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
Cadence Design Systems Inc., economic profit calculation
US$ in thousands
Based on: 10-K (reporting date: 2025-12-31), 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).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2025 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 1,283,777 – 17.20% × 8,067,529 = -103,522
The financial trajectory from 2021 to 2025 reflects a transition from consistent economic value creation to a period of economic loss, primarily driven by a substantial expansion in the capital base that outpaced operational profit growth.
- Net Operating Profit After Taxes (NOPAT)
- A consistent upward trend is observed in NOPAT, which grew from 761,220 thousand US$ in 2021 to 1,283,777 thousand US$ in 2025. This steady increase indicates a sustained improvement in operational earning power over the analyzed period.
- Invested Capital and Cost of Capital
- The cost of capital remained stable, fluctuating within a narrow range between 17.15% and 17.52%. In contrast, invested capital exhibited a sharp escalation; after moderate growth between 2021 and 2023, the capital base increased significantly from 4,056,689 thousand US$ in 2023 to 7,246,546 thousand US$ in 2024, further rising to 8,067,529 thousand US$ in 2025.
- Economic Profit Dynamics
- Economic profit was positive and increasing from 2021 through 2023, reaching a peak of 290,918 thousand US$. However, the substantial increase in invested capital in 2024 resulted in a capital charge that exceeded NOPAT, causing economic profit to pivot to a deficit of -208,700 thousand US$. While economic profit remained negative in 2025 at -103,522 thousand US$, the reduction in the deficit suggests that the accelerated growth in NOPAT is beginning to mitigate the impact of the expanded capital investment.
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Net Operating Profit after Taxes (NOPAT)
Cadence Design Systems Inc., NOPAT calculation
US$ in thousands
Based on: 10-K (reporting date: 2025-12-31), 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).
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 revenue.
4 Addition of increase (decrease) in restructuring plans balance.
5 Addition of increase (decrease) in equity equivalents to net income.
6 2025 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 186,178 × 5.00% = 9,309
7 2025 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 125,850 × 21.00% = 26,428
8 Addition of after taxes interest expense to net income.
9 2025 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 101,584 × 21.00% = 21,333
10 Elimination of after taxes investment income.
Net income and net operating profit after taxes (NOPAT) both demonstrate a consistent upward trajectory over the five-year period. While net income shows steady growth, NOPAT exhibits a more pronounced increase, particularly in the later years of the observed timeframe. This suggests improving operational efficiency and profitability relative to the company’s total capital employed.
- NOPAT Trend
- NOPAT increased from US$761.22 million in 2021 to US$1,283.78 million in 2025. The growth was not linear; the increase from 2021 to 2022 was US$121.36 million, from 2022 to 2023 was US$118.95 million, from 2023 to 2024 was US$32.66 million, and from 2024 to 2025 was US$249.59 million. This indicates accelerating profitability in the most recent period.
- Relationship between Net Income and NOPAT
- While both metrics increased, NOPAT consistently exceeded net income throughout the period. This difference likely reflects non-operating items impacting net income, such as interest expense or gains/losses on investments. The gap between NOPAT and net income widened from approximately US$65.27 million in 2021 to approximately US$274.89 million in 2025, further supporting the notion of increasing operational performance relative to overall profitability.
The substantial growth in NOPAT, especially between 2024 and 2025, warrants further investigation to identify the key drivers. Potential factors could include increased sales volume, improved pricing strategies, cost reductions, or enhanced operational efficiencies. The consistent positive trend in both net income and NOPAT suggests a healthy and improving financial performance.
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Cash Operating Taxes
Cadence Design Systems Inc., cash operating taxes calculation
US$ in thousands
Based on: 10-K (reporting date: 2025-12-31), 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).
The provision for income taxes and cash operating taxes both demonstrate significant fluctuations over the five-year period. Both metrics increased substantially from 2021 to 2022, then exhibited varied movements in subsequent years.
- Provision for Income Taxes
- The provision for income taxes increased markedly from US$72.48 million in 2021 to US$196.41 million in 2022, representing a more than 170% increase. This was followed by a moderate increase to US$240.78 million in 2023. Further growth was observed in 2024, reaching US$340.34 million, before increasing again to US$413.16 million in 2025. This indicates a consistent, overall upward trend in reported income tax expense.
- Cash Operating Taxes
- Cash operating taxes also experienced a substantial rise from 2021 to 2022, increasing from US$119.67 million to US$308.19 million. However, unlike the provision for income taxes, cash operating taxes decreased in 2023 to US$279.99 million. A significant increase occurred in 2024, reaching US$473.17 million, before declining to US$352.20 million in 2025. The volatility in cash operating taxes suggests potential timing differences between taxable income and reported income, or changes in tax payment schedules.
