litigation charges, goodwill impairments in the Medical segment, and severance related to cost-saving programmes.
Margin Profile
- Gross margin: 3.0% to 4.5%.
- EBITDA margin: 1.2% to 1.6%.
- Operating margin: 1.0% to 1.4%.
- Net margin: 0.5% to 0.9%.
- Margin trend: Slowly expanding as the GMPD Improvement Plan takes effect and the product mix shifts toward higher-margin specialty distribution and at-Home solutions.
Balance Sheet Structure
- Total assets: Approximately $40 billion to $45 billion.
- Key asset categories: Accounts receivable and inventory make up the vast majority of assets, reflecting the core distribution business.
- Goodwill & intangibles: Represents roughly 15% to 20% of total assets, stemming from historical acquisitions like Medtronic's patient care business and Specialty Networks.
- Working capital profile:
- Days Sales Outstanding (DSO): 20 to 28 days.
- Days Inventory Outstanding (DIO): 40 to 50 days.
- Days Payable Outstanding (DPO): 50 to 60 days.
- Net working capital as % of revenue: Typically near zero or slightly negative.
- Is working capital positive or negative?: Often negative. The company leverages its massive purchasing power to extend payables, effectively using supplier credit to fund its inventory.
- PP&E: Consists of distribution centres, warehouse automation robotics, and delivery fleets. Useful lives range from 3 to 10 years for equipment and up to 40 years for buildings.
- Right-of-use assets / operating leases: Material, as the company leases many of its regional distribution facilities.
Capital Expenditure & Investment
- Capex as % of revenue: 0.2% to 0.3%.
- Maintenance capex vs. growth capex: Approximately 60% maintenance (facility upkeep, fleet renewal) and 40% growth (warehouse automation, new at-Home distribution centres).
- Major capex programmes underway or planned: Investments in robotics and automation for new at-Home Solutions distribution centres in South Carolina and Texas.
- Capitalised software / development costs: Material component of capex, supporting inventory management systems and OptiFreight logistics platforms.
- M&A pattern: Bolt-on acquirer focused on specialty pharmacy and healthcare technology (e.g., Specialty Networks, MSO platforms).
- Typical acquisition multiple paid: 10x to 14x EBITDA for specialty and technology assets.
Debt & Capital Structure
- Total debt: Approximately $5 billion to $6 billion.
- Debt/EBITDA ratio: Typically managed between 1.5x and 2.0x.
- Credit rating: Investment grade (typically Baa2/BBB).
- Key debt instruments: Unsecured senior notes of varying maturities and a commercial paper programme used to manage intra-quarter working capital swings.
- Maturity profile: Well-laddered with manageable near-term maturities.
- Interest rate profile: Predominantly fixed-rate senior notes, with floating rates on commercial paper.
- Covenants: Standard interest coverage and leverage ratio covenants on revolving credit facilities.
- Share repurchase programme: Highly active. The company regularly repurchases shares to drive EPS growth, often targeting $500 million to $1 billion annually.
- Dividend policy: Consistent dividend payer with a payout ratio around 25% to 30% of non-GAAP earnings, yielding approximately 1.5% to 2.0%.
Cash Flow Characteristics
- Operating cash flow conversion: Highly volatile due to working capital swings, but generally averages 1.2x to 1.5x non-GAAP net income over a multi-year period.
- Free cash flow margin: 1.0% to 1.5% of revenue, which is substantial in absolute dollar terms ($3.0 billion to $3.9 billion).
- Major non-cash items: Depreciation, amortisation of acquired intangibles, and periodic goodwill impairment charges in the Medical segment.
- Working capital cash flow impact: Can swing operating cash flow by over $1 billion in a single quarter depending on the timing of inventory purchases and supplier payments.
- Capex intensity: Extremely low, allowing the vast majority of operating cash flow to convert into free cash flow.
- Cash tax rate vs. GAAP effective tax rate: Cash taxes generally track the non-GAAP effective tax rate of 21% to 24%, though timing differences arise from the deductibility of certain litigation payments.
Sheet Structure
- Assumptions: Hardcoded inputs for revenue growth, segment margins, working capital days, capex, and capital return policies.
- Scenarios: Scenario manager toggling between Base, Bull (rapid GMPD recovery), and Bear (severe generic deflation).
- Income Statement: Consolidated P&L down to GAAP and Non-GAAP EPS, reflecting the exact line items from the 10-K.
- Segment Build: Revenue and segment profit forecasts for PSS, GMPD, and Other, rolling up to consolidated revenue and operating income.
- Balance Sheet: Standard assets, liabilities, and equity, featuring specific lines for opioid settlement liabilities.
- Working Capital Schedule: Detailed calculation of AR, Inventory, and AP based on days outstanding metrics.
- Opioid Liability Schedule: A dedicated roll-forward of the $6.3 billion settlement reserve, tracking annual cash outflows against the liability balance.
