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.
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- Cash Flow Statement
- Common-Size Income Statement
- Common-Size Balance Sheet: Assets
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Geographic Areas
- Common Stock Valuation Ratios
- Operating Profit Margin since 2005
- Return on Assets (ROA) since 2005
- Price to Sales (P/S) since 2005
- Aggregate Accruals
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Economic Profit
Align Technology Inc., economic profit calculation
US$ in thousands
| 12 months ended: | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | |
|---|---|---|---|---|---|---|
| Net operating profit after taxes (NOPAT)1 | ||||||
| Cost of capital2 | ||||||
| Invested capital3 | ||||||
| Economic profit4 | ||||||
Based on: 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), 10-K (reporting date: 2018-12-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2022 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= – × =
The period under review demonstrates fluctuating economic profit performance. Net operating profit after taxes (NOPAT) exhibited initial growth followed by significant volatility, while the cost of capital remained relatively stable. Invested capital consistently increased throughout the period, contributing to shifts in economic profit.
- NOPAT Trend
- NOPAT increased from US$520.148 million in 2018 to US$629.227 million in 2019, representing a substantial gain. However, 2020 saw a decline to US$531.854 million. A significant recovery occurred in 2021, with NOPAT reaching US$1,236.388 million, the highest value in the observed period. This was followed by a considerable decrease in 2022, falling to US$536.671 million.
- Cost of Capital
- The cost of capital remained remarkably consistent across the five years, fluctuating within a narrow range between 24.41% and 24.50%. This stability suggests a consistent risk profile and financing structure during the period.
- Invested Capital Trend
- Invested capital showed a consistent upward trend, increasing from US$1,516.250 million in 2018 to US$3,344.477 million in 2022. The largest increase occurred between 2019 and 2020, and again between 2020 and 2021, indicating substantial capital deployment during those years.
- Economic Profit Analysis
- Economic profit mirrored the volatility observed in NOPAT. Positive economic profit was recorded in 2018 (US$150.022 million) and 2019 (US$256.306 million). A negative economic profit of US$70.544 million was observed in 2020. The largest economic profit occurred in 2021 (US$504.640 million), coinciding with the peak in NOPAT. However, 2022 experienced a substantial negative economic profit of US$280.002 million, despite a NOPAT value similar to that of 2019, likely due to the continued increase in invested capital.
The observed fluctuations in economic profit suggest a sensitivity to NOPAT changes, coupled with the impact of increasing invested capital. While the cost of capital remained stable, the growth in invested capital appears to have amplified the effect of NOPAT declines, resulting in negative economic profit in 2020 and 2022.
Net Operating Profit after Taxes (NOPAT)
Align Technology Inc., NOPAT calculation
US$ in thousands
Based on: 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), 10-K (reporting date: 2018-12-31).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowance for doubtful accounts.
3 Addition of increase (decrease) in deferred revenues.
4 Addition of increase (decrease) in accrued warranty.
5 Addition of increase (decrease) in equity equivalents to net income.
6 2022 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= × =
7 2022 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= × 21.00% =
8 Addition of after taxes interest expense to net income.
9 2022 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= × 21.00% =
10 Elimination of after taxes investment income.
- Net Income
- Net income exhibited significant fluctuations over the analyzed period. Starting at 400,235 thousand USD in 2018, it increased moderately to 442,776 thousand USD in 2019. A substantial rise occurred in 2020, reaching a peak of 1,775,888 thousand USD. However, this peak was followed by a sharp decline in 2021 to 772,020 thousand USD, and the downward trend continued in 2022, with net income lowering further to 361,573 thousand USD. This pattern indicates a peak in profitability in 2020, followed by notable reductions in subsequent years.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT shows a generally variable pattern with less extreme fluctuations compared to net income. It started at 520,148 thousand USD in 2018, growing to 629,227 thousand USD in 2019. Subsequently, it declined to 531,854 thousand USD in 2020 but then experienced a marked increase in 2021, reaching 1,236,388 thousand USD. In 2022, NOPAT decreased significantly to 536,671 thousand USD, approximating earlier levels. This suggests the company experienced variations in operational efficiency and profitability, with a notable peak in 2021 before retreating the following year.
