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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
Net Operating Profit after Taxes (NOPAT)
Cash Operating Taxes
Invested Capital
Cost of Capital
Economic Spread Ratio
Economic Profit Margin

Applied Materials Inc., economic profit calculation

US$ in millions

12 months ended:	Oct 29, 2023	Oct 30, 2022	Oct 31, 2021	Oct 25, 2020	Oct 27, 2019	Oct 28, 2018
Net operating profit after taxes (NOPAT)¹	6,533)	6,900)	6,175)	3,885)	2,934)	3,704)
Cost of capital²	17.71%	17.43%	17.53%	17.08%	16.74%	16.06%
Invested capital³	17,777)	14,890)	14,717)	13,090)	10,129)	10,187)

Economic profit⁴	3,385)	4,304)	3,596)	1,650)	1,238)	2,068)

Based on: 10-K (reporting date: 2023-10-29), 10-K (reporting date: 2022-10-30), 10-K (reporting date: 2021-10-31), 10-K (reporting date: 2020-10-25), 10-K (reporting date: 2019-10-27), 10-K (reporting date: 2018-10-28).

¹ NOPAT. See details »

² Cost of capital. See details »

³ Invested capital. See details »

⁴ 2023 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 6,533 – 17.71% × 17,777 = 3,385

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Item	Description	The company
Economic profit	Economic profit is a measure of corporate performance computed by taking the spread between the return on invested capital and the cost of capital, and multiplying by the invested capital.	Applied Materials Inc. economic profit increased from 2021 to 2022 but then decreased significantly from 2022 to 2023.

Applied Materials Inc., NOPAT calculation

US$ in millions

12 months ended:	Oct 29, 2023	Oct 30, 2022	Oct 31, 2021	Oct 25, 2020	Oct 27, 2019	Oct 28, 2018
Net income	6,856)	6,525)	5,888)	3,619)	2,706)	3,313)
Deferred income tax expense (benefit)¹	(358)	195)	60)	68)	51)	198)
Increase (decrease) in allowance for credit losses²	—)	—)	(1)	—)	(3)	(1)
Increase (decrease) in warranty reserves³	46)	44)	41)	5)	(12)	10)
Increase (decrease) in severance and related charges reserves⁴	—)	(17)	17)	—)	—)	—)
Increase (decrease) in equity equivalents⁵	(312)	222)	117)	73)	36)	207)
Interest expense	238)	228)	236)	240)	237)	234)
Interest expense, operating lease liability⁶	10)	9)	5)	5)	6)	6)
Adjusted interest expense	248)	237)	241)	245)	243)	240)
Tax benefit of interest expense⁷	(52)	(50)	(51)	(51)	(51)	(56)
Adjusted interest expense, after taxes⁸	196)	187)	190)	193)	192)	184)
Interest income	(262)	(44)	(26)	—)	—)	—)
Investment income, before taxes	(262)	(44)	(26)	—)	—)	—)
Tax expense (benefit) of investment income⁹	55)	9)	5)	—)	—)	—)
Investment income, after taxes¹⁰	(207)	(35)	(21)	—)	—)	—)
Net operating profit after taxes (NOPAT)	6,533)	6,900)	6,175)	3,885)	2,934)	3,704)

Based on: 10-K (reporting date: 2023-10-29), 10-K (reporting date: 2022-10-30), 10-K (reporting date: 2021-10-31), 10-K (reporting date: 2020-10-25), 10-K (reporting date: 2019-10-27), 10-K (reporting date: 2018-10-28).

¹ Elimination of deferred tax expense. See details »

² Addition of increase (decrease) in allowance for credit losses.

³ Addition of increase (decrease) in warranty reserves.

⁴ Addition of increase (decrease) in severance and related charges reserves.

⁵ Addition of increase (decrease) in equity equivalents to net income.

⁶ 2023 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 336 × 3.10% = 10

⁷ 2023 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 248 × 21.00% = 52

⁸ Addition of after taxes interest expense to net income.

⁹ 2023 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 262 × 21.00% = 55

¹⁰ Elimination of after taxes investment income.

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Item	Description	The company
NOPAT	Net operating profit after taxes is income from operations, but after removement of taxes calculated on cash basis that are relevant to operating income.	Applied Materials Inc. NOPAT increased from 2021 to 2022 but then slightly decreased from 2022 to 2023 not reaching 2021 level.