- Cash Flow Statement: Operating, investing, and financing cash flows, explicitly linking working capital changes and opioid payments.
- Debt Schedule: Roll-forward of commercial paper and senior notes, calculating interest expense based on average balances.
- Depreciation & Capex: PP&E roll-forward and capitalised software tracking.
- Shareholders Equity: Retained earnings roll-forward, tracking dividends and share repurchases.
- DCF Valuation: Unlevered free cash flow calculation, WACC build, and terminal value calculation.
Key Financial Relationships
- `PSS Revenue = Prior Year PSS Revenue * (1 + PSS Revenue Growth Rate)`
- `GMPD Revenue = Prior Year GMPD Revenue * (1 + GMPD Revenue Growth Rate)`
- `Other Revenue = Prior Year Other Revenue * (1 + Other Revenue Growth Rate)`
- `Total Revenue = PSS Revenue + GMPD Revenue + Other Revenue`
- `PSS Segment Profit = PSS Revenue * PSS Segment Margin`
- `GMPD Segment Profit = GMPD Revenue * GMPD Segment Margin`
- `Other Segment Profit = Other Revenue * Other Segment Margin`
- `Total Segment Profit = PSS Segment Profit + GMPD Segment Profit + Other Segment Profit`
- `Consolidated Operating Income = Total Segment Profit - Corporate Unallocated Expenses - Amortisation of Acquired Intangibles`
- `Accounts Receivable = (Total Revenue / 365) * Days Sales Outstanding`
- `Inventory = (Cost of Goods Sold / 365) * Days Inventory Outstanding`
- `Accounts Payable = (Cost of Goods Sold / 365) * Days Payable Outstanding`
- `Non-GAAP Net Income = (Consolidated Operating Income - Interest Expense) * (1 - Non-GAAP Effective Tax Rate)`
- `Free Cash Flow = Operating Cash Flow - Capital Expenditures`
- `Ending Shares Outstanding = Beginning Shares Outstanding - (Share Repurchase Amount / Average Share Price)`
Cross-Sheet Dependencies
- The Segment Build sheet feeds Total Revenue and Total Segment Profit directly into the Income Statement.
- The Income Statement generates Net Income, which feeds the top line of the Cash Flow Statement and Retained Earnings on the Balance Sheet.
- The Working Capital Schedule calculates period-over-period changes in AR, Inventory, and AP, which feed the operating activities section of the Cash Flow Statement.
- The Opioid Liability Schedule calculates the annual cash payment, which reduces the liability on the Balance Sheet and acts as a cash outflow in the Cash Flow Statement.
- The Debt Schedule calculates interest expense, which feeds the Income Statement, creating a potential circularity if debt is balanced using a revolving credit facility tied to cash shortfalls.
Sign Convention
- Income Statement: Revenues are positive. All expenses (COGS, SG&A, Interest, Taxes) are negative.
- Balance Sheet: Assets are positive. Liabilities and Equity are positive.
- Cash Flow Statement: Cash inflows are positive. Cash outflows (capex, dividends, share repurchases, debt paydowns) are negative.
- Working Capital: An increase in an asset (AR, Inventory) is a negative cash flow. An increase in a liability (AP) is a positive cash flow.
Things Most Likely to Go Wrong
- "The company changed its segment reporting structure in January 2024; historical segment data prior to FY2023 must be recast to align with the new PSS and GMPD structure."
- "Working capital swings can massively distort operating cash flow due to the sheer scale of inventory and payables; a one-day error in DSO or DPO assumptions will swing cash flow by hundreds of millions."
- "Opioid settlement payments are a multi-year cash drag that must be modelled as a specific reduction in operating cash flow, separate from standard working capital changes."
- "Generic drug price deflation acts as a constant headwind to PSS gross margins; failing to account for this will result in overly optimistic profit forecasts."
- "The company frequently records non-cash goodwill impairment charges in the Medical segment; these must be added back to calculate non-GAAP earnings and operating cash flow."
- "Customer concentration is extremely high; the model should include a scenario testing the loss or renegotiation of a major pharmacy benefit manager contract."
- "Interest income on cash balances is material due to the large cash position held for working capital purposes; net interest expense must be modelled carefully."
- "Share repurchases are a primary driver of EPS growth; failing to accurately forecast the reduction in share count will understate per-share metrics."
- "LIFO inventory accounting charges can create noise in GAAP gross margins; the model should focus on non-GAAP metrics that exclude LIFO adjustments."
Validation Checks
- "Consolidated gross margin should remain in the 3.0% to 4.5% range; flag if outside this band."
- "PSS segment profit margin should be between 0.8% and 1.2% based on historical performance."
- "Capex as a percentage of revenue should not exceed 0.5% given the asset-light nature of the business."
- "Operating cash flow conversion (OCF / Non-GAAP Net Income) should average >1.0x over a three-year period."