- Overall Observations
- Both net income and NOPAT peaked at different points within the timeframe, with net income reaching its highest in 2020 and NOPAT peaking in 2021. The trends highlight a period of exceptional profitability followed by sharp declines that suggest potential challenges in maintaining earnings growth or operational efficiency in recent years. The divergence in peak timings between net income and NOPAT may indicate differences in non-operating factors affecting profitability versus core operating performance.
Cash Operating Taxes
Align Technology Inc., cash operating taxes calculation
US$ in thousands
Based on: 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), 10-K (reporting date: 2018-12-31).
The financial data reveals notable fluctuations in the provision for income taxes and cash operating taxes over the five-year period ending in 2022. A detailed examination of these figures uncovers several trends and significant changes.
- Provision for (benefit from) Income Taxes
-
The provision demonstrates high volatility across the analyzed years. It started at approximately $57.7 million in 2018 and showed a significant increase to $112.3 million in 2019, indicating a rising tax expense or provision for that year.
In 2020, there is a dramatic decrease resulting in a benefit recorded at about -$1.4 billion. This negative figure suggests the presence of substantial tax benefits or credits, which significantly reduced the company's tax expense for that year.
Following this, the provision reverted to positive figures in 2021 and 2022, at $240.4 million and $237.5 million respectively, stabilizing around these levels but still significantly higher than the initial years.
- Cash Operating Taxes
-
Cash operating taxes showed a generally increasing trend throughout the period. Beginning at $66.3 million in 2018, there was a modest rise to $111.9 million in 2019.
In 2020, despite the large benefit observed in the provision for income taxes, cash operating taxes decreased to $93.7 million, which could reflect timing differences, tax deferrals, or other operational tax management strategies.
From 2020 onward, cash operating taxes increased substantially to $228.6 million in 2021 and further to $279.0 million in 2022, indicating an increasing cash outflow related to income taxes consistent with the return to positive provisions.
In summary, the provision for income taxes shows significant year-to-year volatility with a major tax benefit recorded in 2020, whereas cash operating taxes have increased steadily over the latter part of the period. The divergence in 2020 between the provision and cash taxes suggests the influence of non-cash tax benefits or deferred tax assets impacting the provision without corresponding immediate cash tax relief.
Invested Capital
Align Technology Inc., invested capital calculation (financing approach)
US$ in thousands
Based on: 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), 10-K (reporting date: 2018-12-31).
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 deferred revenues.
5 Addition of accrued warranty.
6 Addition of equity equivalents to stockholders’ equity.
7 Removal of accumulated other comprehensive income.
8 Subtraction of construction in progress.
9 Subtraction of marketable securities.
Over the five-year period ending December 31, 2022, several notable trends can be observed in the financial metrics analyzed.
- Total reported debt & leases
-
This metric exhibited some volatility during the period. Initially, there was a significant decrease from approximately 106.7 million in 2018 to 59.2 million in 2019. However, starting from 2020, the debt levels began to rise again, reaching approximately 86.2 million, then increasing substantially to around 125.4 million by 2021, and stabilizing close to this level at approximately 126.9 million in 2022. This pattern indicates a strategic increase in leveraging after 2019, potentially to finance growth or investments.
- Stockholders’ equity
-
There was a consistent and strong upward trend in stockholders’ equity throughout the period, with values growing steadily each year. The value increased from approximately 1.25 billion in 2018 to roughly 1.35 billion in 2019, then surged considerably to about 3.23 billion in 2020. The growth continued, albeit at a slower pace, reaching around 3.62 billion in 2021 and slightly declining to near 3.60 billion in 2022. This indicates significant capital accumulation and possibly successful retained earnings or equity financing activities over the period, with a minor contraction in the last year.
- Invested capital
-
Invested capital showed a steady and marked increase over the five-year timeframe. Starting at about 1.52 billion in both 2018 and 2019, invested capital rose sharply to approximately 2.46 billion in 2020. The upward trend persisted, with invested capital reaching approximately 2.99 billion in 2021 and continuing to climb to around 3.34 billion in 2022. This increase suggests ongoing investments into the company’s assets, operations, or growth initiatives, reflecting expansion or scaling efforts.
Cost of Capital
Align Technology Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Operating lease liability3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2022-12-31).
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Operating lease liability3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2021-12-31).
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Operating lease liability3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2020-12-31).
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Operating lease liability3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2019-12-31).
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Operating lease liability3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2018-12-31).