The divergence between the provision for income taxes and cash operating taxes is notable. While the provision for income taxes consistently increased, cash operating taxes experienced a decrease in 2023 and again in 2025. This difference could be attributable to deferred tax assets or liabilities, tax credits utilized, or changes in the effective tax rate impacting cash flows. Further investigation into the underlying causes of these discrepancies would be beneficial for a complete understanding of the company’s tax position.
- Comparative Trends
- The ratio of cash operating taxes to the provision for income taxes varied over the period. In 2021, cash operating taxes were approximately 1.65 times the provision for income taxes. This ratio decreased to 1.57 in 2022, increased to 1.16 in 2023, rose to 1.39 in 2024, and fell to 0.85 in 2025. This fluctuating ratio reinforces the observation of differing trends between the two tax-related items.
The observed trends suggest a growing tax burden as indicated by the provision for income taxes, but the actual cash outflow for taxes is subject to more variability. The fluctuations in cash operating taxes warrant further scrutiny to determine the factors driving these changes and their impact on the company’s liquidity.
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Invested Capital
Cadence Design Systems Inc., invested capital calculation (financing approach)
US$ in thousands
Based on: 10-K (reporting date: 2025-12-31), 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).
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 revenue.
5 Addition of restructuring plans balance.
6 Addition of equity equivalents to stockholders’ equity.
7 Removal of accumulated other comprehensive income.
8 Subtraction of in-process capital assets.
9 Subtraction of short-term investments.
The invested capital of the company demonstrates a consistent upward trend over the five-year period. Simultaneously, significant fluctuations are observed in the components contributing to invested capital, namely total reported debt & leases and stockholders’ equity.
- Invested Capital Trend
- Invested capital increased from US$3,138,367 thousand in 2021 to US$8,067,529 thousand in 2025. This represents a cumulative increase of approximately 157% over the period. The rate of increase accelerated notably between 2023 and 2025.
- Debt & Leases
- Total reported debt & leases experienced a substantial increase from US$479,980 thousand in 2021 to US$924,152 thousand in 2022, representing a nearly 93% increase. It then decreased to US$806,033 thousand in 2023 before rising dramatically to US$2,626,630 thousand in 2024 and US$2,666,328 thousand in 2025. This suggests a period of increased borrowing followed by a temporary reduction, and then a significant re-increase in debt financing.
- Stockholders’ Equity
- Stockholders’ equity exhibited a more moderate, but consistent, growth pattern. It increased from US$2,740,675 thousand in 2021 to US$5,474,181 thousand in 2025, representing a cumulative increase of approximately 100%. The growth rate in stockholders’ equity appears to have accelerated in the later years of the period.
- Relationship between Components and Invested Capital
- While both debt and equity contribute to invested capital, the substantial increase in debt in 2024 and 2025 appears to be a primary driver of the accelerated growth in overall invested capital during those years. The contribution of equity to the overall invested capital is also increasing, but at a slower pace than the recent increases in debt.
The observed trends suggest a shift in the company’s capital structure towards greater reliance on debt financing, particularly in the most recent years. Further investigation into the reasons behind these financing decisions and their impact on financial performance would be warranted.
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Cost of Capital
Cadence Design Systems Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 80,865,560) | 80,865,560) | ÷ | 83,554,738) | = | 0.97 | 0.97 | × | 17.65% | = | 17.08% | ||
| Outstanding debt3 | 2,503,000) | 2,503,000) | ÷ | 83,554,738) | = | 0.03 | 0.03 | × | 4.44% × (1 – 21.00%) | = | 0.11% | ||
| Operating lease liability4 | 186,178) | 186,178) | ÷ | 83,554,738) | = | 0.00 | 0.00 | × | 5.00% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 83,554,738) | 1.00 | 17.20% | ||||||||||
Based on: 10-K (reporting date: 2025-12-31).
1 US$ in thousands
2 Equity. See details »
3 Outstanding debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 70,813,061) | 70,813,061) | ÷ | 73,398,508) | = | 0.96 | 0.96 | × | 17.65% | = | 17.03% | ||
| Outstanding debt3 | 2,435,000) | 2,435,000) | ÷ | 73,398,508) | = | 0.03 | 0.03 | × | 4.44% × (1 – 21.00%) | = | 0.12% | ||
| Operating lease liability4 | 150,447) | 150,447) | ÷ | 73,398,508) | = | 0.00 | 0.00 | × | 4.00% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 73,398,508) | 1.00 | 17.15% | ||||||||||
Based on: 10-K (reporting date: 2024-12-31).
