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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

Zoetis Inc., economic profit calculation

US$ in millions

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	2,410)	1,958)	2,131)	1,727)	1,570)
Cost of capital²	11.75%	11.73%	11.70%	11.54%	11.58%
Invested capital³	11,550)	12,542)	11,612)	11,557)	9,838)

Economic profit⁴	1,053)	487)	773)	394)	431)

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
= 2,410 – 11.75% × 11,550 = 1,053

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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.	Zoetis Inc. economic profit decreased from 2021 to 2022 but then increased from 2022 to 2023 exceeding 2021 level.

Zoetis Inc., NOPAT calculation

US$ in millions

12 months ended:	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Net income attributable to Zoetis Inc.	2,344)	2,114)	2,037)	1,638)	1,500)
Deferred income tax expense (benefit)¹	(61)	(285)	(80)	(62)	(80)
Increase (decrease) in allowance for doubtful accounts²	(1)	2)	(3)	(1)	(3)
Increase (decrease) in restructuring accruals³	20)	(10)	4)	(24)	—)
Increase (decrease) in equity equivalents⁴	(42)	(293)	(79)	(87)	(83)
Interest expense, net of capitalized interest	239)	221)	224)	231)	223)
Interest expense, operating lease liability⁵	8)	6)	5)	6)	7)
Adjusted interest expense, net of capitalized interest	247)	227)	229)	237)	230)
Tax benefit of interest expense, net of capitalized interest⁶	(52)	(48)	(48)	(50)	(48)
Adjusted interest expense, net of capitalized interest, after taxes⁷	195)	180)	181)	187)	182)
Interest income	(105)	(50)	(6)	(12)	(37)
Investment income, before taxes	(105)	(50)	(6)	(12)	(37)
Tax expense (benefit) of investment income⁸	22)	11)	1)	3)	8)
Investment income, after taxes⁹	(83)	(40)	(5)	(9)	(29)
Net income (loss) attributable to noncontrolling interest	(4)	(3)	(3)	(2)	—)
Net operating profit after taxes (NOPAT)	2,410)	1,958)	2,131)	1,727)	1,570)

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 restructuring accruals.

⁴ Addition of increase (decrease) in equity equivalents to net income attributable to Zoetis Inc..

⁵ 2023 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 236 × 3.41% = 8

⁶ 2023 Calculation
Tax benefit of interest expense, net of capitalized interest = Adjusted interest expense, net of capitalized interest × Statutory income tax rate
= 247 × 21.00% = 52

⁷ Addition of after taxes interest expense to net income attributable to Zoetis Inc..

⁸ 2023 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 105 × 21.00% = 22

⁹ 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.	Zoetis Inc. NOPAT decreased from 2021 to 2022 but then increased from 2022 to 2023 exceeding 2021 level.

Zoetis Inc., cash operating taxes calculation

US$ in millions

12 months ended:	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Provision for taxes on income	596)	545)	454)	360)	301)
Less: Deferred income tax expense (benefit)	(61)	(285)	(80)	(62)	(80)
Add: Tax savings from interest expense, net of capitalized interest	52)	48)	48)	50)	48)
Less: Tax imposed on investment income	22)	11)	1)	3)	8)
Cash operating taxes	687)	867)	581)	469)	422)

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.	Zoetis Inc. cash operating taxes increased from 2021 to 2022 but then slightly decreased from 2022 to 2023 not reaching 2021 level.

Zoetis Inc., invested capital calculation (financing approach)

US$ in millions

	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Short-term borrowings	3)	2)	—)	4)	—)
Current portion of long-term debt	—)	1,350)	—)	600)	500)
Finance lease liabilities, current	1)	—)	—)	—)	—)
Long-term debt, net of discount and issuance costs, excluding current portion	6,564)	6,552)	6,592)	6,595)	5,947)
Finance lease liabilities, noncurrent	8)	—)	—)	—)	—)
Operating lease liability¹	236)	229)	192)	203)	199)
Total reported debt & leases	6,812)	8,133)	6,784)	7,402)	6,646)
Total Zoetis Inc. equity	4,997)	4,405)	4,543)	3,769)	2,708)
Net deferred tax (assets) liabilities²	(60)	(31)	220)	284)	346)
Allowance for doubtful accounts³	18)	19)	17)	20)	21)
Restructuring accruals⁴	35)	15)	25)	21)	45)
Equity equivalents⁵	(7)	3)	262)	325)	412)
Accumulated other comprehensive (income) loss, net of tax⁶	839)	817)	764)	730)	726)
Equity attributable to noncontrolling interests	(6)	(2)	1)	4)	—)
Adjusted total Zoetis Inc. equity	5,823)	5,223)	5,570)	4,828)	3,846)
Construction-in-progress⁷	(1,085)	(814)	(742)	(673)	(553)
Available-for-sale debt securities⁸	—)	—)	—)	—)	(101)
Invested capital	11,550)	12,542)	11,612)	11,557)	9,838)

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 restructuring accruals.

⁵ Addition of equity equivalents to total Zoetis Inc. equity.

⁶ Removal of accumulated other comprehensive income.

⁷ Subtraction of construction-in-progress.

⁸ Subtraction of available-for-sale debt 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.	Zoetis Inc. invested capital increased from 2021 to 2022 but then decreased significantly from 2022 to 2023.

