Economic Value Added (EVA)
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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.
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Vertex Pharmaceuticals Inc. pages available for free this week:
- Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Profitability Ratios
- Analysis of Geographic Areas
- Common Stock Valuation Ratios
- Enterprise Value (EV)
- Present Value of Free Cash Flow to Equity (FCFE)
- Return on Equity (ROE) since 2005
- Total Asset Turnover since 2005
- Price to Earnings (P/E) since 2005
- Price to Book Value (P/BV) since 2005
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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
= – × =
- Net Operating Profit After Taxes (NOPAT)
- The NOPAT exhibited fluctuations over the observed period. After reaching a peak of approximately 3.02 billion US dollars at the end of 2020, it declined to around 2.24 billion in 2021. Subsequently, the figure recovered to nearly 2.99 billion in 2022 but decreased again in 2023 to about 2.64 billion. The most notable change occurred in 2024, with a sharp reversal into negative territory, recording a loss of approximately 1.27 billion US dollars.
- Cost of Capital
- The cost of capital remained relatively stable throughout the period, oscillating slightly around 8.59% to 8.62%, indicating consistent capital costs despite the variations in profitability and invested capital.
- Invested Capital
- Invested capital displayed a general upward trend from 2020 through 2023, increasing from roughly 8.14 billion to over 13.24 billion US dollars. However, in 2024, there was a significant reduction, with invested capital dropping to approximately 9.05 billion US dollars, suggesting a possible divestment or asset reallocation during that year.
- Economic Profit
- Economic profit followed a pattern somewhat aligned with NOPAT but highlighted periods of value creation versus destruction more starkly. Starting at about 2.32 billion US dollars in 2020, it decreased in 2021 to around 1.43 billion. In 2022, economic profit rebounded to approximately 1.85 billion, then declined to 1.50 billion in 2023. The year 2024 marked a critical downturn, with economic profit turning negative at approximately -2.05 billion US dollars, indicating that the company generated returns below its cost of capital, eroding shareholder value.
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 Trend
- The economic profit experienced fluctuations over the observed five-year period. Starting at a high of approximately 2.32 billion USD in 2020, it declined sharply to around 1.43 billion USD in 2021. There was a partial recovery in 2022, reaching about 1.85 billion USD, followed by another decrease to roughly 1.50 billion USD in 2023. In 2024, the economic profit turned negative, indicating a loss of approximately 2.05 billion USD, reflecting a significant downturn.
- Invested Capital Movement
- Invested capital showed a general upward trend from 2020 to 2023, increasing from about 8.14 billion USD to approximately 13.24 billion USD. This suggests sustained or increased investment activities over these years. However, in 2024, the invested capital dropped notably to around 9.05 billion USD, representing a contraction in capital investment or possible asset disposals.
- Economic Spread Ratio Analysis
- The economic spread ratio, which measures the difference between return on invested capital and cost of capital, exhibited a downward trend through the period. It started at a healthy 28.54% in 2020, then decreased steadily to 15.27% in 2021 and further to 14.06% in 2022. The decline continued to 11.31% in 2023, indicating diminishing economic value creation. In 2024, the ratio turned negative (-22.64%), reflecting that the firm’s returns on invested capital fell below its cost of capital, which aligns with the negative economic profit recorded that year.
- Overall Insights
- The financial indicators depict an initial period of strong economic profitability and robust capital investment, gradually eroding over time. The deteriorating economic spread ratio complements the trend of declining economic profit, suggesting challenges in generating returns above the cost of capital. The sharp reversal in 2024, with negative economic profit and economic spread, alongside reduced invested capital, may signal operational difficulties or strategic divestments. This pattern highlights potential concerns regarding sustainable value creation and efficient capital deployment in the latest period.
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
- The revenues exhibit a consistent upward trajectory over the five-year period. Starting at approximately $6.21 billion in 2020, revenues increased annually, reaching around $11.02 billion by 2024. This growth represents a steady expansion in sales or service income, reflecting potentially successful market strategies or product demand.
- Economic Profit Patterns
- Economic profit shows a fluctuating pattern with an overall decline through the period. Starting at $2.32 billion in 2020, economic profit declined to $1.43 billion in 2021, rebounded to $1.85 billion in 2022, and then decreased again to $1.50 billion in 2023. A significant shift is observed in 2024, where economic profit turns negative, registering a loss of approximately $2.05 billion. This change may indicate increasing costs, diminishing operational efficiencies, or higher capital charges impacting profitability.
- Economic Profit Margin Evolution
- The economic profit margin correlates with the trends in economic profit, showing a decline from 37.46% in 2020 to 18.92% in 2021. While there is a slight recovery to 20.74% in 2022, the margin falls again to 15.18% in 2023. The most notable change occurs in 2024, with the margin turning negative at -18.58%, suggesting that the company not only failed to cover its cost of capital but also incurred losses relative to its revenues. This margin trend underlines a weakening in economic profitability, potentially highlighting challenges in cost management or investment returns.
- Overall Analysis
- The company demonstrates strong revenue growth over the examined period; however, the economic profit and economic profit margin data disclose increasing financial pressure. The negative economic profit in 2024 is a concern, implying that growth in revenue alone may not be sufficient to maintain value creation. This decoupling of revenue growth from economic profit suggests the need for strategic review of cost structures, investment decisions, and operational efficiencies to restore profitability and economic value generation.