1 US$ in thousands
2 Equity. See details »
3 Outstanding debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 81,873,157) | 81,873,157) | ÷ | 82,677,105) | = | 0.99 | 0.99 | × | 17.65% | = | 17.48% | ||
| Outstanding debt3 | 646,971) | 646,971) | ÷ | 82,677,105) | = | 0.01 | 0.01 | × | 5.22% × (1 – 21.00%) | = | 0.03% | ||
| Operating lease liability4 | 156,977) | 156,977) | ÷ | 82,677,105) | = | 0.00 | 0.00 | × | 4.00% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 82,677,105) | 1.00 | 17.52% | ||||||||||
Based on: 10-K (reporting date: 2023-12-31).
1 US$ in thousands
2 Equity. See details »
3 Outstanding debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 50,684,958) | 50,684,958) | ÷ | 51,608,391) | = | 0.98 | 0.98 | × | 17.65% | = | 17.33% | ||
| Outstanding debt3 | 747,359) | 747,359) | ÷ | 51,608,391) | = | 0.01 | 0.01 | × | 4.71% × (1 – 21.00%) | = | 0.05% | ||
| Operating lease liability4 | 176,074) | 176,074) | ÷ | 51,608,391) | = | 0.00 | 0.00 | × | 4.00% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 51,608,391) | 1.00 | 17.40% | ||||||||||
Based on: 10-K (reporting date: 2022-12-31).
1 US$ in thousands
2 Equity. See details »
3 Outstanding debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 37,498,601) | 37,498,601) | ÷ | 38,007,393) | = | 0.99 | 0.99 | × | 17.65% | = | 17.41% | ||
| Outstanding debt3 | 376,400) | 376,400) | ÷ | 38,007,393) | = | 0.01 | 0.01 | × | 4.38% × (1 – 21.00%) | = | 0.03% | ||
| Operating lease liability4 | 132,392) | 132,392) | ÷ | 38,007,393) | = | 0.00 | 0.00 | × | 3.60% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 38,007,393) | 1.00 | 17.46% | ||||||||||
Based on: 10-K (reporting date: 2021-12-31).
1 US$ in thousands
2 Equity. See details »
3 Outstanding debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Cadence Design Systems Inc., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Economic profit1 | (103,522) | (208,700) | 290,918) | 242,261) | 213,318) | |
| Invested capital2 | 8,067,529) | 7,246,546) | 4,056,689) | 3,680,162) | 3,138,367) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -1.28% | -2.88% | 7.17% | 6.58% | 6.80% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Accenture PLC | 1.46% | 1.13% | 1.92% | 4.78% | 6.61% | |
| Adobe Inc. | 13.11% | 0.83% | 1.00% | 6.49% | 8.87% | |
| AppLovin Corp. | 28.42% | 0.70% | -20.45% | -26.69% | -30.02% | |
| Datadog Inc. | -8.84% | -9.53% | -6.05% | -11.80% | -3.98% | |
| International Business Machines Corp. | -0.75% | -7.59% | -3.55% | -11.30% | -6.16% | |
| Intuit Inc. | -2.91% | -6.59% | -8.64% | -7.53% | 0.10% | |
| Microsoft Corp. | 5.59% | 7.48% | 10.52% | 18.51% | 27.55% | |
| Oracle Corp. | -8.03% | -7.89% | -8.69% | -7.67% | 0.54% | |
| Palantir Technologies Inc. | 41.65% | -12.27% | -8.99% | -32.73% | -40.19% | |
| Palo Alto Networks Inc. | -3.84% | 5.35% | 11.48% | 3.51% | -5.19% | |
| Salesforce Inc. | -12.48% | -14.29% | -17.73% | -14.61% | -12.46% | |
| ServiceNow Inc. | 2.67% | 5.94% | 5.24% | 0.73% | 1.95% | |
| Synopsys Inc. | -12.42% | -8.17% | -7.47% | -0.87% | -6.90% | |
| Workday Inc. | -11.63% | -13.04% | -19.26% | -14.09% | -19.34% | |
Based on: 10-K (reporting date: 2025-12-31), 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).
1 Economic profit. See details »
2 Invested capital. See details »
3 2025 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -103,522 ÷ 8,067,529 = -1.28%
4 Click competitor name to see calculations.
An analysis of the financial performance reveals a significant transition from value creation to value destruction over the five-year period ending December 31, 2025. While the initial three years were characterized by positive economic profits and a stable spread, the subsequent period indicates a substantial increase in the capital base that has not yet been offset by proportional returns.
- Economic Profit Trends
- Positive economic profit was maintained from 2021 through 2023, peaking at 290,918 thousand US dollars in 2023. However, a sharp reversal occurred in 2024, where economic profit dropped to negative 208,700 thousand US dollars. A partial recovery is noted in 2025, with the loss narrowing to 103,522 thousand US dollars, although the company remains in a state of economic loss.
