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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

Illumina Inc., economic profit calculation

US$ in millions

12 months ended:	Dec 31, 2020	Dec 29, 2019	Dec 30, 2018	Dec 31, 2017	Dec 31, 2016
Net operating profit after taxes (NOPAT)¹	593)	957)	775)	739)	453)
Cost of capital²	13.68%	13.48%	13.26%	13.27%	13.16%
Invested capital³	4,907)	4,997)	3,989)	3,596)	2,874)

Economic profit⁴	(79)	283)	246)	262)	75)

Based on: 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-29), 10-K (reporting date: 2018-12-30), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31).

¹ NOPAT. See details »

² Cost of capital. See details »

³ Invested capital. See details »

⁴ 2020 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 593 – 13.68% × 4,907 = -79

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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.	Illumina Inc. economic profit increased from 2018 to 2019 but then decreased significantly from 2019 to 2020.

Illumina Inc., NOPAT calculation

US$ in millions

12 months ended:	Dec 31, 2020	Dec 29, 2019	Dec 30, 2018	Dec 31, 2017	Dec 31, 2016
Net income attributable to Illumina stockholders	656)	1,002)	826)	726)	463)
Deferred income tax expense (benefit)¹	117)	5)	(18)	34)	7)
Increase (decrease) in allowance for doubtful accounts²	2)	—)	(1)	(1)	(4)
Increase (decrease) in reserve for product warranties³	(1)	(5)	2)	4)	(3)
Increase (decrease) in equity equivalents⁴	118)	—)	(17)	37)	(1)
Interest expense	49)	52)	57)	37)	33)
Interest expense, operating lease liability⁵	32)	34)	20)	19)	17)
Adjusted interest expense	81)	86)	77)	56)	50)
Tax benefit of interest expense⁶	(17)	(18)	(16)	(20)	(17)
Adjusted interest expense, after taxes⁷	64)	68)	61)	37)	32)
(Gain) loss on marketable securities	(270)	(53)	(21)	—)	—)
Interest income	(41)	(75)	(44)	(19)	(10)
Investment income, before taxes	(311)	(128)	(65)	(19)	(10)
Tax expense (benefit) of investment income⁸	65)	27)	14)	7)	3)
Investment income, after taxes⁹	(246)	(101)	(51)	(12)	(6)
Net income (loss) attributable to noncontrolling interest	—)	(12)	(44)	(48)	(35)
Net operating profit after taxes (NOPAT)	593)	957)	775)	739)	453)

Based on: 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-29), 10-K (reporting date: 2018-12-30), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31).

¹ Elimination of deferred tax expense. See details »

² Addition of increase (decrease) in allowance for doubtful accounts.

³ Addition of increase (decrease) in reserve for product warranties.

⁴ Addition of increase (decrease) in equity equivalents to net income attributable to Illumina stockholders.

⁵ 2020 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 722 × 4.50% = 32

⁶ 2020 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 81 × 21.00% = 17

⁷ Addition of after taxes interest expense to net income attributable to Illumina stockholders.

⁸ 2020 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 311 × 21.00% = 65

⁹ 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.	Illumina Inc. NOPAT increased from 2018 to 2019 but then decreased significantly from 2019 to 2020.

Illumina Inc., cash operating taxes calculation

US$ in millions

12 months ended:	Dec 31, 2020	Dec 29, 2019	Dec 30, 2018	Dec 31, 2017	Dec 31, 2016
Provision for income taxes	200)	128)	112)	365)	133)
Less: Deferred income tax expense (benefit)	117)	5)	(18)	34)	7)
Add: Tax savings from interest expense	17)	18)	16)	20)	17)
Less: Tax imposed on investment income	65)	27)	14)	7)	3)
Cash operating taxes	35)	114)	133)	344)	140)

Based on: 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-29), 10-K (reporting date: 2018-12-30), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31).

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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.	Illumina Inc. cash operating taxes decreased from 2018 to 2019 and from 2019 to 2020.

