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.
Economic Profit
Teradyne Inc., economic profit calculation
US$ in thousands
Based on: 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), 10-K (reporting date: 2019-12-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2023 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 313,918 – 24.25% × 2,415,179 = -271,679
The financial performance between 2019 and 2023 demonstrates a cyclical trajectory, transitioning from a period of significant value creation to a state of economic value destruction.
- Net Operating Profit After Taxes (NOPAT)
- A strong upward trend was observed from 2019 to 2021, with NOPAT increasing from 499,351 thousand to a peak of 1,034,943 thousand. However, this growth reversed sharply starting in 2022, culminating in a low of 313,918 thousand by the end of 2023, representing a substantial contraction in operational profitability.
- Cost of Capital and Invested Capital
- The cost of capital exhibited a consistent incremental increase, rising from 22.39% in 2019 to 24.25% in 2023. Simultaneously, invested capital grew steadily from 1,845,838 thousand to a peak of 2,587,403 thousand in 2022, before experiencing a slight decrease to 2,415,179 thousand in 2023.
- Economic Profit
- Economic profit followed a volatile path, mirroring the trends in NOPAT. Value creation peaked in 2021 at 429,555 thousand. A precipitous decline occurred in 2022, followed by a shift to a negative economic profit of -271,679 thousand in 2023. This indicates that the net operating profit was insufficient to cover the cost of the capital employed during the final year of the period.
The convergence of declining NOPAT and a steadily increasing cost of capital resulted in a reversal of economic value added. While the organization maintained positive economic profit for the majority of the analyzed period, the 2023 results signify a failure to generate returns exceeding the required rate of return on invested capital.
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Net Operating Profit after Taxes (NOPAT)
Teradyne Inc., NOPAT calculation
US$ in thousands
Based on: 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), 10-K (reporting date: 2019-12-31).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowance for credit losses.
3 Addition of increase (decrease) in deferred revenue and customer advances.
4 Addition of increase (decrease) in product warranty liability.
5 Addition of increase (decrease) in equity equivalents to net income.
6 2023 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 82,614 × 5.20% = 4,296
7 2023 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 8,102 × 21.00% = 1,701
8 Addition of after taxes interest expense to net income.
9 2023 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 34,848 × 21.00% = 7,318
10 Elimination of after taxes investment income.
- Net Income
- Net income demonstrated a strong upward trend from 2019 through 2021, rising from approximately 467 million US dollars in 2019 to over 1 billion US dollars in 2021. However, this pattern reversed in the subsequent two years, with net income declining to about 715 million in 2022 and further decreasing to approximately 449 million in 2023.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT followed a similar trajectory, increasing notably from around 499 million US dollars in 2019 to approximately 1.03 billion US dollars in 2021. After this peak, NOPAT experienced a significant decrease to roughly 659 million in 2022 and almost halved to 314 million in 2023.
- Overall Trend Analysis
- Both net income and NOPAT showed strong growth over the first three years before entering a period of marked contraction in the last two years. The declines in 2022 and 2023 suggest a reduced profitability from operations and overall earnings, potentially indicating operational challenges or external factors adversely affecting financial performance during this period.
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Cash Operating Taxes
Teradyne Inc., cash operating taxes calculation
US$ in thousands
Based on: 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), 10-K (reporting date: 2019-12-31).
- Provision for Income Taxes
- The provision for income taxes exhibited an overall increasing trend from 2019 through 2021, rising from 58,304 thousand US dollars in 2019 to a peak of 146,366 thousand US dollars in 2021. This increase suggests higher taxable income or possibly less favorable tax conditions during this period. However, from 2021 onward, there was a decline in the provision, falling to 124,884 thousand US dollars in 2022 and further to 76,820 thousand US dollars in 2023, indicating a reduction in income tax expense or changes in tax strategy or rates.
- Cash Operating Taxes
- Cash operating taxes also followed a rising trajectory from 2019 to 2021, with amounts increasing from 66,842 thousand US dollars in 2019 to 166,173 thousand US dollars in 2021. This upward movement corresponded with the trend seen in the provision for income taxes, reflecting potentially higher tax payments aligned with reported taxable earnings. After 2021, cash operating taxes remained relatively stable in 2022, slightly decreasing to 165,914 thousand US dollars, before a more pronounced reduction to 108,845 thousand US dollars in 2023.