Applied Materials Inc., cash operating taxes calculation

US$ in millions

12 months ended:	Oct 29, 2023	Oct 30, 2022	Oct 31, 2021	Oct 25, 2020	Oct 27, 2019	Oct 28, 2018
Provision for income taxes	860)	1,074)	883)	547)	563)	1,381)
Less: Deferred income tax expense (benefit)	(358)	195)	60)	68)	51)	198)
Add: Tax savings from interest expense	52)	50)	51)	51)	51)	56)
Less: Tax imposed on investment income	55)	9)	5)	—)	—)	—)
Cash operating taxes	1,215)	920)	868)	530)	563)	1,239)

Based on: 10-K (reporting date: 2023-10-29), 10-K (reporting date: 2022-10-30), 10-K (reporting date: 2021-10-31), 10-K (reporting date: 2020-10-25), 10-K (reporting date: 2019-10-27), 10-K (reporting date: 2018-10-28).

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Item	Description	The company
Cash operating taxes	Cash operating taxes are estimated by adjusting income tax expense for changes in deferred taxes and tax benefit from the interest deduction.	Applied Materials Inc. cash operating taxes increased from 2021 to 2022 and from 2022 to 2023.

Applied Materials Inc., invested capital calculation (financing approach)

US$ in millions

	Oct 29, 2023	Oct 30, 2022	Oct 31, 2021	Oct 25, 2020	Oct 27, 2019	Oct 28, 2018
Short-term debt	100)	—)	—)	—)	—)	—)
Current portion of long-term debt	—)	—)	—)	—)	600)	—)
Finance lease liabilities, current	102)	—)	—)	—)	—)	—)
Long-term debt, net of current portion	5,461)	5,457)	5,452)	5,448)	4,713)	5,309)
Operating lease liability¹	336)	372)	301)	259)	151)	154)
Total reported debt & leases	5,999)	5,829)	5,753)	5,707)	5,464)	5,463)
Stockholders’ equity	16,349)	12,194)	12,247)	10,578)	8,214)	6,839)
Net deferred tax (assets) liabilities²	(1,719)	(1,344)	(1,615)	(1,702)	(1,755)	(210)
Allowance for credit losses³	29)	29)	29)	30)	30)	33)
Warranty reserves⁴	332)	286)	242)	201)	196)	209)
Severance and related charges reserves⁵	—)	—)	17)	—)	—)	—)
Equity equivalents⁶	(1,358)	(1,029)	(1,327)	(1,471)	(1,529)	32)
Accumulated other comprehensive (income) loss, net of tax⁷	217)	202)	260)	299)	180)	125)
Adjusted stockholders’ equity	15,208)	11,367)	11,180)	9,406)	6,865)	6,996)
Construction in progress⁸	(672)	(389)	(326)	(237)	(120)	(203)
Available-for-sale investments⁹	(2,758)	(1,917)	(1,890)	(1,786)	(2,080)	(2,069)
Invested capital	17,777)	14,890)	14,717)	13,090)	10,129)	10,187)

Based on: 10-K (reporting date: 2023-10-29), 10-K (reporting date: 2022-10-30), 10-K (reporting date: 2021-10-31), 10-K (reporting date: 2020-10-25), 10-K (reporting date: 2019-10-27), 10-K (reporting date: 2018-10-28).

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 warranty reserves.

⁵ Addition of severance and related charges reserves.

⁶ Addition of equity equivalents to stockholders’ equity.

⁷ Removal of accumulated other comprehensive income.

⁸ Subtraction of construction in progress.

⁹ Subtraction of available-for-sale investments.

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Item	Description	The company
Invested capital	Capital is an approximation of the economic book value of all cash invested in going-concern business activities.	Applied Materials Inc. invested capital increased from 2021 to 2022 and from 2022 to 2023.

Applied Materials Inc., cost of capital calculations

Oct 29, 2023

	Capital (fair value)¹	Weights					Cost of capital
Equity²	134,591)	134,591)	÷	139,829)	=	0.96	0.96	×	18.28%	=	17.60%
Debt and finance lease liabilities³	4,902)	4,902)	÷	139,829)	=	0.04	0.04	×	3.80% × (1 – 21.00%)	=	0.11%
Operating lease liability⁴	336)	336)	÷	139,829)	=	0.00	0.00	×	3.10% × (1 – 21.00%)	=	0.01%
Total:	139,829)					1.00					17.71%

Based on: 10-K (reporting date: 2023-10-29).