Illumina Inc., invested capital calculation (financing approach)

US$ in millions

	Dec 31, 2020	Dec 29, 2019	Dec 30, 2018	Dec 31, 2017	Dec 31, 2016
Build-to-suit lease liability	—)	—)	—)	144)	223)
Long-term debt, current portion	511)	—)	1,107)	10)	1)
Long-term debt, excluding current portion	673)	1,141)	890)	1,182)	1,048)
Operating lease liability¹	722)	740)	602)	604)	523)
Total reported debt & leases	1,906)	1,881)	2,599)	1,940)	1,795)
Total Illumina stockholders’ equity	4,694)	4,613)	3,758)	2,749)	2,197)
Net deferred tax (assets) liabilities²	53)	(63)	(70)	(88)	(122)
Allowance for doubtful accounts³	4)	2)	2)	3)	4)
Reserve for product warranties⁴	13)	14)	19)	17)	13)
Equity equivalents⁵	70)	(47)	(49)	(68)	(105)
Accumulated other comprehensive (income) loss, net of tax⁶	(2)	(5)	1)	1)	1)
Redeemable noncontrolling interests	—)	—)	61)	220)	44)
Noncontrolling interests	—)	—)	87)	—)	73)
Adjusted total Illumina stockholders’ equity	4,762)	4,561)	3,858)	2,902)	2,210)
Construction in progress⁷	(99)	(73)	(100)	(326)	(307)
Short-term investments⁸	(1,662)	(1,372)	(2,368)	(920)	(824)
Invested capital	4,907)	4,997)	3,989)	3,596)	2,874)

Based on: 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-29), 10-K (reporting date: 2018-12-30), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31).

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 reserve for product warranties.

⁵ Addition of equity equivalents to total Illumina stockholders’ equity.

⁶ Removal of accumulated other comprehensive income.

⁷ Subtraction of construction in progress.

⁸ Subtraction of short-term 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.	Illumina Inc. invested capital increased from 2018 to 2019 but then slightly decreased from 2019 to 2020.

Illumina Inc., cost of capital calculations

Dec 31, 2020

	Capital (fair value)¹	Weights					Cost of capital
Equity²	72,110)	72,110)	÷	74,427)	=	0.97	0.97	×	14.02%	=	13.59%
Debt³	1,595)	1,595)	÷	74,427)	=	0.02	0.02	×	3.62% × (1 – 21.00%)	=	0.06%
Operating lease liability⁴	722)	722)	÷	74,427)	=	0.01	0.01	×	4.50% × (1 – 21.00%)	=	0.03%
Total:	74,427)					1.00					13.68%

Based on: 10-K (reporting date: 2020-12-31).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Dec 29, 2019

	Capital (fair value)¹	Weights					Cost of capital
Equity²	43,512)	43,512)	÷	45,801)	=	0.95	0.95	×	14.02%	=	13.32%
Debt³	1,549)	1,549)	÷	45,801)	=	0.03	0.03	×	3.62% × (1 – 21.00%)	=	0.10%
Operating lease liability⁴	740)	740)	÷	45,801)	=	0.02	0.02	×	4.60% × (1 – 21.00%)	=	0.06%
Total:	45,801)					1.00					13.48%

Based on: 10-K (reporting date: 2019-12-29).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Dec 30, 2018

	Capital (fair value)¹	Weights					Cost of capital
Equity²	42,953)	42,953)	÷	46,050)	=	0.93	0.93	×	14.02%	=	13.08%
Debt³	2,494)	2,494)	÷	46,050)	=	0.05	0.05	×	3.38% × (1 – 21.00%)	=	0.14%
Operating lease liability⁴	602)	602)	÷	46,050)	=	0.01	0.01	×	3.38% × (1 – 21.00%)	=	0.03%
Total:	46,050)					1.00					13.26%

Based on: 10-K (reporting date: 2018-12-30).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2017

	Capital (fair value)¹	Weights					Cost of capital
Equity²	32,405)	32,405)	÷	34,575)	=	0.94	0.94	×	14.02%	=	13.14%
Debt³	1,566)	1,566)	÷	34,575)	=	0.05	0.05	×	3.17% × (1 – 35.00%)	=	0.09%
Operating lease liability⁴	604)	604)	÷	34,575)	=	0.02	0.02	×	3.17% × (1 – 35.00%)	=	0.04%
Total:	34,575)					1.00					13.27%

