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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.
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Adobe Inc. pages available for free this week:
- Common-Size Balance Sheet: Assets
- Analysis of Long-term (Investment) Activity Ratios
- Analysis of Reportable Segments
- Enterprise Value to EBITDA (EV/EBITDA)
- Net Profit Margin since 2005
- Current Ratio since 2005
- Price to Earnings (P/E) since 2005
- Price to Sales (P/S) since 2005
- Analysis of Debt
- Aggregate Accruals
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Economic Profit
12 months ended: | Nov 29, 2024 | Dec 1, 2023 | Dec 2, 2022 | Dec 3, 2021 | Nov 27, 2020 | Nov 29, 2019 | |
---|---|---|---|---|---|---|---|
Net operating profit after taxes (NOPAT)1 | |||||||
Cost of capital2 | |||||||
Invested capital3 | |||||||
Economic profit4 |
Based on: 10-K (reporting date: 2024-11-29), 10-K (reporting date: 2023-12-01), 10-K (reporting date: 2022-12-02), 10-K (reporting date: 2021-12-03), 10-K (reporting date: 2020-11-27), 10-K (reporting date: 2019-11-29).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2024 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= – × =
The financial data reveals several notable trends over the analyzed periods.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited a strong growth trend from 2019 through 2021, increasing from 3,448 million USD to a peak of 6,201 million USD. However, following this peak, there was a decline in 2022 and the subsequent years, with values falling to 5,690 million USD, then 5,413 million USD, and further down to 5,235 million USD by 2024. This suggests some pressure on operating profitability in the more recent years.
- Cost of Capital
- The cost of capital remained relatively stable throughout the periods, fluctuating slightly between 17.5% and 17.77%. This indicates a consistent required rate of return for invested capital without significant market or company-specific changes affecting this metric.
- Invested Capital
- Invested capital steadily increased from 17,466 million USD in 2019 to 21,130 million USD in 2022. After 2022, there was a more pronounced rise to 24,970 million USD in 2023, followed by a slight decrease to 24,709 million USD in 2024. This pattern reflects ongoing investment in the business, albeit with a minor pullback in the last period.
- Economic Profit
- Economic profit showed significant fluctuations. It nearly doubled from 376 million USD in 2019 to 761 million USD in 2020, then surged sharply to 2,479 million USD in 2021. However, after this peak, economic profit declined progressively to 1,979 million USD in 2022, then sharply to 977 million USD in 2023, and slightly further to 912 million USD in 2024. Despite remaining positive, this downward trend since 2021 indicates a decrease in value creation above the cost of capital.
Overall, the data depicts a phase of rapid profitability and economic profit growth until 2021, followed by a period of contraction in both operating profit and economic profit despite stable capital costs. Meanwhile, invested capital has generally increased, suggesting continued investments that, as of the latest periods, have not translated into higher economic profit.
Net Operating Profit after Taxes (NOPAT)
Based on: 10-K (reporting date: 2024-11-29), 10-K (reporting date: 2023-12-01), 10-K (reporting date: 2022-12-02), 10-K (reporting date: 2021-12-03), 10-K (reporting date: 2020-11-27), 10-K (reporting date: 2019-11-29).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowances for doubtful accounts.
3 Addition of increase (decrease) in deferred revenue.
4 Addition of increase (decrease) in equity equivalents to net income.
5 2024 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= × =
6 2024 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= × 21.00% =
7 Addition of after taxes interest expense to net income.
8 2024 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= × 21.00% =
9 Elimination of after taxes investment income.
- Net Income
- The net income shows a notable overall increasing trend from 2019 to 2024. Starting at 2,951 million USD in 2019, it more than doubled by 2020 to 5,260 million USD, indicating a significant improvement in profitability. A slight decline is observed in 2021 and 2022, with net income values of 4,822 million USD and 4,756 million USD respectively. Nevertheless, from 2022 onward, net income resumes growth, reaching 5,428 million USD in 2023 and slightly increasing further to 5,560 million USD in 2024. This pattern suggests resilience and recovery after a brief downturn.
