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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Vertex Pharmaceuticals Inc. pages available for free this week:
- Common-Size Income Statement
- Common-Size Balance Sheet: Assets
- Analysis of Short-term (Operating) Activity Ratios
- Analysis of Long-term (Investment) Activity Ratios
- Enterprise Value (EV)
- Price to FCFE (P/FCFE)
- Selected Financial Data since 2005
- Debt to Equity since 2005
- Price to Operating Profit (P/OP) since 2005
- Analysis of Revenues
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Economic Profit
Vertex Pharmaceuticals 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 reveals several notable trends regarding profitability, capital investment, and economic value generation over the five-year period.
- Net Operating Profit After Taxes (NOPAT)
- The NOPAT experienced fluctuations during the period from 2020 to 2024. It started at approximately $3.02 billion in 2020 and declined significantly to about $2.24 billion in 2021. In 2022, NOPAT rebounded to near $2.99 billion but fell again to around $2.64 billion in 2023. The year 2024 marked a substantial decline, resulting in a negative NOPAT of approximately -$1.27 billion, indicating operational losses after taxes.
- Cost of Capital
- The cost of capital remained relatively stable throughout the period, with minor variations between 8.57% and 8.61%. This consistency suggests a stable risk profile and capital structure over the years analyzed.
- Invested Capital
- Invested capital showed a rising trend from 2020 through 2023, increasing from roughly $8.14 billion to about $13.24 billion. However, in 2024 there was a sharp decrease to approximately $9.05 billion. This significant contraction in invested capital may reflect asset divestitures, capital write-downs, or strategic resizing of the asset base.
- Economic Profit
- Economic profit, representing value creation over the cost of capital, initially showed robust positive levels, starting at around $2.33 billion in 2020. It decreased to approximately $1.43 billion in 2021 but improved in 2022 to near $1.85 billion. In 2023, economic profit declined again to about $1.50 billion. The critical observation occurs in 2024, with economic profit turning negative to approximately -$2.05 billion, indicating that the company destroyed economic value that year.
In summary, the company’s profitability and economic value creation showed variability from 2020 to 2023, with periods of recovery and decline. However, the year 2024 stands out with significant negative results in both operating profit after taxes and economic profit, alongside a considerable reduction in invested capital. The continued stable cost of capital implies these changes are not due to shifts in financing costs but likely stem from operational challenges or strategic decisions affecting earnings and asset levels.
Net Operating Profit after Taxes (NOPAT)
Vertex Pharmaceuticals Inc., NOPAT calculation
US$ 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 equity equivalents to net income (loss).
3 2024 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= × =
4 2024 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= × 21.00% =
5 Addition of after taxes interest expense to net income (loss).
6 2024 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= × 21.00% =
7 Elimination of after taxes investment income.
- Net Income (Loss)
-
The net income displayed an initial fluctuation with a decline from approximately 2.71 billion US dollars in 2020 to 2.34 billion US dollars in 2021. This was followed by a notable recovery reaching about 3.32 billion US dollars in 2022 and a further increase to approximately 3.62 billion US dollars in 2023. However, there was a significant reversal in 2024, with net income turning negative, resulting in a loss of approximately 536 million US dollars. This indicates a considerable downturn or an extraordinary expense impacting profitability in 2024.
- Net Operating Profit After Taxes (NOPAT)
-
The NOPAT value exhibited a similar pattern to net income but with some differences in magnitude and trend continuation. It started at around 3.02 billion US dollars in 2020 but dropped substantially to about 2.24 billion US dollars in 2021. There was a recovery in 2022 to nearly 3 billion US dollars; however, unlike net income that increased in 2023, NOPAT decreased to approximately 2.64 billion US dollars. In 2024, the NOPAT also turned negative, with a loss of about 1.27 billion US dollars, representing an even more pronounced operational challenge than indicated by net income alone.