¹ US$ in millions

² Equity. See details »

³ Debt and finance lease liabilities. See details »

⁴ Operating lease liability. See details »

Oct 30, 2022

	Capital (fair value)¹	Weights					Cost of capital
Equity²	88,407)	88,407)	÷	93,579)	=	0.94	0.94	×	18.28%	=	17.27%
Debt and finance lease liabilities³	4,800)	4,800)	÷	93,579)	=	0.05	0.05	×	3.75% × (1 – 21.00%)	=	0.15%
Operating lease liability⁴	372)	372)	÷	93,579)	=	0.00	0.00	×	2.50% × (1 – 21.00%)	=	0.01%
Total:	93,579)					1.00					17.43%

Based on: 10-K (reporting date: 2022-10-30).

¹ US$ in millions

² Equity. See details »

³ Debt and finance lease liabilities. See details »

⁴ Operating lease liability. See details »

Oct 31, 2021

	Capital (fair value)¹	Weights					Cost of capital
Equity²	129,856)	129,856)	÷	136,557)	=	0.95	0.95	×	18.28%	=	17.39%
Debt and finance lease liabilities³	6,400)	6,400)	÷	136,557)	=	0.05	0.05	×	3.75% × (1 – 21.00%)	=	0.14%
Operating lease liability⁴	301)	301)	÷	136,557)	=	0.00	0.00	×	1.70% × (1 – 21.00%)	=	0.00%
Total:	136,557)					1.00					17.53%

Based on: 10-K (reporting date: 2021-10-31).

¹ US$ in millions

² Equity. See details »

³ Debt and finance lease liabilities. See details »

⁴ Operating lease liability. See details »

Oct 25, 2020

	Capital (fair value)¹	Weights					Cost of capital
Equity²	80,737)	80,737)	÷	87,596)	=	0.92	0.92	×	18.28%	=	16.85%
Debt and finance lease liabilities³	6,600)	6,600)	÷	87,596)	=	0.08	0.08	×	3.75% × (1 – 21.00%)	=	0.22%
Operating lease liability⁴	259)	259)	÷	87,596)	=	0.00	0.00	×	1.80% × (1 – 21.00%)	=	0.00%
Total:	87,596)					1.00					17.08%

Based on: 10-K (reporting date: 2020-10-25).

¹ US$ in millions

² Equity. See details »

³ Debt and finance lease liabilities. See details »

⁴ Operating lease liability. See details »

Oct 27, 2019

	Capital (fair value)¹	Weights					Cost of capital
Equity²	54,799)	54,799)	÷	61,050)	=	0.90	0.90	×	18.28%	=	16.41%
Debt and finance lease liabilities³	6,100)	6,100)	÷	61,050)	=	0.10	0.10	×	4.12% × (1 – 21.00%)	=	0.33%
Operating lease liability⁴	151)	151)	÷	61,050)	=	0.00	0.00	×	4.12% × (1 – 21.00%)	=	0.01%
Total:	61,050)					1.00					16.74%

Based on: 10-K (reporting date: 2019-10-27).

¹ US$ in millions

² Equity. See details »

³ Debt and finance lease liabilities. See details »

⁴ Operating lease liability. See details »

Oct 28, 2018

	Capital (fair value)¹	Weights					Cost of capital
Equity²	32,315)	32,315)	÷	37,869)	=	0.85	0.85	×	18.28%	=	15.60%
Debt and finance lease liabilities³	5,400)	5,400)	÷	37,869)	=	0.14	0.14	×	4.12% × (1 – 23.40%)	=	0.45%
Operating lease liability⁴	154)	154)	÷	37,869)	=	0.00	0.00	×	4.12% × (1 – 23.40%)	=	0.01%
Total:	37,869)					1.00					16.06%

Based on: 10-K (reporting date: 2018-10-28).

¹ US$ in millions

² Equity. See details »

³ Debt and finance lease liabilities. See details »

⁴ Operating lease liability. See details »

Applied Materials Inc., economic spread ratio calculation, comparison to benchmarks