- Comparative Insights
- Both the provision for income taxes and cash operating taxes indicate growth during 2019–2021, peaking in 2021, followed by notable declines in the subsequent years. The gap between provision and cash taxes narrows slightly by 2023, implying a convergence between estimated tax liabilities and actual cash outflows. The trends suggest possible fluctuations in taxable income levels, tax planning measures, or regulatory environments affecting the company’s tax expenses and payments during the observed timeframe.
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Invested Capital
Teradyne Inc., invested capital calculation (financing approach)
US$ in thousands
Based on: 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), 10-K (reporting date: 2019-12-31).
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 and customer advances.
5 Addition of product warranty liability.
6 Addition of equity equivalents to shareholders’ equity.
7 Removal of accumulated other comprehensive income.
8 Subtraction of construction in progress.
9 Subtraction of marketable securities.
- Total Reported Debt & Leases
- The total reported debt and leases demonstrate a significant downward trend throughout the analyzed period. Beginning at $460,012 thousand as of December 31, 2019, the amount slightly increased to $472,757 thousand in 2020, then sharply decreased to $184,581 thousand in 2021. This declining trajectory continued in subsequent years, reaching $132,885 thousand in 2022 and further reducing to $82,614 thousand by the end of 2023. This pattern indicates a strategic reduction in leverage over time, suggesting efforts to lower financial risk or improve debt management.
- Shareholders’ Equity
- Shareholders’ equity shows an overall increasing trend with slight fluctuations. Starting at $1,480,158 thousand in 2019, it substantially grew to $2,207,018 thousand in 2020, followed by a continued rise to $2,562,444 thousand in 2021. However, in 2022, equity slightly decreased to $2,451,294 thousand before recovering to $2,525,897 thousand in 2023. This overall growth points towards retained earnings accumulation or capital infusions, enhancing the company's net worth and financial stability.
- Invested Capital
- Invested capital displays a gradual increase in the earlier years, moving from $1,845,838 thousand in 2019 to $2,183,213 thousand in 2020, and then to $2,564,053 thousand in 2021. After peaking in 2022 at $2,587,403 thousand, it slightly contracted to $2,415,179 thousand in 2023. The steady increase through most of the periods indicates ongoing investments in operational assets and business growth, while the recent decline may reflect asset disposals, depreciation effects, or a strategic contraction.
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Cost of Capital
Teradyne Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 15,687,701) | 15,687,701) | ÷ | 15,770,315) | = | 0.99 | 0.99 | × | 24.35% | = | 24.22% | ||
| Convertible debt3 | —) | —) | ÷ | 15,770,315) | = | 0.00 | 0.00 | × | 0.00% × (1 – 21.00%) | = | 0.00% | ||
| Operating lease liability4 | 82,614) | 82,614) | ÷ | 15,770,315) | = | 0.01 | 0.01 | × | 5.20% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 15,770,315) | 1.00 | 24.25% | ||||||||||
Based on: 10-K (reporting date: 2023-12-31).
1 US$ in thousands
2 Equity. See details »
3 Convertible debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 15,724,944) | 15,724,944) | ÷ | 15,946,721) | = | 0.99 | 0.99 | × | 24.35% | = | 24.01% | ||
| Convertible debt3 | 139,007) | 139,007) | ÷ | 15,946,721) | = | 0.01 | 0.01 | × | 5.00% × (1 – 21.00%) | = | 0.03% | ||
| Operating lease liability4 | 82,770) | 82,770) | ÷ | 15,946,721) | = | 0.01 | 0.01 | × | 4.70% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 15,946,721) | 1.00 | 24.07% | ||||||||||
Based on: 10-K (reporting date: 2022-12-31).
