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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
Net Operating Profit after Taxes (NOPAT)
Cash Operating Taxes
Invested Capital
Cost of Capital
Economic Spread Ratio
Economic Profit Margin

Vertex Pharmaceuticals Inc., economic profit calculation

US$ in thousands

12 months ended:	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Net operating profit after taxes (NOPAT)¹	2,639,623)	2,986,401)	2,239,320)	3,023,861)	1,342,946)
Cost of capital²	7.76%	7.74%	7.73%	7.73%	7.77%
Invested capital³	13,244,000)	13,178,000)	9,387,100)	8,144,266)	4,870,596)

Economic profit⁴	1,612,379)	1,966,156)	1,513,693)	2,394,273)	964,583)

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
= 2,639,623 – 7.76% × 13,244,000 = 1,612,379

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Item	Description	The company
Economic profit	Economic profit is a measure of corporate performance computed by taking the spread between the return on invested capital and the cost of capital, and multiplying by the invested capital.	Vertex Pharmaceuticals Inc. economic profit increased from 2021 to 2022 but then slightly decreased from 2022 to 2023 not reaching 2021 level.

Vertex Pharmaceuticals Inc., NOPAT calculation

US$ in thousands

12 months ended:	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Net income	3,619,600)	3,322,000)	2,342,100)	2,711,647)	1,176,810)
Deferred income tax expense (benefit)¹	(536,500)	(275,900)	(154,600)	277,341)	167,387)
Increase (decrease) in equity equivalents²	(536,500)	(275,900)	(154,600)	277,341)	167,387)
Interest expense	44,100)	54,800)	61,500)	58,151)	58,502)
Interest expense, operating lease liability³	9,237)	10,531)	8,994)	8,230)	3,592)
Adjusted interest expense	53,337)	65,331)	70,494)	66,381)	62,094)
Tax benefit of interest expense⁴	(11,201)	(13,720)	(14,804)	(13,940)	(13,040)
Adjusted interest expense, after taxes⁵	42,136)	51,612)	55,691)	52,441)	49,055)
(Gain) loss on marketable securities	—)	3,700)	—)	—)	—)
Interest income	(614,700)	(144,600)	(4,900)	(22,239)	(63,678)
Investment income, before taxes	(614,700)	(140,900)	(4,900)	(22,239)	(63,678)
Tax expense (benefit) of investment income⁶	129,087)	29,589)	1,029)	4,670)	13,372)
Investment income, after taxes⁷	(485,613)	(111,311)	(3,871)	(17,569)	(50,306)
Net operating profit after taxes (NOPAT)	2,639,623)	2,986,401)	2,239,320)	3,023,861)	1,342,946)

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 equity equivalents to net income.

³ 2023 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 381,700 × 2.42% = 9,237

⁴ 2023 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 53,337 × 21.00% = 11,201

⁵ Addition of after taxes interest expense to net income.

⁶ 2023 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 614,700 × 21.00% = 129,087

⁷ Elimination of after taxes investment income.

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Item	Description	The company
NOPAT	Net operating profit after taxes is income from operations, but after removement of taxes calculated on cash basis that are relevant to operating income.	Vertex Pharmaceuticals Inc. NOPAT increased from 2021 to 2022 but then slightly decreased from 2022 to 2023.

Vertex Pharmaceuticals Inc., cash operating taxes calculation

US$ in thousands

12 months ended:	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Provision for income taxes	760,200)	910,400)	388,300)	405,151)	218,109)
Less: Deferred income tax expense (benefit)	(536,500)	(275,900)	(154,600)	277,341)	167,387)
Add: Tax savings from interest expense	11,201)	13,720)	14,804)	13,940)	13,040)
Less: Tax imposed on investment income	129,087)	29,589)	1,029)	4,670)	13,372)
Cash operating taxes	1,178,814)	1,170,431)	556,675)	137,080)	50,389)

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).

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Item	Description	The company
Cash operating taxes	Cash operating taxes are estimated by adjusting income tax expense for changes in deferred taxes and tax benefit from the interest deduction.	Vertex Pharmaceuticals Inc. cash operating taxes increased from 2021 to 2022 and from 2022 to 2023.