- Net Operating Profit After Taxes (NOPAT)
- The NOPAT figures demonstrate irregular fluctuations across the observed period. Initially, NOPAT increased steadily from 3,448 million USD in 2019 to 4,082 million USD in 2020. It then peaks sharply in 2021 at 6,201 million USD, representing a substantial rise in operating profit. This is followed by a decline in subsequent years: 5,690 million USD in 2022, 5,413 million USD in 2023, and further down to 5,235 million USD in 2024. Despite the decrease after 2021, the NOPAT values remain higher than the starting point in 2019, indicating a net improvement over the longer term.
- Overall Insights
- The comparison between net income and NOPAT reveals that while operating profitability experienced a pronounced peak in 2021, net income was highest in 2020 and showed more sustained growth in the latter years. The dip in both net income and NOPAT during 2021-2022 suggests external or internal factors affecting operational efficiency or market conditions during that period. The recovery in net income by 2023 and 2024 suggests successful adaptations or improvements, although NOPAT did not fully rebound to its peak levels. This indicates that while overall profitability has stabilized at a high level, operating profit margins may have tightened.
Cash Operating Taxes
Based on: 10-K (reporting date: 2024-11-29), 10-K (reporting date: 2023-12-01), 10-K (reporting date: 2022-12-02), 10-K (reporting date: 2021-12-03), 10-K (reporting date: 2020-11-27), 10-K (reporting date: 2019-11-29).
- Provision for (benefit from) income taxes
- The provision for income taxes exhibited notable fluctuations over the observed periods. Initially, in 2019, the provision was positive at 253 million USD. However, in 2020, there was a significant shift to a negative figure of -1084 million USD, indicating a tax benefit during that year. Following this, the provision returned to positive values, increasing to 883 million USD in 2021 and continuing to rise to 1252 million USD in 2022. The upward trend persisted in 2023 and 2024, stabilizing at 1371 million USD. This pattern suggests volatility in tax expenses or benefits, with a marked recovery and steady increase in tax provision in the latter years.
- Cash operating taxes
- Cash operating taxes have shown a consistent and robust upward trend throughout the entire period. Starting from 262 million USD in 2019, the figure increased substantially each year, reaching 435 million USD in 2020, then 710 million USD in 2021, and further rising to 943 million USD in 2022. The rate of increase accelerated in 2023 and 2024, with amounts jumping to 1761 and 1795 million USD respectively. This steady and significant growth in cash operating tax payments reflects increasing tax liabilities or higher cash outflows related to tax settlements over time.
Invested Capital
Based on: 10-K (reporting date: 2024-11-29), 10-K (reporting date: 2023-12-01), 10-K (reporting date: 2022-12-02), 10-K (reporting date: 2021-12-03), 10-K (reporting date: 2020-11-27), 10-K (reporting date: 2019-11-29).
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 deferred revenue.
5 Addition of equity equivalents to stockholders’ equity.
6 Removal of accumulated other comprehensive income.
7 Subtraction of capital projects in-progress.
8 Subtraction of short-term investments.
The financial data exhibits notable trends in Adobe Inc.'s debt, equity, and invested capital over the six-year span.
- Total reported debt & leases
- The reported debt and lease obligations demonstrated a slight downward trend from November 2019 to December 2023, decreasing from 4,736 million USD to 4,080 million USD. However, a significant increase is observed in November 2024, rising sharply to 6,056 million USD. This suggests a considerable increase in the company's leverage or lease commitments in the most recent year under review.
- Stockholders’ equity
- Stockholders’ equity showed a consistent upward trajectory from 10,530 million USD in November 2019, peaking at 16,518 million USD by December 2023. In the latest period, November 2024, equity declined to 14,105 million USD, indicating a reduction in net asset value available to shareholders after several years of growth.
- Invested capital
- Invested capital steadily increased from 17,466 million USD in November 2019 to a high point of 24,970 million USD in December 2023. The figure slightly declined to 24,709 million USD in November 2024, reflecting a marginal contraction of the total capital utilized in the business operations after a prolonged expansion phase.
