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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- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Short-term (Operating) Activity Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Enterprise Value (EV)
- Capital Asset Pricing Model (CAPM)
- Dividend Discount Model (DDM)
- Present Value of Free Cash Flow to Equity (FCFE)
- Selected Financial Data since 2005
- Total Asset Turnover since 2005
- Price to Sales (P/S) since 2005
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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 financial performance of Align Technology Inc. between 2018 and 2022 is characterized by significant volatility in economic profit, driven by erratic fluctuations in Net Operating Profit After Taxes (NOPAT) against a backdrop of steadily increasing invested capital.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited extreme instability over the five-year period. After a moderate increase from 520,148 thousand USD in 2018 to 629,227 thousand USD in 2019, a decline occurred in 2020. A substantial spike was recorded in 2021, reaching a peak of 1,236,388 thousand USD, before sharply retreating to 536,671 thousand USD in 2022, returning to levels similar to those seen in 2018 and 2020.
- Invested Capital Trends
- There is a consistent upward trend in invested capital. From 2018 to 2019, capital remained relatively flat around 1.5 million USD. However, from 2020 onward, a period of aggressive capital expansion is evident, with invested capital rising to 2,459,204 thousand USD in 2020 and continuing to grow to 3,344,477 thousand USD by the end of 2022. This represents more than a doubling of the capital base over the analyzed period.
- Cost of Capital Stability
- The cost of capital remained remarkably stable, fluctuating minimally between 24.17% and 24.26%. This consistency indicates a constant hurdle rate that the company's operating returns had to exceed to create economic value.
- Economic Profit Analysis
- Economic profit demonstrated a cyclical and volatile pattern, alternating between value creation and value destruction. Positive economic profit was recorded in 2018 and 2019, followed by a shift to a negative value of -64,658 thousand USD in 2020. A significant recovery occurred in 2021, yielding the highest economic profit in the series at 511,789 thousand USD. However, 2022 saw the most severe decline, with economic profit falling to -272,025 thousand USD.
The divergence between the steadily increasing invested capital and the volatile NOPAT suggests that the growth in the capital base has not been matched by sustainable growth in operating returns. Consequently, the company struggled to maintain a positive spread over its cost of capital, leading to intermittent periods of economic value destruction, most notably 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 analysis of Economic Value Added (EVA) metrics between 2018 and 2022 reveals a period of high volatility in value creation, occurring alongside a consistent and significant expansion of the invested capital base.
- Invested Capital Trends
- A steady upward trajectory is observed in invested capital, which increased from 1,516,250 thousand USD in 2018 to 3,344,477 thousand USD by 2022. This growth indicates a continuous increase in the total capital deployed into the business over the five-year period.
- Economic Profit Fluctuations
- Economic profit exhibited substantial volatility, characterized by alternating periods of value creation and value destruction. Following growth in 2018 and 2019, a deficit of 64,658 thousand USD was recorded in 2020. A significant recovery occurred in 2021, with economic profit peaking at 511,789 thousand USD, before declining sharply to a deficit of 272,025 thousand USD in 2022.
- Economic Spread Ratio Analysis
- The economic spread ratio mirrored the volatility of economic profit, reflecting the efficiency of capital utilization relative to the cost of capital. The ratio improved from 10.13% in 2018 to 17.05% in 2019, then fell to -2.63% in 2020. A return to value creation was noted in 2021 at 17.11%, which was subsequently followed by a contraction to -8.13% in 2022. This pattern indicates an inconsistent ability to maintain a positive spread over the cost of capital across the analyzed timeframe.
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 financial performance between 2018 and 2022 is characterized by significant volatility in value creation, despite a general expansion in adjusted net revenues. The transition between positive and negative economic profit indicates periods where the return on invested capital fluctuated significantly relative to the cost of capital.
- Economic Profit Margin Volatility
- The economic profit margin exhibited an erratic trajectory, fluctuating between a peak of 11.63% in 2021 and a low of -6.89% in 2022. An initial improvement from 7.30% in 2018 to 10.01% in 2019 was followed by a sharp reversal in 2020, where the margin dropped to -2.38%, signaling a period of economic value destruction.
- Economic Profit Trends
- Absolute economic profit followed a non-linear pattern. Growth was observed from 2018 to 2019, followed by a deficit of US$ 64,658 thousand in 2020. A substantial recovery occurred in 2021, with economic profit reaching its zenith at US$ 511,789 thousand, before declining sharply to a deficit of US$ 272,025 thousand in 2022.
- Revenue and Value Creation Correlation
- Adjusted net revenues showed a consistent upward trend from 2018 through 2021, increasing from US$ 2,104,380 thousand to US$ 4,401,700 thousand. However, revenue growth did not consistently correlate with economic profit. The most notable divergence occurred in 2022, where a moderate revenue contraction to US$ 3,949,386 thousand coincided with a severe collapse in economic profit, suggesting that operating gains were insufficient to cover the cost of capital during that period.