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 – 24.19% × 2,415,179 = -270,326
The financial performance from 2019 to 2023 exhibits a cyclical trajectory, characterized by a period of significant value creation followed by a sharp decline into negative economic profit. This shift is primarily driven by a substantial contraction in operating profitability despite a relatively stable capital base and a rising cost of capital.
- Net Operating Profit After Taxes (NOPAT)
- A strong upward trend is evident between 2019 and 2021, with NOPAT peaking at 1,034,943 thousand US dollars. However, a severe reversal occurred thereafter, with profits declining to 313,918 thousand US dollars by the end of 2023. This represents a significant reduction in operating efficiency and earnings power compared to the peak observed in 2021.
- Cost of Capital
- The cost of capital has demonstrated a consistent and incremental increase throughout the analyzed period, rising from 22.34% in 2019 to 24.19% in 2023. This steady climb has effectively raised the financial hurdle required to achieve positive economic value.
- Invested Capital
- Invested capital grew steadily from 1,845,838 thousand US dollars in 2019 to a peak of 2,587,403 thousand US dollars in 2022. A modest contraction was observed in 2023, with the figure decreasing to 2,415,179 thousand US dollars, indicating a slight reduction in the total capital employed in the business.
- Economic Profit
- Economic profit transitioned from 87,064 thousand US dollars in 2019 to a peak of 430,947 thousand US dollars in 2021, marking a period of robust value creation. This trend reversed sharply in 2022, falling to 38,181 thousand US dollars, and culminated in a negative economic profit of -270,326 thousand US dollars in 2023. The transition to a negative value indicates that the operating returns are no longer sufficient to cover the cost of the capital invested, resulting in economic value destruction.
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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.
The financial performance from 2019 to 2023 is characterized by a period of rapid expansion followed by a significant contraction. Both Net Income and Net Operating Profit After Taxes (NOPAT) followed a similar trajectory, reaching a peak in 2021 before experiencing a sharp downward trend through 2023.
- Net Operating Profit After Taxes (NOPAT) Trends
- NOPAT exhibited substantial growth between 2019 and 2021, rising from 499,351 thousand US$ to a peak of 1,034,943 thousand US$. This indicates a period of strong core operating profitability. However, a sharp reversal occurred in 2022, with NOPAT falling to 659,470 thousand US$, followed by a further precipitous decline to 313,918 thousand US$ by the end of 2023. The 2023 NOPAT figure represents a significant reduction, falling well below the 2019 baseline.
- Net Income Correlation
- Net Income closely mirrored the movements of NOPAT, increasing from 467,468 thousand US$ in 2019 to a high of 1,014,589 thousand US$ in 2021. Similar to the operating profit, Net Income declined in 2022 and 2023, ending at 448,752 thousand US$. Although both metrics peaked in 2021, the subsequent decline in NOPAT was more pronounced than the decline in Net Income.
- Operational Profitability Divergence
- A notable divergence is observed in the 2023 figures. While Net Income remained relatively close to 2019 levels, NOPAT dropped significantly below its 2019 starting point. The fact that Net Income exceeded NOPAT by a wider margin in 2023 compared to previous years suggests that non-operating income or other non-core financial factors provided a greater relative contribution to the bottom line than core operating activities during the final period.
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Cash Operating Taxes
Teradyne Inc., cash operating taxes calculation
US$ 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).
The tax obligations from 2019 to 2023 exhibit a bell-shaped trajectory, characterized by a significant increase in both tax provisions and cash outflows through 2021, followed by a contraction in 2023. A consistent disparity is observed between the accounting provision for income taxes and the actual cash operating taxes paid, with cash outflows exceeding provisions in every reporting period.
- Provision for Income Taxes Analysis
- The provision for income taxes grew rapidly from 58,304 thousand US$ in 2019 to a peak of 146,366 thousand US$ in 2021. This peak was followed by a gradual decline to 124,884 thousand US$ in 2022 and a more pronounced decrease to 76,820 thousand US$ by the end of 2023. This suggests a period of heightened taxable income peaking in 2021, with a subsequent reduction in tax expenses by 2023.
- Cash Operating Taxes Analysis
- Cash operating taxes followed a similar upward trend initially, rising from 66,842 thousand US$ in 2019 to 166,173 thousand US$ in 2021. Unlike the provision for taxes, which began to decline in 2022, cash operating taxes remained nearly stagnant between 2021 and 2022, staying at 165,914 thousand US$. A significant reduction occurred in 2023, with the value falling to 108,845 thousand US$.
