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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Amgen Inc. pages available for free this week:
- Common-Size Income Statement
- Common-Size Balance Sheet: Assets
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Long-term (Investment) Activity Ratios
- Common Stock Valuation Ratios
- Dividend Discount Model (DDM)
- Price to Earnings (P/E) since 2005
- Price to Book Value (P/BV) since 2005
- Analysis of Revenues
- Aggregate Accruals
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Economic Profit
Amgen Inc., economic profit calculation
US$ in millions
| 12 months ended: | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | |
|---|---|---|---|---|---|---|
| Net operating profit after taxes (NOPAT)1 | ||||||
| Cost of capital2 | ||||||
| Invested capital3 | ||||||
| Economic profit4 | ||||||
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
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 key trends and notable developments over the five-year period.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT fluctuated during the period, peaking initially at 7,889 million US dollars in 2020. It experienced a decline over the next two years, dropping to 6,412 million in 2021 and remaining roughly stable at 6,399 million in 2022. A recovery is observed in 2023 with an increase to 7,802 million, followed by a sharp decline to 5,377 million in 2024. This volatility indicates some operational challenges or market factors influencing profitability.
- Cost of Capital
- The cost of capital remained relatively stable across the years, ranging between 8.42% and 8.81%. This consistency suggests a steady risk profile from the company's financing perspective, though slight variations could reflect changing market conditions or capital structure adjustments.
- Invested Capital
- Invested capital showed significant growth, increasing from 38,776 million US dollars in 2020 to 69,976 million in 2023. This substantial rise indicates considerable investment or asset growth. However, in 2024, invested capital decreased to 63,169 million, reflecting possible divestitures or asset reductions.
- Economic Profit
- Economic profit, which measures value creation above the cost of capital, demonstrated a declining trend. Starting at a positive 4,498 million in 2020, it steadily decreased to 2,929 million in 2021 and 2,898 million in 2022. The downward trend continued to 1,907 million in 2023, culminating in a negative economic profit of -50 million in 2024. This shift to negative economic profit highlights deteriorating value generation relative to the company's cost of capital in the latest year.
In summary, while the company expanded its invested capital substantially, profitability metrics such as NOPAT showed volatility with a notable decline in the final year. The stable cost of capital suggests no major changes in financing risk, yet the decline to a negative economic profit in 2024 indicates that returns failed to meet or exceed the capital costs. This combination points to challenges in effectively leveraging invested assets to generate economic value during the latter part of the period.
Net Operating Profit after Taxes (NOPAT)
Amgen Inc., NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowance for doubtful accounts.
3 Addition of increase (decrease) in equity equivalents to net income.
4 2024 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= × =
5 2024 Calculation
Tax benefit of interest expense, net = Adjusted interest expense, net × Statutory income tax rate
= × 21.00% =
6 Addition of after taxes interest expense to net income.
7 2024 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= × 21.00% =
8 Elimination of after taxes investment income.
- Net Income
- The net income experienced a decline from 7,264 million US dollars in 2020 to 5,893 million US dollars in 2021, representing a notable decrease. It then rebounded moderately to 6,552 million US dollars in 2022, followed by a slight increase to 6,717 million US dollars in 2023. However, net income dropped considerably to 4,090 million US dollars in 2024, the lowest level during the observed period.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT showed a decreasing trend from 7,889 million US dollars in 2020 to 6,412 million US dollars in 2021. It remained relatively stable in 2022 at 6,399 million US dollars, then rose significantly to 7,802 million US dollars in 2023, reaching the highest point in the series. In 2024, NOPAT dropped sharply to 5,377 million US dollars, marking a substantial decline compared to the previous year.
- Overall Trends and Insights
- Both net income and NOPAT exhibited volatility throughout the five-year period. After declines in 2021, both metrics partially recovered in 2022 and 2023 before falling steeply in 2024. The divergence between net income and NOPAT in certain years is moderate, with both generally following similar downward and upward moves. The steep drops in 2024 for both indicators may suggest operational or external challenges impacting profitability during that year.