- Invested Capital Expansion
- Invested capital showed moderate growth between 2021 and 2023, rising from 3,138,367 thousand US dollars to 4,056,689 thousand US dollars. A substantial escalation in capital investment occurred in 2024, with the figure jumping to 7,246,546 thousand US dollars, and further increasing to 8,067,529 thousand US dollars by the end of 2025. This aggressive expansion in the capital base coincides with the decline in economic profit.
- Economic Spread Ratio Analysis
- The economic spread ratio remained positive and relatively stable between 6.58% and 7.17% from 2021 to 2023, indicating that the return on invested capital exceeded the cost of capital. In 2024, the ratio shifted to a negative 2.88%, reflecting the immediate impact of the increased invested capital relative to the generated profit. By 2025, the ratio improved slightly to negative 1.28%, suggesting a gradual movement back toward the break-even point, though value destruction persists.
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Economic Profit Margin
Cadence Design Systems Inc., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Economic profit1 | (103,522) | (208,700) | 290,918) | 242,261) | 213,318) | |
| Revenue | 5,296,759) | 4,641,264) | 4,089,986) | 3,561,718) | 2,988,244) | |
| Add: Increase (decrease) in deferred revenue | 81,851) | 88,626) | (18,107) | 126,972) | 101,169) | |
| Adjusted revenue | 5,378,610) | 4,729,890) | 4,071,879) | 3,688,690) | 3,089,413) | |
| Performance Ratio | ||||||
| Economic profit margin2 | -1.92% | -4.41% | 7.14% | 6.57% | 6.90% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Accenture PLC | 0.94% | 0.64% | 0.99% | 2.30% | 3.39% | |
| Adobe Inc. | 11.86% | 0.94% | 1.25% | 7.56% | 11.05% | |
| AppLovin Corp. | 29.21% | 0.68% | -27.99% | -49.97% | -60.11% | |
| Datadog Inc. | -5.24% | -8.65% | -3.79% | -8.16% | -3.16% | |
| International Business Machines Corp. | -1.33% | -13.42% | -6.31% | -19.56% | -11.71% | |
| Intuit Inc. | -3.77% | -10.13% | -14.15% | -14.49% | 0.13% | |
| Microsoft Corp. | 8.34% | 10.45% | 11.98% | 17.74% | 22.86% | |
| Oracle Corp. | -16.10% | -15.00% | -16.81% | -14.08% | 1.07% | |
| Palantir Technologies Inc. | 21.57% | -10.64% | -4.83% | -54.91% | -66.20% | |
| Palo Alto Networks Inc. | -4.55% | 5.68% | 11.39% | 4.09% | -6.98% | |
| Salesforce Inc. | -26.94% | -33.02% | -44.83% | -40.55% | -28.58% | |
| ServiceNow Inc. | 2.94% | 4.89% | 4.21% | 0.59% | 1.68% | |
| Synopsys Inc. | -72.47% | -13.69% | -10.54% | -1.23% | -10.97% | |
| Workday Inc. | -12.36% | -14.52% | -23.63% | -19.10% | -25.24% | |
Based on: 10-K (reporting date: 2025-12-31), 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).
1 Economic profit. See details »
2 2025 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted revenue
= 100 × -103,522 ÷ 5,378,610 = -1.92%
3 Click competitor name to see calculations.
The financial performance between 2021 and 2025 is characterized by a significant divergence between consistent revenue growth and the volatility of economic profit. While adjusted revenue increased steadily throughout the period, economic value added experienced a sharp reversal starting in 2024, indicating a period where the cost of capital exceeded the generated operating returns.
- Adjusted Revenue Trajectory
- A consistent upward trend is observed in adjusted revenue, which grew from 3.09 billion US dollars in 2021 to 5.38 billion US dollars by 2025. This represents sustained top-line expansion over the five-year period.
- Economic Profit Performance
- Economic profit demonstrated positive growth from 2021 to 2023, peaking at 290.92 million US dollars. However, a substantial contraction occurred in 2024, with the value falling to negative 208.70 million US dollars. A partial recovery is noted in 2025, as the deficit narrowed to negative 103.52 million US dollars.
- Economic Profit Margin Analysis
- The economic profit margin remained relatively stable between 6.57% and 7.14% from 2021 through 2023. This stability ended in 2024 with a sharp decline to negative 4.41%. By 2025, the margin improved to negative 1.92%, suggesting a trend toward returning to a positive economic value added state, although the margin remains below the threshold required to cover the cost of capital.
The data indicates that while the scale of operations expanded, the efficiency of capital utilization declined sharply in the latter part of the period. The recovery observed in 2025 suggests an improvement in operational efficiency or a reduction in the capital charge, despite the continued presence of negative economic profit.
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