Cost of Capital
Adobe Inc., cost of capital calculations
Capital (fair value)1 | Weights | Cost of capital | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity2 | ÷ | = | × | = | |||||||||
Debt, including current portion3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Total: |
Based on: 10-K (reporting date: 2024-11-29).
1 US$ in millions
2 Equity. See details »
3 Debt, including current portion. See details »
4 Operating lease liability. See details »
Capital (fair value)1 | Weights | Cost of capital | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity2 | ÷ | = | × | = | |||||||||
Debt, including current portion3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Total: |
Based on: 10-K (reporting date: 2023-12-01).
1 US$ in millions
2 Equity. See details »
3 Debt, including current portion. See details »
4 Operating lease liability. See details »
Capital (fair value)1 | Weights | Cost of capital | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity2 | ÷ | = | × | = | |||||||||
Debt, including current portion3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Total: |
Based on: 10-K (reporting date: 2022-12-02).
1 US$ in millions
2 Equity. See details »
3 Debt, including current portion. See details »
4 Operating lease liability. See details »
Capital (fair value)1 | Weights | Cost of capital | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity2 | ÷ | = | × | = | |||||||||
Debt, including current portion3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Total: |
Based on: 10-K (reporting date: 2021-12-03).
1 US$ in millions
2 Equity. See details »
3 Debt, including current portion. See details »
4 Operating lease liability. See details »
Capital (fair value)1 | Weights | Cost of capital | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity2 | ÷ | = | × | = | |||||||||
Debt, including current portion3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Total: |
Based on: 10-K (reporting date: 2020-11-27).
1 US$ in millions
2 Equity. See details »
3 Debt, including current portion. See details »
4 Operating lease liability. See details »
Capital (fair value)1 | Weights | Cost of capital | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity2 | ÷ | = | × | = | |||||||||
Debt, including current portion3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Total: |
Based on: 10-K (reporting date: 2019-11-29).
1 US$ in millions
2 Equity. See details »
3 Debt, including current portion. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Nov 29, 2024 | Dec 1, 2023 | Dec 2, 2022 | Dec 3, 2021 | Nov 27, 2020 | Nov 29, 2019 | ||
---|---|---|---|---|---|---|---|
Selected Financial Data (US$ in millions) | |||||||
Economic profit1 | |||||||
Invested capital2 | |||||||
Performance Ratio | |||||||
Economic spread ratio3 | |||||||
Benchmarks | |||||||
Economic Spread Ratio, Competitors4 | |||||||
Accenture PLC | |||||||
AppLovin Corp. | |||||||
Cadence Design Systems Inc. | |||||||
CrowdStrike Holdings Inc. | |||||||
Datadog Inc. | |||||||
International Business Machines Corp. | |||||||
Intuit Inc. | |||||||
Microsoft Corp. | |||||||
Oracle Corp. | |||||||
Palantir Technologies Inc. | |||||||
Palo Alto Networks Inc. | |||||||
Salesforce Inc. | |||||||
ServiceNow Inc. | |||||||
Synopsys Inc. | |||||||
Workday Inc. |
Based on: 10-K (reporting date: 2024-11-29), 10-K (reporting date: 2023-12-01), 10-K (reporting date: 2022-12-02), 10-K (reporting date: 2021-12-03), 10-K (reporting date: 2020-11-27), 10-K (reporting date: 2019-11-29).
1 Economic profit. See details »
2 Invested capital. See details »
3 2024 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × ÷ =
4 Click competitor name to see calculations.
- Economic Profit
- The economic profit exhibited significant fluctuations over the analyzed periods. It more than doubled from 376 million US dollars in late 2019 to 761 million in 2020, followed by a substantial increase to 2,479 million in 2021. However, a downward trend then emerged, with economic profit declining to 1,979 million in 2022, further decreasing to 977 million in 2023, and slightly dropping again to 912 million in 2024. This indicates a peak of economic profit in 2021, followed by consecutive years of reduction.
- Invested Capital
- Invested capital showed a consistent growth trend throughout the period, increasing steadily from 17,466 million US dollars in 2019 to 24,709 million in 2024. There were no periods of decline for this metric, with the largest increments seen between 2022 and 2023. This continuous increase suggests ongoing investment or asset accumulation in recent years.
