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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Cadence Design Systems Inc. pages available for free this week:
- Common-Size Income Statement
- Analysis of Liquidity Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Enterprise Value (EV)
- Enterprise Value to EBITDA (EV/EBITDA)
- Selected Financial Data since 2005
- Net Profit Margin since 2005
- Operating Profit Margin since 2005
- Return on Assets (ROA) since 2005
- Debt to Equity since 2005
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Economic Profit
Cadence Design Systems Inc., economic profit calculation
US$ in thousands
| 12 months ended: | Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | |
|---|---|---|---|---|---|---|
| Net operating profit after taxes (NOPAT)1 | ||||||
| Cost of capital2 | ||||||
| Invested capital3 | ||||||
| Economic profit4 | ||||||
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
= – × =
An analysis of the financial performance from 2021 to 2025 reveals a significant shift in economic value creation. While the organization maintained positive economic profit through 2023, a substantial increase in invested capital during the latter part of the period led to a transition into negative economic profit, indicating that the returns on invested capital fell below the cost of capital in 2024 and 2025.
- Net Operating Profit After Taxes (NOPAT)
- A consistent upward trend in NOPAT is observed throughout the analyzed period. Starting at 761,220 thousand US$ in 2021, the figure grew steadily to reach 1,283,777 thousand US$ by 2025. This represents a sustained increase in operational profitability.
- Invested Capital and Capital Deployment
- Invested capital exhibited moderate growth between 2021 and 2023, moving from 3,138,367 thousand US$ to 4,056,689 thousand US$. However, a sharp increase occurred in 2024, where invested capital rose to 7,246,546 thousand US$, followed by a further increase to 8,067,529 thousand US$ in 2025. This significant expansion of the capital base is the primary driver behind the change in economic profit.
- Cost of Capital Stability
- The cost of capital remained remarkably stable over the five-year period, fluctuating within a narrow range between 17.21% and 17.58%. Because this rate remained constant, the fluctuations in economic profit are attributable to the relationship between NOPAT and the volume of invested capital rather than changes in the required rate of return.
- Economic Profit Trajectory
- Economic profit increased annually from 2021 to 2023, peaking at 288,332 thousand US$. However, the surge in invested capital in 2024 created a capital charge that exceeded the NOPAT, resulting in a deficit of -213,201 thousand US$. Although economic profit remained negative in 2025 at -108,548 thousand US$, the deficit narrowed, suggesting a partial recovery as NOPAT growth began to offset the expanded capital base.
Net Operating Profit after Taxes (NOPAT)
Cadence Design Systems Inc., NOPAT calculation
US$ 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
= × =
7 2025 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 2025 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 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$274.89 million in 2025, further supporting the notion of increasing operational performance relative to overall profitability.
The substantial growth in NOPAT, especially between 2024 and 2025, warrants further investigation to identify the key drivers. Potential factors could include increased sales volume, improved pricing strategies, cost reductions, or enhanced operational efficiencies. The consistent positive trend in both net income and NOPAT suggests a healthy and improving financial performance.
Cash Operating Taxes
Cadence Design Systems Inc., cash operating taxes calculation
US$ 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$352.20 million in 2025. The volatility in cash operating taxes suggests potential timing differences between taxable income and reported income, or changes in tax payment schedules.
The divergence between the provision for income taxes and cash operating taxes is notable. While the provision for income taxes consistently increased, cash operating taxes experienced a decrease in 2023 and again in 2025. This difference could be attributable to deferred tax assets or liabilities, tax credits utilized, or changes in the effective tax rate impacting cash flows. Further investigation into the underlying causes of these discrepancies would be beneficial for a complete understanding of the company’s tax position.
- Comparative Trends
- The ratio of cash operating taxes to the provision for income taxes varied over the period. In 2021, cash operating taxes were approximately 1.65 times the provision for income taxes. This ratio decreased to 1.57 in 2022, increased to 1.16 in 2023, rose to 1.39 in 2024, and fell to 0.85 in 2025. This fluctuating ratio reinforces the observation of differing trends between the two tax-related items.
The observed trends suggest a growing tax burden as indicated by the provision for income taxes, but the actual cash outflow for taxes is subject to more variability. The fluctuations in cash operating taxes warrant further scrutiny to determine the factors driving these changes and their impact on the company’s liquidity.
Invested Capital
Cadence Design Systems Inc., invested capital calculation (financing approach)
US$ 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$5,474,181 thousand in 2025, representing a cumulative increase of approximately 100%. The growth rate in stockholders’ equity appears to have accelerated in the later years of the period.
- Relationship between Components and Invested Capital
- While both debt and equity contribute to invested capital, the substantial increase in debt in 2024 and 2025 appears to be a primary driver of the accelerated growth in overall invested capital during those years. The contribution of equity to the overall invested capital is also increasing, but at a slower pace than the recent increases in debt.