Vertex Pharmaceuticals Inc., invested capital calculation (financing approach)

US$ in thousands

	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Current finance lease liabilities	50,600)	40,800)	46,900)	42,434)	38,794)
Long-term finance lease liabilities	376,100)	430,800)	509,800)	539,042)	538,576)
Operating lease liability¹	381,700)	428,100)	410,700)	360,984)	95,796)
Total reported debt & leases	808,400)	899,700)	967,400)	942,460)	673,166)
Shareholders’ equity	17,580,400)	13,912,700)	10,100,000)	8,686,815)	6,085,244)
Net deferred tax (assets) liabilities²	(1,812,100)	(1,246,900)	(934,500)	(882,779)	(1,190,815)
Equity equivalents³	(1,812,100)	(1,246,900)	(934,500)	(882,779)	(1,190,815)
Accumulated other comprehensive (income) loss, net of tax⁴	14,300)	(800)	(15,900)	68,480)	1,973)
Adjusted shareholders’ equity	15,782,600)	12,665,000)	9,149,600)	7,872,516)	4,896,402)
Marketable securities⁵	(3,347,000)	(386,700)	(729,900)	(670,710)	(698,972)
Invested capital	13,244,000)	13,178,000)	9,387,100)	8,144,266)	4,870,596)

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 equity equivalents to shareholders’ equity.

⁴ Removal of accumulated other comprehensive income.

⁵ Subtraction of marketable securities.

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Item	Description	The company
Invested capital	Capital is an approximation of the economic book value of all cash invested in going-concern business activities.	Vertex Pharmaceuticals Inc. invested capital increased from 2021 to 2022 and from 2022 to 2023.

Vertex Pharmaceuticals Inc., cost of capital calculations

Dec 31, 2023

	Capital (fair value)¹	Weights					Cost of capital
Equity²	110,114,039)	110,114,039)	÷	110,922,439)	=	0.99	0.99	×	7.78%	=	7.72%
Finance lease liabilities³	426,700)	426,700)	÷	110,922,439)	=	0.00	0.00	×	8.20% × (1 – 21.00%)	=	0.02%
Operating lease liability⁴	381,700)	381,700)	÷	110,922,439)	=	0.00	0.00	×	2.42% × (1 – 21.00%)	=	0.01%
Total:	110,922,439)					1.00					7.76%

Based on: 10-K (reporting date: 2023-12-31).

¹ US$ in thousands

² Equity. See details »

³ Finance lease liabilities. See details »

⁴ Operating lease liability. See details »

Dec 31, 2022

	Capital (fair value)¹	Weights					Cost of capital
Equity²	76,458,995)	76,458,995)	÷	77,358,695)	=	0.99	0.99	×	7.78%	=	7.69%
Finance lease liabilities³	471,600)	471,600)	÷	77,358,695)	=	0.01	0.01	×	8.36% × (1 – 21.00%)	=	0.04%
Operating lease liability⁴	428,100)	428,100)	÷	77,358,695)	=	0.01	0.01	×	2.46% × (1 – 21.00%)	=	0.01%
Total:	77,358,695)					1.00					7.74%

Based on: 10-K (reporting date: 2022-12-31).

¹ US$ in thousands

² Equity. See details »

³ Finance lease liabilities. See details »

⁴ Operating lease liability. See details »

Dec 31, 2021

	Capital (fair value)¹	Weights					Cost of capital
Equity²	62,177,811)	62,177,811)	÷	63,145,211)	=	0.98	0.98	×	7.78%	=	7.66%
Finance lease liabilities³	556,700)	556,700)	÷	63,145,211)	=	0.01	0.01	×	8.11% × (1 – 21.00%)	=	0.06%
Operating lease liability⁴	410,700)	410,700)	÷	63,145,211)	=	0.01	0.01	×	2.19% × (1 – 21.00%)	=	0.01%
Total:	63,145,211)					1.00					7.73%

Based on: 10-K (reporting date: 2021-12-31).

¹ US$ in thousands

² Equity. See details »

³ Finance lease liabilities. See details »

⁴ Operating lease liability. See details »

Dec 31, 2020

	Capital (fair value)¹	Weights					Cost of capital
Equity²	54,721,593)	54,721,593)	÷	55,664,053)	=	0.98	0.98	×	7.78%	=	7.65%
Finance lease liabilities³	581,476)	581,476)	÷	55,664,053)	=	0.01	0.01	×	8.36% × (1 – 21.00%)	=	0.07%
Operating lease liability⁴	360,984)	360,984)	÷	55,664,053)	=	0.01	0.01	×	2.28% × (1 – 21.00%)	=	0.01%
Total:	55,664,053)					1.00					7.73%

Based on: 10-K (reporting date: 2020-12-31).

¹ US$ in thousands

² Equity. See details »

³ Finance lease liabilities. See details »

⁴ Operating lease liability. See details »

Dec 31, 2019

	Capital (fair value)¹	Weights					Cost of capital
Equity²	62,247,796)	62,247,796)	÷	62,920,963)	=	0.99	0.99	×	7.78%	=	7.70%
Finance lease liabilities³	577,371)	577,371)	÷	62,920,963)	=	0.01	0.01	×	9.04% × (1 – 21.00%)	=	0.07%
Operating lease liability⁴	95,796)	95,796)	÷	62,920,963)	=	0.00	0.00	×	3.75% × (1 – 21.00%)	=	0.00%
Total:	62,920,963)					1.00					7.77%

Based on: 10-K (reporting date: 2019-12-31).