	Oct 29, 2023	Oct 30, 2022	Oct 31, 2021	Oct 25, 2020	Oct 27, 2019	Oct 28, 2018
Selected Financial Data (US$ in millions)
Economic profit¹	3,385)	4,304)	3,596)	1,650)	1,238)	2,068)
Invested capital²	17,777)	14,890)	14,717)	13,090)	10,129)	10,187)
Performance Ratio
Economic spread ratio³	19.04%	28.91%	24.43%	12.60%	12.22%	20.30%
Benchmarks
Economic Spread Ratio, Competitors⁴
Advanced Micro Devices Inc.	-19.23%	-18.95%	37.79%	11.53%	-6.60%	—
Analog Devices Inc.	-6.88%	-8.24%	-11.51%	-6.57%	-5.03%	-7.82%
Broadcom Inc.	9.60%	8.02%	-1.36%	-6.91%	-6.61%	-2.40%
Intel Corp.	-13.29%	-6.86%	10.33%	16.00%	14.09%	—
KLA Corp.	25.21%	27.46%	16.12%	4.96%	6.46%	24.62%
Lam Research Corp.	11.51%	26.12%	25.58%	8.58%	5.12%	10.28%
Micron Technology Inc.	-25.51%	2.33%	-2.19%	-7.80%	2.38%	24.98%
NVIDIA Corp.	-8.89%	33.31%	13.74%	-0.26%	60.33%	—
ON Semiconductor Corp.	0.43%	2.33%	-2.02%	-13.34%	-9.89%	—
Qualcomm Inc.	3.74%	30.18%	27.59%	12.63%	14.02%	-30.65%
Texas Instruments Inc.	15.71%	36.38%	34.99%	30.14%	29.82%	—

Based on: 10-K (reporting date: 2023-10-29), 10-K (reporting date: 2022-10-30), 10-K (reporting date: 2021-10-31), 10-K (reporting date: 2020-10-25), 10-K (reporting date: 2019-10-27), 10-K (reporting date: 2018-10-28).

¹ Economic profit. See details »

² Invested capital. See details »

³ 2023 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × 3,385 ÷ 17,777 = 19.04%

⁴ Click competitor name to see calculations.

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Performance ratio	Description	The company
Economic spread ratio	The ratio of economic profit to invested capital, also equal to the difference between return on invested capital (ROIC) and cost of capital.	Applied Materials Inc. economic spread ratio improved from 2021 to 2022 but then deteriorated significantly from 2022 to 2023.

Applied Materials Inc., economic profit margin calculation, comparison to benchmarks

	Oct 29, 2023	Oct 30, 2022	Oct 31, 2021	Oct 25, 2020	Oct 27, 2019	Oct 28, 2018
Selected Financial Data (US$ in millions)
Economic profit¹	3,385)	4,304)	3,596)	1,650)	1,238)	2,068)
Net sales	26,517)	25,785)	23,063)	17,202)	14,608)	17,253)
Performance Ratio
Economic profit margin²	12.77%	16.69%	15.59%	9.59%	8.48%	11.98%
Benchmarks
Economic Profit Margin, Competitors³
Advanced Micro Devices Inc.	-49.07%	-46.98%	14.24%	5.15%	-3.34%	—
Analog Devices Inc.	-24.70%	-30.88%	-73.96%	-21.34%	-15.42%	-23.48%
Broadcom Inc.	16.80%	15.01%	-3.20%	-19.07%	-17.56%	-5.13%
Intel Corp.	-22.57%	-9.65%	11.57%	16.85%	15.78%	—
KLA Corp.	20.03%	23.21%	15.89%	5.56%	9.01%	15.96%
Lam Research Corp.	10.02%	18.95%	18.26%	8.40%	4.47%	8.95%
Micron Technology Inc.	-87.76%	4.00%	-3.67%	-15.39%	3.95%	29.10%
NVIDIA Corp.	-7.04%	22.33%	10.74%	-0.33%	24.63%	—
ON Semiconductor Corp.	0.57%	2.62%	-2.27%	-17.49%	-12.29%	—
Qualcomm Inc.	3.29%	20.10%	16.62%	9.53%	12.38%	-25.36%
Texas Instruments Inc.	20.26%	31.90%	31.30%	27.02%	25.00%	—

Based on: 10-K (reporting date: 2023-10-29), 10-K (reporting date: 2022-10-30), 10-K (reporting date: 2021-10-31), 10-K (reporting date: 2020-10-25), 10-K (reporting date: 2019-10-27), 10-K (reporting date: 2018-10-28).

¹ Economic profit. See details »

² 2023 Calculation
Economic profit margin = 100 × Economic profit ÷ Net sales
= 100 × 3,385 ÷ 26,517 = 12.77%

³ Click competitor name to see calculations.

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Performance ratio	Description	The company
Economic profit margin	The ratio of economic profit to sales. It is the company profit margin covering income efficiency and asset management. Economic profit margin is not biased in favor of capital-intensive business models, because any added capital is a cost to the economic profit margin.	Applied Materials Inc. economic profit margin improved from 2021 to 2022 but then deteriorated significantly from 2022 to 2023.

Applied Materials Inc. (NASDAQ:AMAT)

Economic Value Added (EVA)

Economic Profit

Net Operating Profit after Taxes (NOPAT)

Cash Operating Taxes

Invested Capital

Cost of Capital

Economic Spread Ratio

Economic Profit Margin