1 US$ in thousands
2 Equity. See details »
3 Convertible debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 18,112,749) | 18,112,749) | ÷ | 18,793,552) | = | 0.96 | 0.96 | × | 24.35% | = | 23.47% | ||
| Convertible debt3 | 604,648) | 604,648) | ÷ | 18,793,552) | = | 0.03 | 0.03 | × | 5.00% × (1 – 21.00%) | = | 0.13% | ||
| Operating lease liability4 | 76,155) | 76,155) | ÷ | 18,793,552) | = | 0.00 | 0.00 | × | 4.10% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 18,793,552) | 1.00 | 23.61% | ||||||||||
Based on: 10-K (reporting date: 2021-12-31).
1 US$ in thousands
2 Equity. See details »
3 Convertible debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 22,068,721) | 22,068,721) | ÷ | 23,870,920) | = | 0.92 | 0.92 | × | 24.35% | = | 22.51% | ||
| Convertible debt3 | 1,739,553) | 1,739,553) | ÷ | 23,870,920) | = | 0.07 | 0.07 | × | 5.00% × (1 – 21.00%) | = | 0.29% | ||
| Operating lease liability4 | 62,646) | 62,646) | ÷ | 23,870,920) | = | 0.00 | 0.00 | × | 4.80% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 23,870,920) | 1.00 | 22.81% | ||||||||||
Based on: 10-K (reporting date: 2020-12-31).
1 US$ in thousands
2 Equity. See details »
3 Convertible debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 10,088,794) | 10,088,794) | ÷ | 11,164,394) | = | 0.90 | 0.90 | × | 24.35% | = | 22.01% | ||
| Convertible debt3 | 1,010,275) | 1,010,275) | ÷ | 11,164,394) | = | 0.09 | 0.09 | × | 5.00% × (1 – 21.00%) | = | 0.36% | ||
| Operating lease liability4 | 65,325) | 65,325) | ÷ | 11,164,394) | = | 0.01 | 0.01 | × | 5.00% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 11,164,394) | 1.00 | 22.39% | ||||||||||
Based on: 10-K (reporting date: 2019-12-31).
1 US$ in thousands
2 Equity. See details »
3 Convertible debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Teradyne Inc., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Economic profit1 | (271,679) | 36,744) | 429,555) | 352,299) | 86,124) | |
| Invested capital2 | 2,415,179) | 2,587,403) | 2,564,053) | 2,183,213) | 1,845,838) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -11.25% | 1.42% | 16.75% | 16.14% | 4.67% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Advanced Micro Devices Inc. | -29.22% | -28.83% | 27.74% | — | — | |
| Analog Devices Inc. | -10.09% | -11.45% | -14.69% | -9.63% | — | |
| Applied Materials Inc. | 13.12% | 23.09% | 18.58% | 6.93% | — | |
| Broadcom Inc. | 4.81% | 3.56% | -5.68% | -10.90% | — | |
| Intel Corp. | -19.97% | -13.18% | 3.40% | — | — | |
| KLA Corp. | 20.01% | 22.42% | 10.88% | — | — | |
| Lam Research Corp. | 2.09% | 17.11% | 12.45% | — | — | |
| Marvell Technology Inc. | -22.37% | -25.14% | -26.87% | — | — | |
| Micron Technology Inc. | -29.73% | -2.10% | -6.71% | -12.14% | — | |
| NVIDIA Corp. | -16.42% | 25.78% | 6.26% | — | — | |
| Qualcomm Inc. | 0.13% | 26.57% | 23.96% | 9.03% | — | |
| Texas Instruments Inc. | 12.32% | 32.90% | 31.53% | — | — | |
Based on: 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), 10-K (reporting date: 2019-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2023 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -271,679 ÷ 2,415,179 = -11.25%
4 Click competitor name to see calculations.
The analysis of economic value added metrics reveals a cyclical pattern of value creation followed by a significant downturn. The period from 2019 to 2023 is characterized by a rapid escalation in economic profitability that peaked in 2021, subsequently transitioning into a period of value erosion by the end of the observed timeframe.
- Economic Profit
- A substantial increase in economic profit was recorded between 2019 and 2021, rising from US$ 86,124 thousand to a peak of US$ 429,555 thousand. This growth trend reversed sharply in 2022, with profit falling to US$ 36,744 thousand. The decline culminated in 2023, where economic profit became negative, reaching US$ -271,679 thousand, signifying that the company failed to generate returns above its cost of capital.
