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Regeneron Pharmaceuticals Inc. (REGN)

Economic Value Added (EVA)

Difficulty: Advanced

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
Net Operating Profit after Taxes (NOPAT)
Cash Operating Taxes
Invested Capital
Cost of Capital
Economic Spread Ratio
Economic Profit Margin

Economic Profit

Regeneron Pharmaceuticals Inc., economic profit calculation

US$ in thousands

	12 months ended	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Net operating profit after taxes (NOPAT)¹
	Cost of capital²
	Invested capital³

	Economic profit⁴

Based on: 10-K (filing date: 2019-02-07), 10-K (filing date: 2018-02-08), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-12).

¹ NOPAT. See details »

² Cost of capital. See details »

³ Invested capital. See details »

<>⁴ 2018 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= hidden

–

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.	Regeneron Pharmaceuticals Inc.’s economic profit increased from 2016 to 2017 and from 2017 to 2018.

Net Operating Profit after Taxes (NOPAT)

Regeneron Pharmaceuticals Inc., NOPAT calculation

US$ in thousands

	12 months ended	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Net income
	Deferred income tax expense (benefit)¹
	Increase (decrease) in deferred revenue²
	Increase (decrease) in equity equivalents³
	Interest expense
	Interest expense, operating lease liability⁴
	Adjusted interest expense
	Tax benefit of interest expense⁵
	Adjusted interest expense, after taxes⁶
	(Gain) loss on marketable securities
	Investment income, before taxes
	Tax expense (benefit) of investment income⁷
	Investment income, after taxes⁸
	Net operating profit after taxes (NOPAT)

Based on: 10-K (filing date: 2019-02-07), 10-K (filing date: 2018-02-08), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-12).

¹ Elimination of deferred tax expense. See details »

² Addition of increase (decrease) in deferred revenue.

³ Addition of increase (decrease) in equity equivalents to net income.

⁴ 2018 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= hidden × hidden = hidden

⁵ 2018 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= hidden × 21.00% = hidden

⁶ Addition of after taxes interest expense to net income.

⁷ 2018 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= hidden × 21.00% = hidden

⁸ Elimination of after taxes investment income.

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.	Regeneron Pharmaceuticals Inc.’s NOPAT increased from 2016 to 2017 and from 2017 to 2018.

Cash Operating Taxes

Regeneron Pharmaceuticals Inc., cash operating taxes calculation

US$ in thousands

	12 months ended	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Income tax expense (benefit)
	Less: Deferred income tax expense (benefit)
	Add: Tax savings from interest expense
	Less: Tax imposed on investment income
	Cash operating taxes

Based on: 10-K (filing date: 2019-02-07), 10-K (filing date: 2018-02-08), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-12).

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.	Regeneron Pharmaceuticals Inc.’s cash operating taxes declined from 2016 to 2017 and from 2017 to 2018.

Invested Capital

Regeneron Pharmaceuticals Inc., invested capital calculation (financing approach)

US$ in thousands

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Capital and facility lease obligations, current portion
	Convertible senior notes, current portion
	Capital and facility lease obligations, excluding current portion
	Convertible senior notes, excluding current portion
	Operating lease liability¹
	Total reported debt & leases
	Stockholders’ equity
	Net deferred tax (assets) liabilities²
	Deferred revenue³
	Equity equivalents⁴
	Accumulated other comprehensive (income) loss, net of tax⁵
	Adjusted stockholders’ equity
	Construction-in-progress⁶
	Marketable securities⁷
	Invested capital

Based on: 10-K (filing date: 2019-02-07), 10-K (filing date: 2018-02-08), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-12).

¹ Addition of capitalized operating leases.

² Elimination of deferred taxes from assets and liabilities. See details »

³ Addition of deferred revenue.

⁴ Addition of equity equivalents to stockholders’ equity.

⁵ Removal of accumulated other comprehensive income.

⁶ Subtraction of construction-in-progress.

⁷ Subtraction of marketable securities.

Item	Description	The company
Invested capital	Capital is an approximation of the economic book value of all cash invested in going-concern business activities.	Regeneron Pharmaceuticals Inc.’s invested capital increased from 2016 to 2017 and from 2017 to 2018.