- "The balance sheet must balance: Total Assets = Total Liabilities + Equity in every forecasted period."
- "Debt/EBITDA should remain below 2.5x to maintain the company's investment-grade credit rating."
- "Non-GAAP effective tax rate should remain between 21% and 24% based on management guidance."
- "Dividend payout ratio should remain within 25% to 35% of non-GAAP net income."
Key Assumptions (Default Values)
| Assumption | Default Value | Unit | Rationale |
|---|---|---|---|
| PSS Revenue Growth | 11.0 | % | Aligns with FY2024 actual growth driven by brand and specialty volumes |
| GMPD Revenue Growth | 2.0 | % | Reflects stabilised medical product volumes post-pandemic |
| Other Revenue Growth | 15.0 | % | Reflects strong momentum in at-Home and OptiFreight businesses |
| PSS Segment Margin | 1.1 | % | Based on FY2024 segment profit over segment revenue |
| GMPD Segment Margin | 1.6 | % | Reflects ongoing GMPD Improvement Plan recovery |
| Other Segment Margin | 9.0 | % | Higher margin profile of logistics and at-home care services |
| Days Sales Outstanding | 25 | Days | Typical collection period for large pharmacy and hospital customers |
| Days Inventory Outstanding | 45 | Days | Required to maintain high service levels across distribution network |
| Days Payable Outstanding | 55 | Days | Reflects strong supplier negotiating power to fund inventory |
| Capex as % of Revenue | 0.25 | % | Asset-light distribution model requires minimal capital intensity |
| Non-GAAP Effective Tax Rate | 22.0 | % | Aligns with recent management guidance |
| Annual Share Repurchases | 500 | $M | Base run-rate based on recent capital allocation framework |
| Dividend Growth Rate | 2.0 | % | Reflects mature, steady dividend policy |
| WACC | 7.5 | % | Low cost of capital reflecting stable, defensive business model |
| Terminal Growth Rate | 1.5 | % | Aligns with long-term GDP growth and mature industry dynamics |
Data Sources & Benchmarks
- Filings: SEC EDGAR for Cardinal Health (CAH) 10-K, 10-Q, and 8-K filings. The investor relations page provides supplemental segment recast data.
- Key Peers: McKesson Corporation (MCK), Cencora, Inc. (COR), and Henry Schein, Inc. (HSIC).
- Industry Data: IQVIA for pharmaceutical prescription volume and generic pricing trends; Centers for Medicare & Medicaid Services (CMS) for hospital admission data.
- Consensus Estimates: FactSet or Bloomberg for forward-looking revenue and EPS consensus to validate model outputs.
Sources
- Cardinal Health FY2024 Earnings Release and 10-K (cardinalhealth.com)
- Cardinal Health Q1 FY2026 Earnings Release (cardinalhealth.com)
- MatrixBCG Cardinal Health Business Model and SWOT Analysis
- Porter's Five Forces Cardinal Health Analysis
- New York State Attorney General Opioid Settlement Disclosures
- SEC EDGAR Database (sec.gov)
Do more with the Cardinal Health model
Frequently asked
What does Cardinal Health do?+
Cardinal Health is a global healthcare services and products company that provides customized solutions for various healthcare providers. It primarily distributes pharmaceuticals and medical products and also manufactures proprietary medical and surgical supplies.
What are the main revenue drivers for Cardinal Health?+
The primary revenue driver for Cardinal Health is its Pharmaceutical and Specialty Solutions segment, which accounts for approximately 88% of its total revenue. The company operates an asset-light, high-volume distribution model, with growth in specialty distribution offsetting generic drug deflation.
What are the key financial model assumptions for Cardinal Health's profitability?+
Key profitability assumptions in the financial model include a COGS as a percentage of revenue of approximately 95%, indicating a low gross margin business. Selling, General, and Administrative (SGA) expenses are modeled at roughly 2.7% of revenue, reflecting its high-volume, low-margin distribution model.
How does Cardinal Health's working capital impact its financial model and cash flow?+
Cardinal Health's financial model often reflects negative net working capital as a percentage of revenue, typically near zero or slightly negative. This profile is due to the company leveraging its massive purchasing power to extend payables, effectively using supplier credit to fund inventory and enhance cash flow generation.
What is the forecast horizon for the Cardinal Health financial model and what are its main objectives?+
The downloadable Excel model for Cardinal Health forecasts financial performance from FY2026 through FY2030. Its main objectives are to forecast equity valuation and cash flow generation, assessing whether margin expansion and specialty distribution growth can offset generic drug deflation and fund opioid settlement liabilities.
What is Cardinal Health's capital expenditure strategy?+
Cardinal Health's capital expenditure as a percentage of revenue is relatively low, ranging from 0.2% to 0.3%. Approximately 60% of this is for maintenance, while the remaining 40% is allocated to growth initiatives such as warehouse automation and new at-Home Solutions distribution centers.
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