- Invested Capital
- The capital base experienced steady growth from 2019 through 2022, increasing from US$ 1,845,838 thousand to a peak of US$ 2,587,403 thousand. A slight contraction occurred in 2023, with invested capital decreasing to US$ 2,415,179 thousand. Despite this late-stage reduction, the capital base remained significantly higher in 2023 than it was at the start of the five-year period.
- Economic Spread Ratio
- The economic spread ratio mirrors the volatility observed in economic profit. From an initial 4.67% in 2019, the ratio expanded aggressively to 16.14% in 2020 and reached a maximum of 16.75% in 2021. A precipitous decline followed, with the ratio dropping to 1.42% in 2022 and falling to -11.25% in 2023. This negative spread indicates a period of value destruction, where the returns on invested capital were insufficient to cover the cost of that capital.
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Economic Profit Margin
Teradyne Inc., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Economic profit1 | (271,679) | 36,744) | 429,555) | 352,299) | 86,124) | |
| Revenues | 2,676,298) | 3,155,045) | 3,702,881) | 3,121,469) | 2,294,965) | |
| Add: Increase (decrease) in deferred revenue and customer advances | (56,330) | (7,690) | 8,085) | 42,171) | 40,389) | |
| Adjusted revenues | 2,619,968) | 3,147,355) | 3,710,966) | 3,163,640) | 2,335,354) | |
| Performance Ratio | ||||||
| Economic profit margin2 | -10.37% | 1.17% | 11.58% | 11.14% | 3.69% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Advanced Micro Devices Inc. | -74.56% | -71.49% | 10.46% | — | — | |
| Analog Devices Inc. | -36.23% | -42.92% | -94.41% | -31.31% | — | |
| Applied Materials Inc. | 8.79% | 13.33% | 11.85% | 5.27% | — | |
| Broadcom Inc. | 8.42% | 6.66% | -13.37% | -30.08% | — | |
| Intel Corp. | -33.91% | -18.54% | 3.81% | — | — | |
| KLA Corp. | 15.90% | 18.95% | 10.72% | — | — | |
| Lam Research Corp. | 1.83% | 12.63% | 10.04% | — | — | |
| Marvell Technology Inc. | -75.59% | -112.19% | -82.48% | — | — | |
| Micron Technology Inc. | -102.30% | -3.59% | -11.22% | -23.96% | — | |
| NVIDIA Corp. | -12.99% | 17.28% | 4.89% | — | — | |
| Qualcomm Inc. | 0.12% | 17.70% | 14.43% | 6.82% | — | |
| Texas Instruments Inc. | 15.88% | 28.85% | 28.21% | — | — | |
Based on: 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), 10-K (reporting date: 2019-12-31).
1 Economic profit. See details »
2 2023 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted revenues
= 100 × -271,679 ÷ 2,619,968 = -10.37%
3 Click competitor name to see calculations.
The analysis of economic value added reveals a cyclical trend characterized by a period of rapid growth followed by a severe contraction. The trajectory indicates a significant erosion of value creation starting after 2021, culminating in a transition from positive economic profit to a substantial deficit by the end of 2023.
- Economic Profit Margin Volatility
- The economic profit margin exhibited a sharp ascent from 3.69% in 2019 to a peak of 11.58% in 2021. However, this trend reversed abruptly, falling to 1.17% in 2022 and plummeting to -10.37% in 2023. This shift denotes that the entity transitioned from generating returns well above its cost of capital to destroying economic value.
- Revenue and Profit Correlation
- Adjusted revenues followed a similar parabolic arc, increasing from 2.34 billion in 2019 to a peak of 3.71 billion in 2021, before declining to 2.62 billion in 2023. While revenues decreased by approximately 29.4% from the 2021 peak to 2023, economic profit collapsed more aggressively, moving from a surplus of 429.56 million to a deficit of 271.68 million.
- Value Creation Sustainability
- The period between 2020 and 2021 represents the height of economic value creation, where the margin remained stable above 11%. The subsequent collapse in the economic profit margin suggests that the cost of capital or operating expenses became unsustainable relative to the declining revenue base, leading to the observed negative economic profit in 2023.
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