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:
- Cash Flow Statement
- Common-Size Balance Sheet: Assets
- Analysis of Short-term (Operating) Activity Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Enterprise Value (EV)
- Net Profit Margin since 2005
- Total Asset Turnover since 2005
- Price to Earnings (P/E) since 2005
- Price to Book Value (P/BV) since 2005
- Analysis of Debt
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Economic Profit
Cadence Design Systems Inc., economic profit calculation
US$ in thousands
| 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 financial data over the five-year period reveals several key trends in operational performance and capital efficiency.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT has shown a consistent upward trajectory from 2020 to 2024. It increased from approximately $708 million in 2020 to over $1 billion by 2024, indicating improved operational profitability year over year.
- Cost of Capital
- The cost of capital has remained relatively stable, fluctuating slightly around 15%. It started at 15.08% in 2020 and marginally decreased to 14.83% by 2024, suggesting a steady capital cost environment without significant volatility.
- Invested Capital
- Invested capital increased steadily from about $2.8 billion in 2020 to $4.1 billion by 2023, but there is a marked and substantial increase in 2024 to approximately $7.2 billion. This sharp rise in 2024 represent a significant capital deployment or asset acquisition.
- Economic Profit
- Economic profit, which measures value creation beyond the cost of capital, demonstrated strong growth from 2020 through 2023. Starting at approximately $282 million in 2020, it peaked near $387 million in 2023, reflecting enhanced value generation relative to invested capital and costs. However, in 2024, economic profit turned negative, declining sharply to about -$41 million. This reversal suggests that despite higher NOPAT, the dramatic increase in invested capital, combined with the cost of capital, eroded the economic value generated during that year.
Overall, the company experienced steady profit growth and capital investment through 2023, yielding positive returns above the cost of capital. The significant escalation of invested capital in 2024, however, outweighed profit improvements, leading to negative economic profit. This indicates a potential mismatch between capital deployment and profitability, warranting further investigation into the nature and efficiency of the 2024 investments.
Net Operating Profit after Taxes (NOPAT)
Cadence Design Systems Inc., NOPAT calculation
US$ in thousands
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 deferred revenue.
4 Addition of increase (decrease) in restructuring plans balance.
5 Addition of increase (decrease) in equity equivalents to net income.
6 2024 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= × =
7 2024 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 2024 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= × 21.00% =
10 Elimination of after taxes investment income.
The financial data reveals an upward trend in both net income and net operating profit after taxes (NOPAT) over the five-year period ending December 31, 2024. Both metrics demonstrate consistent growth year over year, reflecting improved profitability and operational efficiency.
- Net Income
- The net income exhibits a steady increase from 590,644 thousand US dollars in 2020 to 1,055,484 thousand US dollars in 2024. This represents an overall growth of approximately 79% over the period. The growth appears to accelerate from 2021 onwards, with a notable jump between 2021 and 2023, showing the company's enhanced ability to generate profits from its operations.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT also shows consistent growth, starting at 708,432 thousand US dollars in 2020 and increasing to 1,034,183 thousand US dollars by the end of 2024. This upward trajectory indicates an improvement in core operating performance after accounting for taxes, rising approximately 46% over the five-year span. The growth pattern aligns closely with the net income trend, suggesting strong operational management and control over tax expenses.
Overall, the data suggests significant positive momentum in profitability and operational efficiency. Both net income and NOPAT have grown at a robust pace, highlighting sustained financial health and effective management strategies contributing to the company’s expanding earnings profile.
Cash Operating Taxes
Cadence Design Systems Inc., cash operating taxes calculation
US$ in thousands
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
- Over the five-year period, there is a notable upward trend in the provision for income taxes, increasing substantially from 42,104 thousand US dollars in 2020 to 340,335 thousand US dollars in 2024. This represents more than an eightfold increase. The most significant year-over-year increases occur between 2021 and 2022, and then between 2023 and 2024, indicating rising tax liabilities or changes in taxable income levels.
- Cash Operating Taxes
- Cash operating taxes have similarly shown a considerable increase, rising from 72,956 thousand US dollars in 2020 to 473,174 thousand US dollars in 2024. Notably, there was an exceptional spike between 2023 and 2024, with cash taxes paid increasing by approximately 69%. The variance between provision for income taxes and cash operating taxes remains evident, especially in years 2022 and 2024, suggesting timing differences, adjustments, or cash flow implications related to tax settlements.
- Overall Tax Trends
- Both the provision for income taxes and cash operating taxes exhibit strong growth trajectories, with cash operating taxes consistently higher than provisions, implying the company is possibly managing tax payments in a way that impacts cash flow distinctly from reported tax expense. The escalating tax figures may reflect increasing profitability, changes in tax legislation, or other fiscal factors influencing tax obligations over time.
Invested Capital
Cadence Design Systems Inc., invested capital calculation (financing approach)
US$ in thousands
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 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.