- Tax Variance and EVA Implications
- A persistent gap exists between the provision for income taxes and cash operating taxes. The most notable divergence occurred in 2022 and 2023; in 2022, cash taxes exceeded provisions by 41,030 thousand US$, and in 2023, the gap remained substantial at 32,025 thousand US$. For the purposes of Economic Value Added (EVA) calculations, these higher cash tax payments represent a greater drain on liquid capital than the accounting provisions alone would suggest, thereby reducing the net after-tax operating profit available to the firm.
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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.
Invested capital experienced a period of expansion from 2019 through 2022, peaking at US$ 2,587,403 thousand before declining to US$ 2,415,179 thousand in 2023. This trend reflects a significant shift in the financing strategy, moving from a mixed funding model toward one almost exclusively supported by equity.
- Debt and Lease Obligations
- A substantial downward trend in total reported debt and leases is observed beginning in 2021. After reaching a peak of US$ 472,757 thousand in 2020, obligations were reduced significantly to US$ 184,581 thousand in 2021. This deleveraging process continued through 2023, with total debt and leases falling to US$ 82,614 thousand, representing a total reduction of approximately 82% from the 2020 peak.
- Shareholders' Equity
- Shareholders' equity grew aggressively between 2019 and 2021, rising from US$ 1,480,158 thousand to US$ 2,562,444 thousand. Following this expansion, the equity position remained relatively stable, experiencing a slight dip in 2022 before closing 2023 at US$ 2,525,897 thousand. This stability provided the primary foundation for the company's invested capital during the latter half of the period.
- Capital Composition and Leverage
- The structural composition of invested capital shifted dramatically over the five-year period. In 2019, debt and leases constituted approximately 25% of the total invested capital. By December 31, 2023, this proportion decreased to approximately 3.4%, indicating a transition to a very low-leverage capital structure where invested capital is nearly synonymous with shareholders' equity.
The overall trajectory indicates a strategic move toward financial conservatism. While total invested capital grew by 39% between 2019 and 2022, the subsequent reduction in debt and stabilization of equity led to a moderate contraction in the total capital base by the end of 2023.
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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 | × | 24.30% | = | 24.17% | ||
| 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 | 24.19% | ||||||||||
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 | × | 24.30% | = | 23.96% | ||
| 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 | 24.01% | ||||||||||
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 | × | 24.30% | = | 23.42% | ||
| 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 | 23.56% | ||||||||||
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 | × | 24.30% | = | 22.46% | ||
| 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 | 22.76% | ||||||||||
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 | × | 24.30% | = | 21.96% | ||
| 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 | 22.34% | ||||||||||
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 | (270,326) | 38,181) | 430,947) | 353,436) | 87,064) | |
| Invested capital2 | 2,415,179) | 2,587,403) | 2,564,053) | 2,183,213) | 1,845,838) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -11.19% | 1.48% | 16.81% | 16.19% | 4.72% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Advanced Micro Devices Inc. | -29.12% | -28.73% | 27.84% | — | — | |
| Analog Devices Inc. | -10.08% | -11.45% | -14.69% | -9.63% | — | |
| Applied Materials Inc. | 13.17% | 23.15% | 18.63% | 6.98% | — | |
| Broadcom Inc. | 4.82% | 3.57% | -5.66% | -10.88% | — | |
| Intel Corp. | -19.94% | -13.15% | 3.44% | — | — | |
| KLA Corp. | 20.05% | 22.45% | 10.91% | — | — | |
| Lam Research Corp. | 2.15% | 17.18% | 12.51% | — | — | |
| Marvell Technology Inc. | -22.31% | -25.08% | -26.81% | — | — | |
| Micron Technology Inc. | -38.30% | -10.78% | -15.51% | — | — | |
| NVIDIA Corp. | -16.34% | 25.86% | 6.34% | — | — | |
| Qualcomm Inc. | 0.15% | 26.59% | 23.99% | 9.06% | — | |
| 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 × -270,326 ÷ 2,415,179 = -11.19%
4 Click competitor name to see calculations.
The financial performance from 2019 to 2023 demonstrates a period of significant value creation followed by a sharp reversal into value destruction. An initial growth phase culminated in a peak of economic efficiency in 2021, which was subsequently erased by a rapid decline in profitability and a negative economic spread by the end of the period.