- Summary of Trends and Insights
-
Both profitability measures show volatility over the five-year period with initial declines, strong recoveries, and significant downturns at the end of the period. The negative figures in 2024 for both net income and NOPAT highlight a substantial deterioration in performance. The larger negative NOPAT compared to net income in 2024 suggests a more severe erosion of operational efficiency or higher operating costs that may not be fully captured in net income calculations. These trends warrant further investigation into underlying causes such as market conditions, cost management, one-time charges, or other financial events impacting the company's profitability in the latest period.
Cash Operating Taxes
Vertex Pharmaceuticals 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
- The provision for income taxes displayed fluctuations over the observed period. It decreased from 405,151 thousand US dollars in 2020 to 388,300 thousand US dollars in 2021, indicating a slight reduction. However, in 2022, there was a significant increase to 910,400 thousand US dollars. Following this peak, the provision decreased somewhat in 2023 to 760,200 thousand US dollars and then showed a moderate increase again in 2024, reaching 784,100 thousand US dollars. Overall, the trend indicates heightened income tax provisions after 2021, with some volatility but maintaining higher levels than in the initial years.
- Cash operating taxes
- Cash operating taxes exhibited a strong upward trend from 2020 through 2023. Starting at 137,080 thousand US dollars in 2020, the cash taxes increased substantially to 556,675 thousand in 2021. This upward trajectory continued sharply into 2022, nearly doubling to 1,170,431 thousand US dollars. The peak was maintained in 2023 with 1,178,814 thousand US dollars, indicating stable but very high cash tax payments during that year. In 2024, cash operating taxes decreased to 1,029,919 thousand US dollars, showing a notable decline but remaining considerably elevated compared to 2020 and 2021.
- Comparative Insights
- Both provision for income taxes and cash operating taxes increased considerably after 2021, with cash operating taxes showing a more pronounced and consistent rise through 2023. The provision for income taxes experienced a sharp spike in 2022, followed by some reduction but remaining high through 2024. Cash operating taxes, while declining in 2024, stayed substantially higher than earlier years. This pattern could indicate changes in taxable income, tax planning strategies, or tax rate adjustments, resulting in elevated tax-related expenses and payments in recent years.
Invested Capital
Vertex Pharmaceuticals 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 equity equivalents to shareholders’ equity.
4 Removal of accumulated other comprehensive income.
5 Subtraction of marketable securities.
- Total Reported Debt & Leases
- The total reported debt and leases experienced a general decline from 2020 through 2023, decreasing from 942,460 thousand US dollars to 808,400 thousand US dollars. However, in 2024, there was a significant increase to 1,749,500 thousand US dollars, more than doubling the previous year's figure. This suggests a notable rise in leverage or financing activities in the most recent year.
- Shareholders’ Equity
- Shareholders' equity demonstrated a consistent upward trend from 2020 to 2023, increasing from 8,686,815 thousand US dollars to 17,580,400 thousand US dollars. This growth reflects an accumulation of retained earnings or capital injections over the years. In 2024, there was a slight decline to 16,409,600 thousand US dollars, indicating a minor reduction in equity, which may reflect distributions to shareholders, losses, or other equity adjustments.
- Invested Capital
- Invested capital rose steadily from 8,144,266 thousand US dollars in 2020 to 13,278,000 thousand US dollars in 2022. A plateau occurred between 2022 and 2023 with a marginal increase to 13,244,000 thousand US dollars. This was followed by a substantial decrease in 2024 to 9,046,000 thousand US dollars. This pattern may indicate a reduction in operating assets or a strategic realignment of capital deployment in the most recent period.
Cost of Capital
Vertex Pharmaceuticals Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Finance lease liabilities3 | ÷ | = | × | × (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 Finance lease liabilities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Finance lease liabilities3 | ÷ | = | × | × (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 Finance lease liabilities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Finance lease liabilities3 | ÷ | = | × | × (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 Finance lease liabilities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Finance lease liabilities3 | ÷ | = | × | × (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 Finance lease liabilities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Finance lease liabilities3 | ÷ | = | × | × (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 Finance lease liabilities. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Vertex Pharmaceuticals 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 | ||||||
| AbbVie Inc. | ||||||
| Amgen Inc. | ||||||
| Bristol-Myers Squibb Co. | ||||||
| Danaher Corp. | ||||||
| Eli Lilly & Co. | ||||||
| Gilead Sciences Inc. | ||||||
| Johnson & Johnson | ||||||
| Merck & Co. Inc. | ||||||
| Pfizer Inc. | ||||||
| Regeneron Pharmaceuticals Inc. | ||||||
| Thermo Fisher Scientific 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.