- Economic Spread Ratio
- The economic spread ratio followed a pattern closely aligned with economic profit but exhibited higher variability. It rose from 2.15% in 2019 to a peak of 11.77% in 2021, then declined in the subsequent years to 3.69% in 2024. The ratio’s peak in 2021 indicates the highest relative return over the cost of capital during the period analyzed, with a marked decrease afterward corresponding to the reduction in economic profit.
- Overall Analysis
- The data suggests that while invested capital consistently increased, indicating continued resource allocation or expansion, profitability in terms of economic profit and economic spread ratio peaked mid-period around 2021 before diminishing in later years. This might reflect changing market conditions, operational challenges, or increased costs impacting returns after 2021. The divergence between growing invested capital and declining economic spread ratio and profit in the most recent years could be a point of focus for further operational or strategic review.
Economic Profit Margin
Nov 29, 2024 | Dec 1, 2023 | Dec 2, 2022 | Dec 3, 2021 | Nov 27, 2020 | Nov 29, 2019 | ||
---|---|---|---|---|---|---|---|
Selected Financial Data (US$ in millions) | |||||||
Economic profit1 | |||||||
Revenue | |||||||
Add: Increase (decrease) in deferred revenue | |||||||
Adjusted revenue | |||||||
Performance Ratio | |||||||
Economic profit margin2 | |||||||
Benchmarks | |||||||
Economic Profit Margin, Competitors3 | |||||||
Accenture PLC | |||||||
AppLovin Corp. | |||||||
Cadence Design Systems Inc. | |||||||
CrowdStrike Holdings Inc. | |||||||
Datadog Inc. | |||||||
International Business Machines Corp. | |||||||
Intuit Inc. | |||||||
Microsoft Corp. | |||||||
Oracle Corp. | |||||||
Palantir Technologies Inc. | |||||||
Palo Alto Networks Inc. | |||||||
Salesforce Inc. | |||||||
ServiceNow Inc. | |||||||
Synopsys Inc. | |||||||
Workday Inc. |
Based on: 10-K (reporting date: 2024-11-29), 10-K (reporting date: 2023-12-01), 10-K (reporting date: 2022-12-02), 10-K (reporting date: 2021-12-03), 10-K (reporting date: 2020-11-27), 10-K (reporting date: 2019-11-29).
1 Economic profit. See details »
2 2024 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted revenue
= 100 × ÷ =
3 Click competitor name to see calculations.
The financial data reveals several important trends over the observed six-year period. The adjusted revenue shows a consistent upward trajectory, increasing steadily from approximately $11.6 billion to over $21.8 billion. This represents a significant expansion in the company's sales or service income, reflecting growth in its operational scale or market demand.
In contrast, the economic profit demonstrates a more volatile pattern. It starts at $376 million, nearly doubles in the second year, and then reaches a peak of $2.48 billion in the third year. After this peak, economic profit declines notably over the subsequent years, ending at $912 million, which is still higher than the initial value but substantially lower than the peak. This fluctuation suggests that while revenue has been growing consistently, profitability in terms of economic profit has faced challenges after a peak performance.
The economic profit margin, which reflects the ratio of economic profit relative to adjusted revenue, mirrors the volatility seen in economic profit. It improved significantly up to the third year, hitting a high of approximately 14.66%, before trending downward to 4.18% in the most recent year. This decline indicates that the company’s efficiency in converting revenue into economic profit has decreased, despite continuous revenue growth.
- Adjusted Revenue Trend
- Consistent and strong growth over six years, nearly doubling from $11.6 billion to $21.8 billion.
- Economic Profit Trend
- Increased substantially until the third year, peaking at $2.48 billion, followed by a sharp decline, ending at $912 million.
- Economic Profit Margin Trend
- Rose significantly to a peak margin of 14.66%, then declined steadily to around 4.18%, indicating reduced profitability efficiency.
Overall, the data suggests robust top-line growth but challenges in maintaining economic profit levels and margin efficiency in recent years. This disparity between rising revenues and declining economic profit margin could invite further examination into cost structures, investment strategies, or external market conditions affecting profitability.