Cost of Capital

Regeneron Pharmaceuticals Inc., cost of capital calculations

	Weights			Cost of capital
Equity²		÷	=		×		=
Debt³		÷	=		×	× (1 – 21.00%)	=
Operating lease liability⁴		÷	=		×	× (1 – 21.00%)	=
Total capital:	Total weights:			Cost of total capital:

Based on: 10-K (filing date: 2019-02-07).

¹ US$ in thousands

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

	Weights			Cost of capital
Equity²		÷	=		×		=
Debt³		÷	=		×	× (1 – 35.00%)	=
Operating lease liability⁴		÷	=		×	× (1 – 35.00%)	=
Total capital:	Total weights:			Cost of total capital:

Based on: 10-K (filing date: 2018-02-08).

¹ US$ in thousands

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

	Weights			Cost of capital
Equity²		÷	=		×		=
Debt³		÷	=		×	× (1 – 35.00%)	=
Operating lease liability⁴		÷	=		×	× (1 – 35.00%)	=
Total capital:	Total weights:			Cost of total capital:

Based on: 10-K (filing date: 2017-02-09).

¹ US$ in thousands

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

	Weights			Cost of capital
Equity²		÷	=		×		=
Debt³		÷	=		×	× (1 – 35.00%)	=
Operating lease liability⁴		÷	=		×	× (1 – 35.00%)	=
Total capital:	Total weights:			Cost of total capital:

Based on: 10-K (filing date: 2016-02-11).

¹ US$ in thousands

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

	Weights			Cost of capital
Equity²		÷	=		×		=
Debt³		÷	=		×	× (1 – 35.00%)	=
Operating lease liability⁴		÷	=		×	× (1 – 35.00%)	=
Total capital:	Total weights:			Cost of total capital:

Based on: 10-K (filing date: 2015-02-12).

¹ US$ in thousands

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Economic Spread Ratio

Regeneron Pharmaceuticals Inc., economic spread ratio calculation

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Selected Financial Data (US$ in thousands)
	Economic profit¹
	Invested capital²
	Performance Ratio
	Economic spread ratio³

Based on: 10-K (filing date: 2019-02-07), 10-K (filing date: 2018-02-08), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-12).

¹ Economic profit. See details »

² Invested capital. See details »

³ 2018 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × hidden ÷ hidden = hidden

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.	Regeneron Pharmaceuticals Inc.’s economic spread ratio improved from 2016 to 2017 and from 2017 to 2018.

Economic Profit Margin

Regeneron Pharmaceuticals Inc., economic profit margin calculation

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Selected Financial Data (US$ in thousands)
	Economic profit¹
	Revenues
	Add: Increase (decrease) in deferred revenue
	Adjusted revenues
	Performance Ratio
	Economic profit margin²

Based on: 10-K (filing date: 2019-02-07), 10-K (filing date: 2018-02-08), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-12).

¹ Economic profit. See details »

² 2018 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted revenues
= 100 × hidden ÷ hidden = hidden

Performance ratio	Description	The company
Economic profit margin	The ratio of economic profit to sales. It is the company’s 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.	Regeneron Pharmaceuticals Inc.’s economic profit margin improved from 2016 to 2017 and from 2017 to 2018.

	Regeneron Pharmaceuticals Inc.	Other companies (not purchased previously)
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Common-Size Financial Statements
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Relative Valuation
Discounted Cash Flow (DCF) Valuation
Economic Value Added (EVA)
Long-term Trends
Analysis
Financial Reporting Quality

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Financial Statements
Common-Size Financial Statements
Ratios
Relative Valuation
Discounted Cash Flow (DCF) Valuation
Economic Value Added (EVA)
Long-term Trends
Analysis
Financial Reporting Quality

Regeneron Pharmaceuticals Inc. (REGN)

Economic Value Added (EVA)

Economic Profit

Net Operating Profit after Taxes (NOPAT)

Cash Operating Taxes

Invested Capital

Cost of Capital

Dec 31, 2018

Dec 31, 2017

Dec 31, 2016

Dec 31, 2015

Dec 31, 2014

Economic Spread Ratio

Economic Profit Margin