Economic Spread Ratio
Align Technology Inc., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Economic profit1 | ||||||
| Invested capital2 | ||||||
| Performance Ratio | ||||||
| Economic spread ratio3 | ||||||
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Abbott Laboratories | ||||||
| Elevance Health Inc. | ||||||
| Intuitive Surgical Inc. | ||||||
| Medtronic PLC | ||||||
| UnitedHealth Group Inc. | ||||||
Based on: 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), 10-K (reporting date: 2018-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2022 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × ÷ =
4 Click competitor name to see calculations.
The economic spread ratio exhibited considerable fluctuation between 2018 and 2022. Initial values indicated a positive spread, which subsequently declined, turned negative, and then experienced another period of substantial positive movement before declining again. This suggests inconsistency in the company’s ability to generate returns exceeding its cost of capital over the analyzed period.
- Economic Spread Ratio Trend
- In 2018, the economic spread ratio stood at 9.89%. This increased significantly to 16.81% in 2019, indicating improved profitability relative to invested capital. However, a substantial reversal occurred in 2020, with the ratio falling to -2.87%, signifying that returns were not covering the cost of capital. A strong recovery followed in 2021, with the ratio reaching 16.87%, mirroring the performance observed in 2019. The final period, 2022, saw a considerable decline to -8.37%, indicating a return to underperformance relative to invested capital.
The economic spread ratio’s volatility correlates with the fluctuations in economic profit. Positive economic profit values in 2018, 2019, and 2021 align with positive spread ratios, while negative economic profit in 2020 and 2022 correspond with negative spread ratios. This relationship confirms that the economic spread ratio is directly influenced by the company’s ability to generate profit above its cost of capital.
- Invested Capital
- Invested capital consistently increased throughout the period, rising from US$1,516,250 thousand in 2018 to US$3,344,477 thousand in 2022. This growth in invested capital occurred alongside the fluctuating economic spread ratio, suggesting that increased investment did not consistently translate into improved returns relative to the capital employed.
The observed pattern suggests that while the company has been increasing its investment, its ability to generate returns exceeding its cost of capital has been inconsistent. The negative economic spread ratios in 2020 and 2022 warrant further investigation to understand the underlying factors contributing to these periods of underperformance.
Economic Profit Margin
Align Technology Inc., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Economic profit1 | ||||||
| Net revenues | ||||||
| Add: Increase (decrease) in deferred revenues | ||||||
| Adjusted net revenues | ||||||
| Performance Ratio | ||||||
| Economic profit margin2 | ||||||
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Abbott Laboratories | ||||||
| Elevance Health Inc. | ||||||
| Intuitive Surgical Inc. | ||||||
| Medtronic PLC | ||||||
| UnitedHealth Group Inc. | ||||||
Based on: 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), 10-K (reporting date: 2018-12-31).
1 Economic profit. See details »
2 2022 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted net revenues
= 100 × ÷ =
3 Click competitor name to see calculations.
The economic profit margin exhibited considerable fluctuation between 2018 and 2022. Initial years showed positive and increasing margins, followed by periods of negative economic profit margins. This suggests inconsistency in the company’s ability to generate returns exceeding its cost of capital.
- Economic Profit Margin Trend
- In 2018, the economic profit margin stood at 7.13%. This increased to 9.87% in 2019, indicating improved profitability relative to capital employed. However, a significant decline occurred in 2020, with the margin falling to -2.60%, signifying economic loss. A substantial recovery was observed in 2021, reaching 11.46%, the highest value within the observed period. This positive trend was not sustained, as the margin decreased to -7.09% in 2022.
The economic profit margin’s volatility appears to correlate with fluctuations in economic profit. The negative margins in 2020 and 2022 directly correspond to negative economic profit values for those years. This indicates that, during those periods, the company’s operating profits were insufficient to cover the cost of capital.
- Relationship to Adjusted Net Revenues
- Adjusted net revenues generally increased from 2018 to 2021, from US$2,104,380 thousand to US$4,401,700 thousand. However, despite this revenue growth, the economic profit margin did not consistently improve. The decrease in margin in 2022 occurred alongside a decrease in adjusted net revenues, from US$4,401,700 thousand in 2021 to US$3,949,386 thousand in 2022, suggesting that revenue decline exacerbated the negative economic profit.
The observed pattern suggests that while revenue growth is a factor, it is not the sole determinant of economic profitability. Cost of capital management and operational efficiency play a crucial role in translating revenue into economic profit, as evidenced by the negative margins despite substantial revenue figures in certain years.