¹ US$ in thousands

² Equity. See details »

³ Finance lease liabilities. See details »

⁴ Operating lease liability. See details »

Vertex Pharmaceuticals 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 thousands)
Economic profit¹	1,612,379)	1,966,156)	1,513,693)	2,394,273)	964,583)
Invested capital²	13,244,000)	13,178,000)	9,387,100)	8,144,266)	4,870,596)
Performance Ratio
Economic spread ratio³	12.17%	14.92%	16.13%	29.40%	19.80%
Benchmarks
Economic Spread Ratio, Competitors⁴
AbbVie Inc.	-3.86%	5.56%	4.94%	-2.93%	7.34%
Amgen Inc.	2.88%	7.56%	7.54%	11.86%	14.07%
Bristol-Myers Squibb Co.	2.10%	-0.59%	1.65%	-13.92%	-3.59%
Danaher Corp.	-7.47%	-2.53%	-1.88%	-3.28%	-6.69%
Eli Lilly & Co.	3.35%	10.68%	12.37%	19.03%	15.86%
Gilead Sciences Inc.	6.03%	2.52%	9.05%	-4.02%	7.30%
Johnson & Johnson	0.15%	5.37%	10.44%	5.21%	4.12%
Merck & Co. Inc.	-8.40%	11.79%	11.91%	4.75%	11.34%
Pfizer Inc.	-8.81%	18.80%	11.95%	-2.77%	5.84%
Regeneron Pharmaceuticals Inc.	21.19%	24.31%	67.31%	39.18%	28.43%
Thermo Fisher Scientific Inc.	-4.41%	-2.64%	-0.81%	0.20%	-3.69%
Zoetis Inc.	9.11%	3.88%	6.66%	3.41%	4.38%

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 × 1,612,379 ÷ 13,244,000 = 12.17%

⁴ Click competitor name to see calculations.

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Performance ratio	Description	The company
Economic spread ratio	The ratio of economic profit to invested capital, also equal to the difference between return on invested capital (ROIC) and cost of capital.	Vertex Pharmaceuticals Inc. economic spread ratio deteriorated from 2021 to 2022 and from 2022 to 2023.

Vertex Pharmaceuticals 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 thousands)
Economic profit¹	1,612,379)	1,966,156)	1,513,693)	2,394,273)	964,583)
Revenues	9,869,200)	8,930,700)	7,574,400)	6,205,683)	4,162,821)
Performance Ratio
Economic profit margin²	16.34%	22.02%	19.98%	38.58%	23.17%
Benchmarks
Economic Profit Margin, Competitors³
AbbVie Inc.	-4.84%	7.87%	8.43%	-6.64%	13.85%
Amgen Inc.	7.49%	12.11%	12.49%	18.98%	23.69%
Bristol-Myers Squibb Co.	3.15%	-0.92%	2.86%	-29.52%	-13.78%
Danaher Corp.	-24.53%	-6.28%	-4.70%	-9.62%	-21.69%
Eli Lilly & Co.	2.88%	9.09%	11.42%	19.04%	15.27%
Gilead Sciences Inc.	10.25%	4.26%	16.00%	-8.30%	10.37%
Johnson & Johnson	0.17%	6.45%	10.93%	6.22%	4.87%
Merck & Co. Inc.	-9.77%	14.70%	17.30%	5.66%	12.99%
Pfizer Inc.	-23.32%	20.76%	12.89%	-6.86%	13.65%
Regeneron Pharmaceuticals Inc.	19.33%	24.47%	45.51%	38.17%	23.60%
Thermo Fisher Scientific Inc.	-8.82%	-4.86%	-1.65%	0.37%	-7.61%
Zoetis Inc.	12.32%	6.02%	9.94%	5.90%	6.88%

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 ÷ Revenues
= 100 × 1,612,379 ÷ 9,869,200 = 16.34%

³ Click competitor name to see calculations.

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Performance ratio	Description	The company
Economic profit margin	The ratio of economic profit to sales. It is the company profit margin covering income efficiency and asset management. Economic profit margin is not biased in favor of capital-intensive business models, because any added capital is a cost to the economic profit margin.	Vertex Pharmaceuticals Inc. economic profit margin improved from 2021 to 2022 but then deteriorated significantly from 2022 to 2023.

Vertex Pharmaceuticals Inc. (NASDAQ:VRTX)

Economic Value Added (EVA)

Economic Profit

Net Operating Profit after Taxes (NOPAT)

Cash Operating Taxes

Invested Capital

Cost of Capital

Economic Spread Ratio

Economic Profit Margin