- Economic Profit Trends
- The economic profit demonstrated variability over the observed periods. Starting at a high level in 2020, it declined notably in 2021, followed by an increase in 2022. However, a subsequent decline occurred in 2023, culminating in a substantial negative value in 2024. This pattern indicates decreasing profitability and a transition from positive to negative economic profit by the final year, suggesting challenges in value creation.
- Invested Capital Dynamics
- Invested capital showed an overall increasing trend from 2020 through 2023, rising from approximately 8.14 billion US dollars to about 13.24 billion US dollars. This upward trajectory indicates expansion or increased asset base during this period. However, in 2024, there was a significant reduction in invested capital to around 9.05 billion US dollars, representing a notable contraction in investment or asset base reduction.
- Economic Spread Ratio Progression
- The economic spread ratio reveals a declining trend in returns relative to invested capital. Beginning at a high rate above 28% in 2020, it decreased sharply to just above 15% in 2021 and continued to decline through 2023. In 2024, the ratio fell into negative territory, approximately -22.63%, indicating that the return on invested capital was below the cost of capital, resulting in value destruction rather than creation.
- Overall Insights
- Over the analyzed timeframe, the company experienced a declining efficiency in generating economic profit relative to its invested capital. Although the company initially increased its invested capital substantially, the diminishing economic spread ratio and the eventual negative economic profit in 2024 suggest mounting operational or market challenges. The sharp decrease in invested capital in the last year may reflect strategic retrenchment or asset divestment in response to these challenges. The transition into negative economic profit and spread indicates a critical need for reassessment of capital allocation and operational efficiency.
Economic Profit Margin
Vertex Pharmaceuticals 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 | ||||||
| Revenues | ||||||
| Performance Ratio | ||||||
| Economic profit margin2 | ||||||
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| AbbVie Inc. | ||||||
| Amgen Inc. | ||||||
| Bristol-Myers Squibb Co. | ||||||
| Danaher Corp. | ||||||
| Eli Lilly & Co. | ||||||
| Gilead Sciences Inc. | ||||||
| Johnson & Johnson | ||||||
| Merck & Co. Inc. | ||||||
| Pfizer Inc. | ||||||
| Regeneron Pharmaceuticals Inc. | ||||||
| Thermo Fisher Scientific 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 ÷ Revenues
= 100 × ÷ =
3 Click competitor name to see calculations.
- Revenue Trends
- Revenue has shown a consistent upward trend over the five-year period. Starting at approximately $6.21 billion in 2020, it increased annually to reach about $11.02 billion in 2024. This steady growth indicates a positive expansion in the company's sales or service income.
- Economic Profit Analysis
- Economic profit demonstrated fluctuations throughout the period. After peaking at around $2.33 billion in 2020, it declined to roughly $1.43 billion in 2021. There was a rebound in 2022 with economic profit rising to about $1.85 billion, followed by a decrease in 2023 to approximately $1.50 billion. However, a significant negative economic profit was observed in 2024, amounting to approximately -$2.05 billion, indicating a substantial loss in economic value added that year.
- Economic Profit Margin Trends
- The economic profit margin reveals a declining trend over the period, starting from 37.47% in 2020 and decreasing steadily to 15.19% in 2023. In 2024, the margin turned negative, reaching -18.58%, reflecting a deterioration in profitability relative to revenues.
- Overall Interpretation
- Although revenues experienced continuous growth, the economic profit and its margin illustrated volatility and eventual decline, culminating in a significant negative economic profit in the final year. This suggests rising costs, reduced efficiency, or other factors adversely impacting profitability despite increasing sales. The negative economic profit margin in 2024 highlights challenges in maintaining value creation during that period.