Based on: 10-K (reporting date: 2017-12-31).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2016

	Capital (fair value)¹	Weights					Cost of capital
Equity²	24,060)	24,060)	÷	25,927)	=	0.93	0.93	×	14.02%	=	13.01%
Debt³	1,343)	1,343)	÷	25,927)	=	0.05	0.05	×	3.17% × (1 – 35.00%)	=	0.11%
Operating lease liability⁴	523)	523)	÷	25,927)	=	0.02	0.02	×	3.17% × (1 – 35.00%)	=	0.04%
Total:	25,927)					1.00					13.16%

Based on: 10-K (reporting date: 2016-12-31).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Illumina Inc., economic spread ratio calculation, comparison to benchmarks

	Dec 31, 2020	Dec 29, 2019	Dec 30, 2018	Dec 31, 2017	Dec 31, 2016
Selected Financial Data (US$ in millions)
Economic profit¹	(79)	283)	246)	262)	75)
Invested capital²	4,907)	4,997)	3,989)	3,596)	2,874)
Performance Ratio
Economic spread ratio³	-1.60%	5.67%	6.16%	7.28%	2.61%
Benchmarks
Economic Spread Ratio, Competitors⁴
AbbVie Inc.	-2.97%	7.30%	—	—	—
Amgen Inc.	11.81%	14.02%	—	—	—
Bristol-Myers Squibb Co.	-13.98%	-3.65%	—	—	—
Eli Lilly & Co.	18.96%	15.79%	—	—	—
Gilead Sciences Inc.	-4.07%	7.24%	—	—	—
Johnson & Johnson	5.15%	4.06%	—	—	—
Merck & Co. Inc.	4.69%	11.27%	—	—	—
Pfizer Inc.	-2.82%	5.79%	—	—	—
Regeneron Pharmaceuticals Inc.	39.10%	28.35%	—	—	—
Thermo Fisher Scientific Inc.	0.14%	-3.74%	—	—	—

Based on: 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-29), 10-K (reporting date: 2018-12-30), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31).

¹ Economic profit. See details »

² Invested capital. See details »

³ 2020 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -79 ÷ 4,907 = -1.60%

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.	Illumina Inc. economic spread ratio deteriorated from 2018 to 2019 and from 2019 to 2020.

Illumina Inc., economic profit margin calculation, comparison to benchmarks

	Dec 31, 2020	Dec 29, 2019	Dec 30, 2018	Dec 31, 2017	Dec 31, 2016
Selected Financial Data (US$ in millions)
Economic profit¹	(79)	283)	246)	262)	75)
Revenue	3,239)	3,543)	3,333)	2,752)	2,398)
Performance Ratio
Economic profit margin²	-2.43%	8.00%	7.37%	9.51%	3.13%
Benchmarks
Economic Profit Margin, Competitors³
AbbVie Inc.	-6.74%	13.77%	—	—	—
Amgen Inc.	18.90%	23.61%	—	—	—
Bristol-Myers Squibb Co.	-29.63%	-13.99%	—	—	—
Eli Lilly & Co.	18.97%	15.20%	—	—	—
Gilead Sciences Inc.	-8.41%	10.28%	—	—	—
Johnson & Johnson	6.14%	4.79%	—	—	—
Merck & Co. Inc.	5.58%	12.92%	—	—	—
Pfizer Inc.	-6.99%	13.53%	—	—	—
Regeneron Pharmaceuticals Inc.	38.10%	23.53%	—	—	—
Thermo Fisher Scientific Inc.	0.27%	-7.72%	—	—	—

Based on: 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-29), 10-K (reporting date: 2018-12-30), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31).

¹ Economic profit. See details »

² 2020 Calculation
Economic profit margin = 100 × Economic profit ÷ Revenue
= 100 × -79 ÷ 3,239 = -2.43%

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.	Illumina Inc. economic profit margin improved from 2018 to 2019 but then deteriorated significantly from 2019 to 2020.

Illumina Inc. (NASDAQ:ILMN)

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