The observed trends suggest a shift in the company’s capital structure towards greater reliance on debt financing, particularly in the most recent years. Further investigation into the reasons behind these financing decisions and their impact on financial performance would be warranted.
Cost of Capital
Cadence Design Systems Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Outstanding debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2025-12-31).
1 US$ 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 | ÷ | = | × | = | |||||||||
| Outstanding debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Outstanding debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Outstanding debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Outstanding debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ||||||
| Invested capital2 | ||||||
| Performance Ratio | ||||||
| Economic spread ratio3 | ||||||
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Accenture PLC | ||||||
| Adobe Inc. | ||||||
| AppLovin Corp. | ||||||
| CrowdStrike Holdings Inc. | ||||||
| Datadog Inc. | ||||||
| International Business Machines Corp. | ||||||
| Intuit Inc. | ||||||
| Microsoft Corp. | ||||||
| Oracle Corp. | ||||||
| Palantir Technologies Inc. | ||||||
| Palo Alto Networks Inc. | ||||||
| Salesforce Inc. | ||||||
| ServiceNow Inc. | ||||||
| Synopsys Inc. | ||||||
| Workday Inc. | ||||||
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 × ÷ =
4 Click competitor name to see calculations.
The financial trajectory from 2021 to 2025 reveals a significant shift in value creation dynamics, characterized by an initial period of steady growth followed by a sharp decline in economic performance coinciding with a massive expansion of the capital base.
- Economic Profit Trends
- A positive trend in economic profit was maintained from 2021 through 2023, increasing from 211,325 thousand US$ to 288,332 thousand US$. However, a severe reversal occurred in 2024, where economic profit plummeted to negative 213,201 thousand US$. While 2025 shows a partial recovery with a reduced deficit of negative 108,548 thousand US$, the company remains in a state of value destruction relative to its cost of capital.
- Invested Capital Expansion
- Invested capital grew moderately between 2021 and 2023, rising from 3,138,367 thousand US$ to 4,056,689 thousand US$. A critical inflection point occurred in 2024, where invested capital surged by approximately 78% to 7,246,546 thousand US$, further increasing to 8,067,529 thousand US$ by 2025. This aggressive capital deployment directly correlates with the collapse of economic profit.
- Economic Spread Ratio Analysis
- The economic spread ratio remained stable and positive between 2021 and 2023, peaking at 7.11% in 2023, which indicates that returns exceeded the cost of capital. In 2024, the ratio turned sharply negative to -2.94%, signaling that the returns on the newly deployed capital were insufficient to cover the associated costs. A slight improvement to -1.35% in 2025 suggests a slow trend toward regaining a positive spread, although the company has not yet returned to creating economic value.
The overall evidence suggests that the substantial increase in invested capital starting in 2024 has yet to yield commensurate returns, leading to a negative economic spread and a transition from positive economic profit to a deficit.
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 | ||||||
| Revenue | ||||||
| Add: Increase (decrease) in deferred revenue | ||||||
| Adjusted revenue | ||||||
| Performance Ratio | ||||||
| Economic profit margin2 | ||||||
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Accenture PLC | ||||||
| Adobe Inc. | ||||||
| AppLovin Corp. | ||||||
| CrowdStrike Holdings Inc. | ||||||
| Datadog Inc. | ||||||
| International Business Machines Corp. | ||||||
| Intuit Inc. | ||||||
| Microsoft Corp. | ||||||
| Oracle Corp. | ||||||
| Palantir Technologies Inc. | ||||||
| Palo Alto Networks Inc. | ||||||
| Salesforce Inc. | ||||||
| ServiceNow Inc. | ||||||
| Synopsys Inc. | ||||||
| Workday Inc. | ||||||
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 × ÷ =
3 Click competitor name to see calculations.
The financial performance exhibits a significant divergence between revenue growth and economic value creation. While adjusted revenue maintained a consistent upward trajectory over the five-year period, economic profit transitioned from a period of steady growth to a deficit starting in 2024.
- Revenue Growth Trends
- Adjusted revenue increased steadily from US$ 3,089,413 thousand in 2021 to US$ 5,378,610 thousand by 2025. This continuous expansion indicates a consistent increase in the scale of operations over the observed period.
- Economic Profit Volatility
- Economic profit grew consistently between 2021 and 2023, reaching a peak of US$ 288,332 thousand. A sharp reversal occurred in 2024, with economic profit falling to -US$ 213,201 thousand. A partial recovery is observed in 2025, as the deficit narrowed to -US$ 108,548 thousand.
- Economic Profit Margin Analysis
- The economic profit margin remained stable and positive between 6.50% and 7.08% from 2021 to 2023, peaking in the third year. A substantial contraction followed in 2024, with the margin dropping to -4.51%. By 2025, the margin improved to -2.02%, although it remained negative, indicating that the returns generated did not exceed the company's cost of capital during the final two years of the period.