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
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
= – × =
The financial performance, as measured by economic profit, demonstrates a shifting trend over the five-year period. Initially, the organization exhibited positive economic profit, but this transitioned to negative economic profit in later years. This analysis details the observed patterns in net operating profit after taxes, cost of capital, and invested capital, and their combined impact on economic profit.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT consistently increased from 2021 to 2024, rising from US$761.22 million to US$1,034.18 million. A significant increase is then observed in 2025, with NOPAT reaching US$1,283.78 million. This indicates improving operational profitability over the period.
- Cost of Capital
- The cost of capital remained relatively stable between 2021 and 2025, fluctuating within a narrow range of 17.08% to 17.44%. A slight decrease is noted in 2024, followed by a minor increase in 2025. These fluctuations do not appear to be a primary driver of the observed changes in economic profit.
- Invested Capital
- Invested capital experienced substantial growth throughout the period. It increased from US$3,138.37 million in 2021 to US$8,067.53 million in 2025. The most significant increase occurred between 2023 and 2024, more than doubling from US$4,056.69 million to US$7,246.55 million. This rapid expansion in invested capital is a key factor influencing economic profit.
- Economic Profit
- Economic profit increased steadily from US$215.63 million in 2021 to US$293.92 million in 2023. However, a substantial decline is observed in 2024, resulting in a negative economic profit of US$203.47 million. This negative trend continues in 2025, with economic profit reaching US$ -97.68 million. The shift to negative economic profit correlates strongly with the significant increase in invested capital, despite the concurrent growth in NOPAT. While NOPAT increased, it did not increase sufficiently to offset the higher capital charge resulting from the larger invested capital base.
In summary, while the organization demonstrated increasing operational profitability as evidenced by NOPAT, the substantial growth in invested capital ultimately led to a decline in economic profit. The cost of capital remained relatively consistent, suggesting that the primary driver of the change in economic profit is the relationship between NOPAT and the expanding invested 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 economic spread ratio exhibited a positive trend initially, followed by a significant decline. Economic profit increased consistently from 2021 to 2023, while invested capital also rose over the same period. However, 2024 and 2025 witnessed a substantial shift, with economic profit becoming negative and invested capital continuing to increase, resulting in a marked deterioration of the economic spread ratio.
- Economic Spread Ratio Trend
- The economic spread ratio began at 6.87% in 2021, decreasing slightly to 6.66% in 2022. It then increased to a peak of 7.25% in 2023. A dramatic reversal occurred in 2024, with the ratio falling to -2.81%, and continued to decline, reaching -1.21% in 2025. This indicates a weakening ability to generate returns exceeding the cost of capital.
- Relationship between Economic Profit and Invested Capital
- From 2021 to 2023, both economic profit and invested capital increased concurrently. This suggests that growth in profitability was accompanied by growth in the capital base. However, the pattern changed significantly in 2024 and 2025. While invested capital continued to grow substantially, economic profit turned negative. This divergence is the primary driver of the declining economic spread ratio, indicating that the returns generated from the increased capital are insufficient to cover the cost of that capital.
The shift from positive and increasing economic profit to negative economic profit, coupled with consistently rising invested capital, represents a significant change in financial performance. The negative economic spread ratio in 2024 and 2025 suggests that the company is destroying, rather than creating, economic value.
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 economic profit margin exhibited a positive trend initially, followed by a significant decline. Economic profit increased consistently from 2021 to 2023, but experienced substantial losses in 2024 and 2025. This shift is reflected in the economic profit margin, which decreased from a positive 6.98% in 2021 to negative values in the subsequent years.
- Economic Profit
- Economic profit demonstrated growth between 2021 and 2023, increasing from US$215,634 thousand to US$293,922 thousand. However, a considerable reversal occurred in 2024, with economic profit becoming negative at US$-203,472 thousand. This negative trend continued into 2025, although the loss was reduced to US$-97,682 thousand.
- Adjusted Revenue
- Adjusted revenue consistently increased throughout the observed period. From US$3,089,413 thousand in 2021, it rose to US$5,378,610 thousand in 2025. This indicates consistent top-line growth despite the fluctuations in economic profit.
- Economic Profit Margin
- The economic profit margin initially showed a slight decrease from 6.98% in 2021 to 6.64% in 2022, before recovering to 7.22% in 2023. The most notable change is the substantial decline in 2024, resulting in a margin of -4.30%. This negative margin persisted in 2025, albeit at a less severe level of -1.82%. The divergence between increasing revenue and decreasing margin suggests a rise in costs or a decrease in operational efficiency impacting profitability.
The observed pattern suggests that while the company has been successful in increasing revenue, its ability to translate that revenue into economic profit has deteriorated significantly in the latter part of the period. Further investigation into the factors driving the decline in economic profit, despite revenue growth, is warranted.