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.
Economic Profit
Align Technology Inc., economic profit 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 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
= 536,671 – 24.13% × 3,344,477 = -270,318
The analysis of economic profit from 2018 to 2022 reveals a pattern of high volatility, with the company alternating between periods of value creation and value destruction. While the initial years showed positive economic profit, the latter period is characterized by significant fluctuations, ending in a substantial economic loss in 2022.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited significant instability over the five-year period. After a steady increase from 2018 to 2019, a slight decline occurred in 2020, followed by a sharp surge to a peak of US$ 1,236,388 thousand in 2021. However, this gain was not sustained, as 2022 saw a precipitous decline back to US$ 536,671 thousand, nearly returning to 2018 levels.
- Invested Capital
- There is a consistent and aggressive upward trend in invested capital. The capital base grew from US$ 1,516,250 thousand in 2018 to US$ 3,344,477 thousand by 2022. A notable acceleration in capital deployment occurred between 2019 and 2020, where invested capital increased by approximately 61% in a single year.
- Cost of Capital
- The cost of capital remained remarkably static throughout the analyzed timeframe, fluctuating minimally between 24.12% and 24.21%. This stability indicates that the changes in economic profit were driven entirely by operational performance and capital investment levels rather than shifts in the weighted average cost of capital.
- Economic Profit Trends
- Economic profit demonstrated extreme variance, shifting from a surplus of US$ 260,729 thousand in 2019 to a deficit of US$ 63,399 thousand in 2020. While 2021 marked a period of peak value creation with an economic profit of US$ 513,319 thousand, the company ended the period in a state of value destruction, reporting an economic loss of US$ 270,318 thousand in 2022. This suggests that the return on invested capital in 2022 failed to meet the 24.13% cost of capital threshold.
The diverging trends between steadily increasing invested capital and volatile NOPAT created a widening gap in the company's ability to generate economic value. The substantial increase in the capital base heightened the operational earnings required to achieve a positive economic profit, contributing to the significant deficit observed in the final year of the analysis.
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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
= 126,908 × 3.50% = 4,442
7 2022 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 4,442 × 21.00% = 933
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
= 5,367 × 21.00% = 1,127
10 Elimination of after taxes investment income.
The financial performance between 2018 and 2022 is characterized by significant volatility in both Net Operating Profit After Taxes (NOPAT) and Net Income, showing a recurring divergence between core operational profitability and final bottom-line results.
- NOPAT Trends and Operational Performance
- NOPAT exhibited a steady increase between 2018 and 2019, rising from US$ 520,148 thousand to US$ 629,227 thousand. A marginal contraction occurred in 2020, followed by a substantial peak in 2021 where the figure reached US$ 1,236,388 thousand. This peak represents the highest level of operational profitability in the analyzed period, although a sharp correction followed in 2022, with NOPAT declining to US$ 536,671 thousand, effectively returning to 2018 levels.
- Net Income Volatility
- Net Income demonstrated an atypical trajectory, remaining relatively stable through 2019 before experiencing an anomalous surge in 2020 to US$ 1,775,888 thousand. This spike was not mirrored by NOPAT, suggesting the impact of non-operating items. Following this peak, Net Income entered a consistent downward trend, falling to US$ 772,020 thousand in 2021 and further decreasing to US$ 361,573 thousand by the end of 2022, which is the lowest value in the five-year period.
- Analysis of Divergence between NOPAT and Net Income
- A significant discrepancy is observed in 2020, where Net Income vastly exceeded NOPAT, indicating the presence of substantial non-operating income or one-time tax benefits that inflated the bottom line despite stagnant operating profit. In contrast, 2021 showed a reversal of this pattern; NOPAT significantly outperformed Net Income, suggesting strong core operational efficiency that was offset by significant non-operating expenses or tax liabilities. By 2022, while both metrics declined, NOPAT remained higher than Net Income, reflecting a trend where operational earnings provided a stronger buffer than final net profitability.
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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).
An analysis of tax-related outflows from 2018 to 2022 reveals a consistent long-term increase in cash operating taxes, contrasted by extreme volatility in the accounting provisions for income taxes. While cash tax payments grew steadily over the five-year period, the provision for income taxes experienced a significant anomaly in 2020.
- Cash Operating Tax Trajectory
- Cash operating taxes exhibited a general upward trend, rising from 66.3 million in 2018 to 279.0 million in 2022. A brief deceleration occurred in 2020, with payments decreasing to 93.7 million from 111.9 million in 2019, before accelerating sharply in 2021 and 2022. This represents a total increase of approximately 321% over the analyzed period.
