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
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 period under review demonstrates fluctuating financial performance as measured by economic profit. Net operating profit after taxes (NOPAT) initially decreased from 2020 to 2021, remained relatively stable through 2022, then increased significantly in 2023 before declining substantially in 2024. Invested capital exhibited an increase from 2020 to 2021, a slight decrease in 2022, and a large increase in 2023, followed by a decrease in 2024. The cost of capital remained relatively consistent across the period, with minor fluctuations.
- Economic Profit Trend
- Economic profit peaked in 2020 at US$4,067 million, then decreased to US$2,489 million in 2021 and US$2,452 million in 2022. A moderate recovery was observed in 2023, with economic profit reaching US$1,196 million. However, 2024 saw a significant shift, resulting in an economic loss of US$713 million. This indicates a declining ability to generate returns exceeding the cost of capital.
- NOPAT and Invested Capital Relationship
- The substantial increase in invested capital in 2023 did not translate into a proportional increase in NOPAT. While NOPAT increased in 2023, the growth in invested capital was considerably larger, contributing to the decline in economic profit. The subsequent decrease in NOPAT in 2024, coupled with a still-high level of invested capital, resulted in negative economic profit.
- Cost of Capital Stability
- The cost of capital remained relatively stable throughout the period, fluctuating between 9.44% and 9.94%. This suggests that external financing conditions did not significantly impact the company’s economic profit during this timeframe. The observed changes in economic profit are therefore primarily driven by changes in NOPAT and invested capital.
Overall, the trend in economic profit suggests a weakening of the company’s ability to create value for its investors, particularly in the most recent year. The significant increase in invested capital without a corresponding increase in profitability is a key factor contributing to this decline.
Net Operating Profit after Taxes (NOPAT)
Amgen Inc., NOPAT calculation
US$ 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.
The economic spread ratio demonstrates a declining trend over the five-year period. Initially positive, the ratio transitions to a negative value by the end of the observed timeframe. This shift is accompanied by fluctuations in both economic profit and invested capital, which contribute to the changing spread.
- Economic Spread Ratio
- The economic spread ratio began at 10.49% in 2020, indicating a substantial difference between the company’s return on invested capital and its cost of capital. A decrease was observed in 2021 to 6.18%, and a similar value of 6.17% was recorded in 2022. The ratio experienced a significant drop in 2023, falling to 1.71%. By 2024, the ratio became negative at -1.13%, signifying that the company’s return on invested capital was less than its cost of capital.
- Economic Profit
- Economic profit, while positive for the first three years, shows a decreasing pattern. Starting at US$4,067 million in 2020, it declined to US$2,489 million in 2021 and further to US$2,452 million in 2022. A more substantial decrease occurred in 2023, with economic profit reported at US$1,196 million. The trend culminated in a loss of US$713 million in 2024.
- Invested Capital
- Invested capital initially increased from US$38,776 million in 2020 to US$40,247 million in 2021, then experienced a slight decrease to US$39,722 million in 2022. A considerable increase was noted in 2023, reaching US$69,976 million, followed by a decrease to US$63,169 million in 2024. The fluctuations in invested capital, particularly the large increase in 2023, likely influenced the economic spread ratio.
The combined effect of decreasing economic profit and fluctuating invested capital resulted in the observed decline in the economic spread ratio. The negative ratio in 2024 suggests a potential need to evaluate capital allocation strategies and operational efficiency to improve returns relative to the cost of capital.
Economic Profit Margin
Amgen Inc., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ 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.
The economic profit exhibited a declining trend over the five-year period. Initially strong, economic profit decreased significantly, culminating in a negative value in the most recent year. This decline occurred alongside increasing product sales, suggesting a weakening relationship between revenue generation and profitability when considering the cost of capital.
- Economic Profit
- Economic profit began at US$4,067 million in 2020 and decreased to a loss of US$713 million in 2024. The most substantial decrease occurred between 2023 and 2024, with a difference of US$1,909 million. The period from 2020 to 2022 showed a more gradual decline, while 2024 represents a significant shift to negative economic profit.
- Product Sales
- Product sales demonstrated consistent growth throughout the period, increasing from US$24,240 million in 2020 to US$32,026 million in 2024. The largest year-over-year increase in product sales was observed between 2023 and 2024, with an increase of US$5,116 million. This growth in sales did not translate into corresponding growth in economic profit, indicating potential issues with cost management or capital efficiency.
- Economic Profit Margin
- The economic profit margin mirrored the trend in economic profit, declining from 16.78% in 2020 to -2.23% in 2024. The margin decreased steadily from 2020 to 2023, and then experienced a more rapid decline in 2024. This suggests that the company is generating less economic profit for each dollar of product sales, and ultimately destroying value in the latest year.
The divergence between increasing product sales and decreasing economic profit margin warrants further investigation. Potential factors contributing to this trend could include rising costs of goods sold, increased operating expenses, a higher cost of capital, or less efficient capital allocation. The negative economic profit margin in 2024 signals that the company’s returns are no longer exceeding its cost of capital.