Cash Operating Taxes
Amgen Inc., cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
- Provision for Income Taxes
- The provision for income taxes initially decreased from 869 million USD in 2020 to 808 million USD in 2021, followed by a further slight decline to 794 million USD in 2022. However, there was a noticeable increase in 2023, reaching 1,138 million USD, before dropping significantly to 519 million USD in 2024. This pattern indicates some volatility, with a peak in 2023 before a steep reduction in the latest year.
- Cash Operating Taxes
- Cash operating taxes showed a consistent upward trend from 1,493 million USD in 2020 to 1,497 million USD in 2021, then sharply increased to 2,368 million USD in 2022 and further to 2,963 million USD in 2023. However, in 2024, the amount fell to 2,426 million USD, indicating a partial decline after a period of substantial growth. Overall, cash operating taxes more than doubled over the five-year period despite the slight drop in the final year.
- General Insights
- The data reveals a divergence between provision for income taxes and cash operating taxes. While provision for income taxes fluctuated with a peak in 2023 and a marked decline in 2024, cash operating taxes demonstrated a generally strong upward trajectory with a moderate pullback towards the end. This could suggest variations in tax management strategies, timing differences, or changes in taxable income and cash tax payments over the periods analyzed.
Invested Capital
Amgen Inc., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
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 equity equivalents to stockholders’ equity.
5 Removal of accumulated other comprehensive income.
6 Subtraction of construction in progress.
7 Subtraction of marketable securities.
- Total reported debt & leases
- The total reported debt and leases show a general upward trend from 2020 to 2024. Beginning at 33,445 million USD in 2020, the figure rises slightly to 33,979 million USD in 2021, followed by a more pronounced increase to 39,640 million USD in 2022. A significant surge occurs in 2023, reaching 65,423 million USD, before slightly declining to 60,879 million USD in 2024. This pattern indicates increased leverage, particularly in 2023, potentially reflecting elevated borrowing or lease obligations during that period.
- Stockholders’ equity
- Stockholders’ equity demonstrates a declining trend over the analyzed years. Starting at 9,409 million USD in 2020, equity decreases sharply to 6,700 million USD in 2021 and continues downward to 3,661 million USD in 2022. A recovery is observed in 2023 with equity rising to 6,232 million USD, followed by a slight decrease to 5,877 million USD in 2024. Overall, the substantial reduction early in the period suggests diminished net assets, while the partial rebound in 2023 may indicate some restoration of equity value.
- Invested capital
- Invested capital remains relatively stable from 2020 through 2022, starting at 38,776 million USD in 2020, increasing slightly to 40,247 million USD in 2021, then marginally decreasing to 39,722 million USD in 2022. A significant increase occurs in 2023, with invested capital reaching 69,976 million USD, before declining to 63,169 million USD in 2024. This growth in 2023 aligns with the increase in reported debt and leases, suggesting substantial capital investment or acquisition activities funded by increased liabilities.
Cost of Capital
Amgen Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Borrowings3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2024-12-31).
1 US$ in millions
2 Equity. See details »
3 Borrowings. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Borrowings3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2023-12-31).
1 US$ in millions
2 Equity. See details »
3 Borrowings. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Borrowings3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2022-12-31).
1 US$ in millions
2 Equity. See details »
3 Borrowings. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Borrowings3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2021-12-31).
1 US$ in millions
2 Equity. See details »
3 Borrowings. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Borrowings3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2020-12-31).
1 US$ in millions
2 Equity. See details »
3 Borrowings. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Amgen Inc., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | ||||||
| Invested capital2 | ||||||
| Performance Ratio | ||||||
| Economic spread ratio3 | ||||||
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| AbbVie Inc. | ||||||
| Bristol-Myers Squibb Co. | ||||||
| Danaher Corp. | ||||||
| Eli Lilly & Co. | ||||||
| Gilead Sciences Inc. | ||||||
| Johnson & Johnson | ||||||
| Merck & Co. Inc. | ||||||
| Pfizer Inc. | ||||||
| Regeneron Pharmaceuticals Inc. | ||||||
| Thermo Fisher Scientific Inc. | ||||||
| Vertex Pharmaceuticals Inc. | ||||||
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
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 has shown a declining trend over the analyzed period. Starting from a high of 4,498 million US dollars in 2020, it decreased significantly to 2,929 million in 2021 and remained relatively stable at approximately 2,898 million in 2022. The downward trend continued more sharply in the following years, dropping to 1,907 million in 2023, and eventually turning negative to -50 million in 2024. This decline indicates increasingly reduced value creation by the company, culminating in a slight economic loss in the last reported year.