Zoetis Inc., cost of capital calculations

Dec 31, 2023

	Capital (fair value)¹	Weights					Cost of capital
Equity²	84,014)	84,014)	÷	90,581)	=	0.93	0.93	×	12.42%	=	11.52%
Debt and finance lease liabilities³	6,331)	6,331)	÷	90,581)	=	0.07	0.07	×	4.09% × (1 – 21.00%)	=	0.23%
Operating lease liability⁴	236)	236)	÷	90,581)	=	0.00	0.00	×	3.41% × (1 – 21.00%)	=	0.01%
Total:	90,581)					1.00					11.75%

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

¹ US$ in millions

² Equity. See details »

³ Debt and finance lease liabilities. See details »

⁴ Operating lease liability. See details »

Dec 31, 2022

	Capital (fair value)¹	Weights					Cost of capital
Equity²	79,656)	79,656)	÷	85,995)	=	0.93	0.93	×	12.42%	=	11.51%
Debt and finance lease liabilities³	6,110)	6,110)	÷	85,995)	=	0.07	0.07	×	3.95% × (1 – 21.00%)	=	0.22%
Operating lease liability⁴	229)	229)	÷	85,995)	=	0.00	0.00	×	2.78% × (1 – 21.00%)	=	0.01%
Total:	85,995)					1.00					11.73%

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

¹ US$ in millions

² Equity. See details »

³ Debt and finance lease liabilities. See details »

⁴ Operating lease liability. See details »

Dec 31, 2021

	Capital (fair value)¹	Weights					Cost of capital
Equity²	93,337)	93,337)	÷	100,972)	=	0.92	0.92	×	12.42%	=	11.48%
Debt and finance lease liabilities³	7,443)	7,443)	÷	100,972)	=	0.07	0.07	×	3.63% × (1 – 21.00%)	=	0.21%
Operating lease liability⁴	192)	192)	÷	100,972)	=	0.00	0.00	×	2.81% × (1 – 21.00%)	=	0.00%
Total:	100,972)					1.00					11.70%

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

¹ US$ in millions

² Equity. See details »

³ Debt and finance lease liabilities. See details »

⁴ Operating lease liability. See details »

Dec 31, 2020

	Capital (fair value)¹	Weights					Cost of capital
Equity²	79,030)	79,030)	÷	87,072)	=	0.91	0.91	×	12.42%	=	11.27%
Debt and finance lease liabilities³	7,839)	7,839)	÷	87,072)	=	0.09	0.09	×	3.61% × (1 – 21.00%)	=	0.26%
Operating lease liability⁴	203)	203)	÷	87,072)	=	0.00	0.00	×	3.12% × (1 – 21.00%)	=	0.01%
Total:	87,072)					1.00					11.54%

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

¹ US$ in millions

² Equity. See details »

³ Debt and finance lease liabilities. See details »

⁴ Operating lease liability. See details »

Dec 31, 2019

	Capital (fair value)¹	Weights					Cost of capital
Equity²	68,837)	68,837)	÷	75,623)	=	0.91	0.91	×	12.42%	=	11.31%
Debt and finance lease liabilities³	6,587)	6,587)	÷	75,623)	=	0.09	0.09	×	3.84% × (1 – 21.00%)	=	0.26%
Operating lease liability⁴	199)	199)	÷	75,623)	=	0.00	0.00	×	3.67% × (1 – 21.00%)	=	0.01%
Total:	75,623)					1.00					11.58%

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

¹ US$ in millions

² Equity. See details »

³ Debt and finance lease liabilities. See details »

⁴ Operating lease liability. See details »

Zoetis 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	1,053)	487)	773)	394)	431)
Invested capital²	11,550)	12,542)	11,612)	11,557)	9,838)
Performance Ratio
Economic spread ratio³	9.11%	3.88%	6.66%	3.41%	4.38%
Benchmarks
Economic Spread Ratio, Competitors⁴
AbbVie Inc.	-3.85%	5.56%	4.94%	-2.93%	7.35%
Amgen Inc.	2.88%	7.56%	7.54%	11.87%	14.07%
Bristol-Myers Squibb Co.	2.10%	-0.59%	1.65%	-13.92%	-3.59%
Danaher Corp.	-7.47%	-2.52%	-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%	-2.63%	-0.81%	0.20%	-3.69%

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 × 1,053 ÷ 11,550 = 9.11%

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.	Zoetis Inc. economic spread ratio deteriorated from 2021 to 2022 but then improved from 2022 to 2023 exceeding 2021 level.

Zoetis 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	1,053)	487)	773)	394)	431)
Revenue	8,544)	8,080)	7,776)	6,675)	6,260)
Performance Ratio
Economic profit margin²	12.32%	6.02%	9.94%	5.90%	6.88%
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%	23.70%
Bristol-Myers Squibb Co.	3.15%	-0.92%	2.86%	-29.52%	-13.78%
Danaher Corp.	-24.53%	-6.27%	-4.70%	-9.62%	-21.69%
Eli Lilly & Co.	2.88%	9.09%	11.42%	19.04%	15.27%
Gilead Sciences Inc.	10.26%	4.26%	16.00%	-8.30%	10.37%
Johnson & Johnson	0.18%	6.45%	10.93%	6.22%	4.87%
Merck & Co. Inc.	-9.77%	14.70%	17.30%	5.66%	12.99%
Pfizer Inc.	-23.31%	20.76%	12.89%	-6.86%	13.65%
Regeneron Pharmaceuticals Inc.	19.33%	24.47%	45.52%	38.17%	23.60%
Thermo Fisher Scientific Inc.	-8.81%	-4.86%	-1.65%	0.37%	-7.61%

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 ÷ Revenue
= 100 × 1,053 ÷ 8,544 = 12.32%

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.	Zoetis Inc. economic profit margin deteriorated from 2021 to 2022 but then improved from 2022 to 2023 exceeding 2021 level.

Zoetis Inc. (NYSE:ZTS)

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