- Total Reported Debt & Leases
- The total reported debt and leases demonstrate an overall increasing trend over the five-year period. Initially, debt and leases decreased slightly from 494,629 thousand USD in 2020 to 479,980 thousand USD in 2021. However, in the subsequent years, the figure rose significantly, particularly between 2021 and 2022, jumping to 924,152 thousand USD. This was followed by a moderate decrease to 806,033 thousand USD in 2023. A sharp increase occurred again in 2024, reaching 2,626,630 thousand USD, nearly tripling the previous year’s amount. This pattern indicates significant fluctuations in the company's leverage, with a marked increase in obligations by the end of the period.
- Stockholders' Equity
- Stockholders' equity shows a consistent upward trajectory throughout the period. Starting at 2,493,018 thousand USD in 2020, it increased steadily each year, reaching 2,740,675 thousand USD in 2021, and maintaining a similar level in 2022 at 2,745,113 thousand USD. The equity then rose substantially in 2023 to 3,404,271 thousand USD and continued this growth trend, climbing to 4,673,578 thousand USD in 2024. This consistent increase suggests a strengthening equity base and possibly improved retention of earnings or fresh equity infusion over time.
- Invested Capital
- The invested capital exhibits a robust growth trend over the reported years, rising from 2,827,971 thousand USD in 2020 to 3,138,367 thousand USD in 2021. The upward momentum accelerates in the following years with invested capital reaching 3,680,162 thousand USD in 2022 and further increasing to 4,056,689 thousand USD in 2023. The most significant jump occurs between 2023 and 2024, where it almost doubles to 7,246,546 thousand USD. This indicates a substantial increase in the company's total capital employed, reflecting either expansion activities or considerable investment initiatives.
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: 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 »
| 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: 2020-12-31).
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, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Economic profit1 | ||||||
| Invested capital2 | ||||||
| Performance Ratio | ||||||
| Economic spread ratio3 | ||||||
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Accenture PLC | ||||||
| Adobe Inc. | ||||||
| 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: 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 financial data reveals notable trends in economic profit, invested capital, and economic spread ratio over the five-year period. A detailed examination of these metrics highlights both growth and challenges in recent years.
- Economic Profit
- Economic profit showed consistent growth from 2020 to 2023, increasing from 282,099 thousand US dollars to 387,479 thousand US dollars. This represents a steady upward trend, indicative of improving financial performance and value creation during these years. However, a significant downturn is observable in 2024, where economic profit declines sharply to negative 40,652 thousand US dollars, signaling a loss in value and potential operational or market challenges.
- Invested Capital
- Invested capital exhibited continuous growth across the entire period, beginning at 2,827,971 thousand US dollars in 2020 and rising substantially to 7,246,546 thousand US dollars by 2024. This nearly more than doubled over five years, suggesting aggressive capital investment or asset accumulation strategies. The considerable increase in invested capital by 2024 contrasts with the negative economic profit experienced in the same year, potentially pointing to issues with capital efficiency or returns on the recent investments.
- Economic Spread Ratio
- The economic spread ratio, which reflects the return on invested capital relative to cost, started at 9.98% in 2020 and saw a marginal decline in subsequent years to 9.17% in 2021 and 8.94% in 2022. It rebounded somewhat to 9.55% in 2023 but dropped dramatically to -0.56% in 2024. This sharp reversal indicates that the returns generated by the invested capital failed to cover the associated costs during the last year, underlining the loss indicated by the economic profit figure and signaling a period of negative value creation.
Overall, the data illustrates a period of positive economic value creation and increasing capital investment over four years, followed by a significant downturn in 2024 where economic profit turns negative and the spread ratio falls below zero. This suggests issues with investment returns, potential inefficiencies, or external factors adversely affecting profitability despite substantial capital deployment.
Economic Profit Margin
Cadence Design Systems 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 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. | ||||||
| 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: 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 ÷ Adjusted revenue
= 100 × ÷ =
3 Click competitor name to see calculations.
The financial data reflects several important trends and changes over the observed five-year period.
- Economic Profit
- The economic profit increased steadily from 282,099 thousand USD in 2020 to 387,479 thousand USD in 2023. This upward trajectory indicates improved operational efficiency or profitability during this period. However, there is a notable decline in 2024, with economic profit turning negative to -40,652 thousand USD, suggesting a significant downturn or increased costs that outweighed gains.
- Adjusted Revenue
- Adjusted revenue exhibits a consistent upward trend throughout the entire period. Starting from approximately 2,807,929 thousand USD in 2020, it grew each year, reaching 4,729,890 thousand USD in 2024. This steady increase signifies strong top-line growth, implying expansion of market presence, increased sales volumes, or price adjustments favorably impacting revenue.
- Economic Profit Margin
- The economic profit margin shows a slight downward trend from 10.05% in 2020 to 8.92% in 2022, followed by a modest recovery to 9.52% in 2023. However, in 2024, the margin sharply deteriorates to -0.86%, turning negative for the first time in the period. This pattern suggests that despite growing revenues, profitability relative to revenue weakened significantly in the final year, possibly due to rising costs, impairments, or other financial challenges.
In summary, while the company experienced continuous revenue growth over the five years, profitability measured by economic profit and its margin generally declined after peaking in 2023. The negative economic profit and margin in 2024 highlight a substantial shift, warranting a detailed investigation into cost structures and other factors contributing to the adverse performance in that year.