- Invested Capital
- The invested capital values exhibit an overall increasing pattern with a notable deviation towards the end of the period. Starting at 38,776 million US dollars in 2020, invested capital increased marginally to 40,247 million in 2021 and then decreased slightly to 39,722 million in 2022. However, a sharp increase occurred in 2023, where invested capital nearly doubled to 69,976 million, followed by a decrease to 63,169 million in 2024. This considerable rise in capital base might imply significant investment or asset acquisition activities in 2023, which slightly reversed the following year.
- Economic Spread Ratio
- The economic spread ratio mirrors the changes in economic profit and invested capital. Initially high at 11.6% in 2020, the ratio dropped to 7.28% in 2021 and held steady near 7.3% in 2022. It then declined sharply to 2.73% in 2023 and turned negative to -0.08% in 2024. This metric reveals diminishing returns on the invested capital over time, aligning with the declining economic profit and especially notable given the increase in invested capital, signaling a potential decrease in capital efficiency in recent years.
Economic Profit Margin
Amgen Inc., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | ||||||
| Product sales | ||||||
| Performance Ratio | ||||||
| Economic profit margin2 | ||||||
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| AbbVie Inc. | ||||||
| Bristol-Myers Squibb Co. | ||||||
| Danaher Corp. | ||||||
| Eli Lilly & Co. | ||||||
| Gilead Sciences Inc. | ||||||
| Johnson & Johnson | ||||||
| Merck & Co. Inc. | ||||||
| Pfizer Inc. | ||||||
| Regeneron Pharmaceuticals Inc. | ||||||
| Thermo Fisher Scientific Inc. | ||||||
| Vertex Pharmaceuticals Inc. | ||||||
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
1 Economic profit. See details »
2 2024 Calculation
Economic profit margin = 100 × Economic profit ÷ Product sales
= 100 × ÷ =
3 Click competitor name to see calculations.
- Economic Profit
- The economic profit demonstrates a declining trajectory over the analyzed periods. Starting at 4,498 million USD in 2020, it decreases substantially to 2,929 million USD in 2021 and further to 2,898 million USD in 2022. This downward trend persists in 2023 with a value of 1,907 million USD, culminating in a negative economic profit of -50 million USD by the end of 2024. This suggests that the company’s value generation beyond its cost of capital has eroded over time and eventually resulted in a loss in 2024.
- Product Sales
- Product sales exhibit a consistent positive growth trend throughout the period. Beginning at 24,240 million USD in 2020, sales slightly increase to 24,297 million USD in 2021 and reach 24,801 million USD in 2022. There is a more marked acceleration in growth after 2022, with sales increasing to 26,910 million USD in 2023 and continuing to rise significantly to 32,026 million USD in 2024. This indicates strong revenue expansion even as economic profit declined.
- Economic Profit Margin
- The economic profit margin follows a downward pattern parallel to that of economic profit. The margin reduces from 18.56% in 2020 to 12.06% in 2021, then to 11.68% in 2022, and further decreases to 7.09% in 2023. By 2024, the margin turns negative at -0.16%, reflecting the loss in economic profit. This decline highlights deteriorating profitability relative to sales and may reflect increased costs, pricing pressure, or other margin eroding factors despite revenue growth.
- Summary Insight
- Overall, the data illustrates a scenario where revenue growth has been steady and even accelerating in recent years; however, the company’s economic profit has consistently declined and turned negative. The divergence between rising sales and falling economic profit suggests increasing costs or capital charges that are not matched by operational profit improvements. This trend warrants further investigation into cost structure, operational efficiency, and capital allocation to address the erosion in value creation.