- Income Tax Provision Volatility
- The provision for income taxes showed significant instability. Following a moderate increase between 2018 and 2019, the 2020 fiscal year recorded a substantial tax benefit of approximately 1.4 billion. By 2021 and 2022, the provision returned to a positive expense, stabilizing between 237.5 million and 240.4 million.
- Analysis of Cash vs. Accrual Divergence
- A stark divergence between accounting provisions and cash outflows is evident in 2020. Despite the recognition of a massive tax benefit in the provision account, cash operating taxes remained a positive outflow of 93.7 million. This indicates that the accounting benefit did not translate into a cash recovery during that year. Conversely, in 2021 and 2022, the cash operating taxes and the provision for income taxes aligned more closely, suggesting a normalization of tax reporting and payment patterns.
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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.
The analysis of the capital structure reveals a significant expansion in the total invested capital deployed by the organization between 2018 and 2022. Total invested capital increased from 1,516,250 thousand USD in 2018 to 3,344,477 thousand USD in 2022, marking a substantial growth in the resource base available for generating economic value.
- Invested Capital Growth Patterns
- A period of relative stability is observed between 2018 and 2019, followed by a sharp acceleration in capital investment starting in 2020. The most pronounced increase occurred between 2019 and 2020, where invested capital rose by approximately 61%, signaling a significant scaling of operations or strategic investment during this period.
- Equity Financing Trends
- Stockholders' equity served as the primary driver for the expansion of the capital base. A notable surge is evident in 2020, with equity increasing from 1,346,169 thousand USD to 3,233,865 thousand USD. This indicates a substantial infusion of capital or a significant accumulation of retained earnings, which provided the necessary funding for the growth in invested capital.
- Debt and Lease Obligations
- Debt and lease obligations remained a minor component of the overall capital structure throughout the analyzed period. After an initial decrease in 2019 to 59,200 thousand USD, debt levels trended upward, reaching 126,908 thousand USD by 2022. Despite this increase, the reliance on debt remains low relative to the total equity, reflecting a conservative leverage profile.
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Cost of Capital
Align Technology Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 23,338,568) | 23,338,568) | ÷ | 23,465,476) | = | 0.99 | 0.99 | × | 24.25% | = | 24.11% | ||
| Operating lease liability3 | 126,908) | 126,908) | ÷ | 23,465,476) | = | 0.01 | 0.01 | × | 3.50% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 23,465,476) | 1.00 | 24.13% | ||||||||||
Based on: 10-K (reporting date: 2022-12-31).
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 40,387,418) | 40,387,418) | ÷ | 40,512,793) | = | 1.00 | 1.00 | × | 24.25% | = | 24.17% | ||
| Operating lease liability3 | 125,375) | 125,375) | ÷ | 40,512,793) | = | 0.00 | 0.00 | × | 3.20% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 40,512,793) | 1.00 | 24.18% | ||||||||||
Based on: 10-K (reporting date: 2021-12-31).
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 44,876,959) | 44,876,959) | ÷ | 44,963,139) | = | 1.00 | 1.00 | × | 24.25% | = | 24.20% | ||
| Operating lease liability3 | 86,180) | 86,180) | ÷ | 44,963,139) | = | 0.00 | 0.00 | × | 4.20% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 44,963,139) | 1.00 | 24.21% | ||||||||||
Based on: 10-K (reporting date: 2020-12-31).
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 17,195,753) | 17,195,753) | ÷ | 17,254,953) | = | 1.00 | 1.00 | × | 24.25% | = | 24.16% | ||
| Operating lease liability3 | 59,200) | 59,200) | ÷ | 17,254,953) | = | 0.00 | 0.00 | × | 4.10% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 17,254,953) | 1.00 | 24.17% | ||||||||||
Based on: 10-K (reporting date: 2019-12-31).
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 20,714,841) | 20,714,841) | ÷ | 20,821,517) | = | 0.99 | 0.99 | × | 24.25% | = | 24.12% | ||
| Operating lease liability3 | 106,676) | 106,676) | ÷ | 20,821,517) | = | 0.01 | 0.01 | × | 0.00% × (1 – 21.00%) | = | 0.00% | ||
| Total: | 20,821,517) | 1.00 | 24.12% | ||||||||||
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 | (270,318) | 513,319) | (63,399) | 260,729) | 154,414) | |
| Invested capital2 | 3,344,477) | 2,990,610) | 2,459,204) | 1,524,413) | 1,516,250) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -8.08% | 17.16% | -2.58% | 17.10% | 10.18% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Abbott Laboratories | -2.43% | -1.95% | — | — | — | |
| Elevance Health Inc. | 0.14% | 1.46% | — | — | — | |
| Intuitive Surgical Inc. | -3.21% | 12.41% | — | — | — | |
| Medtronic PLC | -5.06% | -6.71% | — | — | — | |
| UnitedHealth Group Inc. | 4.06% | 3.91% | — | — | — | |
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 × -270,318 ÷ 3,344,477 = -8.08%
4 Click competitor name to see calculations.
The financial performance between 2018 and 2022 is characterized by a steady expansion of the capital base contrasted with significant volatility in economic profit and the resulting economic spread ratio.