- Economic Profit Trends
- Economic profit exhibited substantial volatility over the five-year period. After starting at 87,064 thousand US dollars in 2019, it surged to a peak of 430,947 thousand US dollars in 2021. However, this upward trajectory reversed sharply in 2022, falling to 38,181 thousand US dollars, and ultimately transitioned into a deficit of 270,326 thousand US dollars in 2023. This transition indicates that the entity shifted from generating returns above its cost of capital to incurring an economic loss.
- Invested Capital Dynamics
- Invested capital showed a consistent upward trend from 2019 through 2022, rising from 1,845,838 thousand US dollars to a peak of 2,587,403 thousand US dollars. This suggests a period of capital expansion and investment. A slight contraction occurred in 2023, with invested capital decreasing to 2,415,179 thousand US dollars, though this reduction was insufficient to offset the collapse in economic profit.
- Economic Spread Ratio Analysis
- The economic spread ratio reflects the margin by which the return on invested capital exceeds the cost of capital. The ratio expanded significantly from 4.72% in 2019 to a peak of 16.81% in 2021, signaling optimal capital efficiency. A severe contraction followed, with the ratio dropping to 1.48% in 2022 and plummeting to -11.19% in 2023. The negative spread in the final year confirms that the returns generated on invested capital were significantly lower than the required cost of that capital.
The correlation between the peaking of invested capital in 2022 and the subsequent collapse in economic profit suggests that the investments made during the expansion phase did not yield sustainable economic value. The transition from a 16.81% spread to a -11.19% spread over two years represents a critical deterioration in the company's ability to create shareholder value.
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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 | (270,326) | 38,181) | 430,947) | 353,436) | 87,064) | |
| 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 | -10.32% | 1.21% | 11.61% | 11.17% | 3.73% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Advanced Micro Devices Inc. | -74.32% | -71.26% | 10.49% | — | — | |
| Analog Devices Inc. | -36.21% | -42.90% | -94.37% | -31.30% | — | |
| Applied Materials Inc. | 8.83% | 13.37% | 11.89% | 5.31% | — | |
| Broadcom Inc. | 8.44% | 6.68% | -13.34% | -30.05% | — | |
| Intel Corp. | -33.86% | -18.50% | 3.85% | — | — | |
| KLA Corp. | 15.93% | 18.98% | 10.75% | — | — | |
| Lam Research Corp. | 1.89% | 12.68% | 10.09% | — | — | |
| Marvell Technology Inc. | -75.41% | -111.94% | -82.30% | — | — | |
| Micron Technology Inc. | -130.14% | -18.25% | -25.63% | — | — | |
| NVIDIA Corp. | -12.92% | 17.34% | 4.95% | — | — | |
| Qualcomm Inc. | 0.13% | 17.71% | 14.45% | 6.83% | — | |
| Texas Instruments Inc. | 15.89% | 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 × -270,326 ÷ 2,619,968 = -10.32%
3 Click competitor name to see calculations.
The financial performance regarding economic value creation exhibits a cyclical trajectory, characterized by a period of significant expansion from 2019 to 2021, followed by a severe contraction and a transition into negative economic profit by 2023.
- Economic Profit Trends
- Economic profit demonstrated substantial growth in the early part of the period, rising from 87,064 thousand US$ in 2019 to a peak of 430,947 thousand US$ in 2021. However, a sharp reversal occurred in 2022, with profit falling to 38,181 thousand US$, before plummeting to a deficit of -270,326 thousand US$ in 2023. This indicates that the entity transitioned from creating significant value above its cost of capital to destroying economic value.
- Adjusted Revenue Correlation
- Adjusted revenues followed a similar bell-shaped curve, increasing from 2,335,354 thousand US$ in 2019 to a peak of 3,710,966 thousand US$ in 2021. The subsequent decline in revenues to 3,147,355 thousand US$ in 2022 and 2,619,968 thousand US$ in 2023 correlates with the erosion of economic profit, suggesting that the decline in top-line performance heavily impacted the company's ability to maintain a positive economic spread.
- Economic Profit Margin Analysis
- The economic profit margin mirrored the volatility of the absolute profit figures. The margin expanded from 3.73% in 2019 to a peak of 11.61% in 2021, reflecting high capital efficiency and strong returns. This efficiency collapsed in 2022, with the margin dropping to 1.21%, and reached a critical low of -10.32% in 2023. The shift to a negative margin indicates that the operating returns were insufficient to cover the cost of the capital employed during the final year of the analyzed period.
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