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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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 analysis of economic value added from 2018 to 2022 reveals a period of significant volatility in value creation, characterized by a steadily expanding capital base and inconsistent operating returns. While the cost of capital remained remarkably stable, the resulting economic profit fluctuated between substantial gains and significant losses.
- Invested Capital Trends
- A consistent upward trajectory in invested capital is observed, growing from 1,516,250 thousand US$ in 2018 to 3,344,477 thousand US$ by 2022. A notable acceleration in capital deployment occurred between 2019 and 2020, where invested capital increased by approximately 61%, suggesting a period of aggressive expansion or significant asset acquisition.
- Net Operating Profit After Taxes (NOPAT) Performance
- NOPAT exhibited extreme volatility over the five-year period. After a peak in 2019, profitability declined in 2020, followed by a substantial surge in 2021 to 1,236,388 thousand US$. However, this peak was short-lived, as 2022 saw a sharp contraction back to 536,671 thousand US$, a level similar to that recorded in 2018 and 2020.
- Cost of Capital Stability
- The cost of capital remained virtually constant, hovering between 24.18% and 24.26% throughout the analyzed period. This stability indicates that the external and internal risk profiles used to determine the required rate of return did not shift significantly, meaning that changes in economic profit were driven entirely by operational performance and capital levels rather than changes in the cost of funding.
- Economic Profit and Value Creation
- Economic profit fluctuated inconsistently, indicating a struggle to maintain returns above the cost of capital. Positive value creation was achieved in 2018, 2019, and 2021, with a peak economic profit of 511,622 thousand US$ in 2021. Conversely, the company experienced economic losses in 2020 and 2022, with the 2022 deficit of 272,211 thousand US$ representing the lowest point in the series. This pattern suggests that the growth in invested capital has not been matched by a sustainable increase in NOPAT, leading to periods of value destruction.
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 financial performance from 2018 to 2022 exhibits a pattern of significant volatility in value creation, occurring alongside a consistent and substantial expansion of the capital base.
- Economic Profit Trends
- Economic profit demonstrated extreme fluctuations over the five-year period. An initial increase was observed from 2018 to 2019, followed by a transition into negative territory in 2020. While 2021 marked a substantial recovery and reached a peak of 511,622 thousand US$, the trend reversed sharply in 2022, resulting in a deficit of 272,211 thousand US$.
- Invested Capital Growth
- A steady and uninterrupted upward trajectory in invested capital is evident. The capital base grew from 1,516,250 thousand US$ in 2018 to 3,344,477 thousand US$ by the end of 2022. This indicates a consistent increase in the total resources deployed into the business, more than doubling the invested capital over the analyzed timeframe.
- Economic Spread Ratio Analysis
- The economic spread ratio mirrors the volatility of economic profit, reflecting inconsistent performance relative to the cost of capital. Positive spreads were recorded in 2018 (10.13%), 2019 (17.05%), and 2021 (17.11%). These periods of value creation were interrupted by negative spreads in 2020 (-2.63%) and 2022 (-8.14%), with the 2022 figure representing the lowest efficiency level in the observed period.
The divergence between the continuously increasing invested capital and the erratic economic spread ratios suggests that capital expansion has not resulted in stable value creation. The transition to a significant negative spread in 2022, coinciding with the highest level of invested capital, indicates a marked decline in the ability to generate returns that exceed the cost of capital.
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 economic value creation, occurring alongside a general upward trend in adjusted net revenues for the majority of the period.
- Revenue Trajectory
- Adjusted net revenues exhibited consistent growth from 2018, increasing from US$ 2,104,380 thousand to a peak of US$ 4,401,700 thousand in 2021. A contraction followed in 2022, with revenues decreasing to US$ 3,949,386 thousand.
- Economic Profit Volatility
- Economic profit demonstrated an unstable pattern, fluctuating between value creation and value destruction. Initial positive results in 2018 and 2019 were followed by a deficit of US$ 64,795 thousand in 2020. A sharp recovery occurred in 2021, reaching a peak of US$ 511,622 thousand, before plummeting to a significant loss of US$ 272,211 thousand in 2022.
- Economic Profit Margin Fluctuations
- The economic profit margin closely mirrored the volatility of the absolute economic profit. The margin expanded from 7.30% in 2018 to 10.01% in 2019, then contracted to -2.39% in 2020. The maximum efficiency was recorded in 2021 at 11.62%, followed by a steep decline to -6.89% in 2022, indicating a failure to generate returns above the cost of capital in the final year of the analyzed period.