- Invested Capital Trends
- Invested capital exhibited a consistent upward trajectory throughout the analyzed period. Starting at 1,516,250 thousand US dollars in 2018, the capital base grew to 3,344,477 thousand US dollars by 2022. A notable acceleration in capital deployment occurred between 2019 and 2020, where invested capital increased by approximately 61%, indicating a substantial expansion of the company's asset base.
- Economic Profit Fluctuations
- Economic profit demonstrated high volatility, alternating between periods of value creation and value destruction. Following a growth phase from 2018 to 2019, a deficit was recorded in 2020 at -63,399 thousand US dollars. Although 2021 marked a significant recovery with a peak profit of 513,319 thousand US dollars, the trend reversed sharply in 2022, resulting in a loss of 270,318 thousand US dollars.
- Economic Spread Ratio Analysis
- The economic spread ratio mirrors the fluctuations in economic profit, reflecting the inability to maintain a stable return above the cost of capital. The ratio peaked at 17.16% in 2021, signaling strong economic efficiency. Conversely, the negative ratios observed in 2020 (-2.58%) and 2022 (-8.08%) indicate periods where the returns generated were insufficient to cover the cost of the invested capital, with the 2022 figure representing the lowest point of efficiency in the five-year period.
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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 | (270,318) | 513,319) | (63,399) | 260,729) | 154,414) | |
| Net revenues | 3,734,635) | 3,952,584) | 2,471,941) | 2,406,796) | 1,966,492) | |
| Add: Increase (decrease) in deferred revenues | 214,751) | 449,116) | 241,173) | 189,076) | 137,888) | |
| Adjusted net revenues | 3,949,386) | 4,401,700) | 2,713,114) | 2,595,872) | 2,104,380) | |
| Performance Ratio | ||||||
| Economic profit margin2 | -6.84% | 11.66% | -2.34% | 10.04% | 7.34% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Abbott Laboratories | -3.41% | -2.81% | — | — | — | |
| Elevance Health Inc. | 0.06% | 0.68% | — | — | — | |
| Intuitive Surgical Inc. | -2.77% | 9.76% | — | — | — | |
| Medtronic PLC | -11.11% | -16.09% | — | — | — | |
| UnitedHealth Group Inc. | 2.08% | 1.92% | — | — | — | |
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 × -270,318 ÷ 3,949,386 = -6.84%
3 Click competitor name to see calculations.
The economic profit margin from 2018 to 2022 exhibits significant volatility, characterized by alternating cycles of value creation and value destruction. While adjusted net revenues demonstrated a general upward trend through 2021, the economic profit margin did not maintain a consistent trajectory, indicating that the returns on invested capital fluctuated substantially relative to the cost of capital.
- Revenue and Profitability Trends
- Between 2018 and 2019, an increase in adjusted net revenues from US$ 2.1 billion to US$ 2.6 billion coincided with a margin expansion from 7.34% to 10.04%. This trend was interrupted in 2020 when, despite a slight increase in revenues to US$ 2.7 billion, the economic profit margin shifted to a negative 2.34%, indicating that the company's operating profit was insufficient to cover its cost of capital during that period.
- Peak Performance and Contraction
- The most significant expansion occurred in 2021, where adjusted net revenues surged to US$ 4.4 billion and the economic profit margin reached its peak at 11.66%. This represents the highest level of economic value added within the analyzed period. However, this peak was followed by a sharp reversal in 2022, as revenues declined to US$ 3.9 billion and the economic profit margin dropped to its lowest point of -6.84%.
- Economic Profit Volatility
- The absolute economic profit figures demonstrate extreme swings, moving from a gain of US$ 260.7 million in 2019 to a loss of US$ 63.4 million in 2020, recovering to a peak gain of US$ 513.3 million in 2021, and finally falling to a loss of US$ 270.3 million in 2022. This instability suggests a high sensitivity of economic profit to operational shifts or changes in the capital base.
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