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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Economic Profit
Abbott Laboratories, economic profit calculation
US$ in millions
| 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 analysis of the financial data over the five-year period reveals several noteworthy trends and insights into the company's operational efficiency, capital management, and economic value generation.
- Net Operating Profit After Taxes (NOPAT)
- The NOPAT showed a substantial increase from 4,838 million US dollars in 2020 to a peak of 7,014 million in 2021. This was followed by a slight decline to 6,718 million in 2022, and a further reduction to 5,289 million in 2023. In 2024, a modest recovery to 5,601 million was observed. Overall, the profit trend indicates a peak in 2021 with a subsequent downward correction and minor rebound in the latest year.
- Cost of Capital
- The cost of capital exhibited a gradual upward trend, increasing from 11.21% in 2020 to 11.62% in 2024. This steady rise may reflect changing market conditions, increased risk perception, or shifts in the company's capital structure, impacting the benchmark for evaluating investment returns.
- Invested Capital
- The invested capital demonstrated slight fluctuations, initially rising from 60,387 million US dollars in 2020 to 62,076 million in 2021, then declining to 61,288 million in 2022, further decreasing to 59,651 million in 2023, and finally showing a marginal increase to 60,065 million in 2024. This trend suggests modest contraction following 2021, potentially due to capital optimization or asset divestitures.
- Economic Profit
- The economic profit, which measures value creation above the cost of capital, reflected significant volatility. It was deeply negative at -1,933 million in 2020, turned positive to 40 million in 2021, indicating a breakeven or slight value addition year, and then reverted to negative territory with -239 million in 2022. The negative trend intensified markedly in 2023 to -1,555 million and remained substantially negative at -1,380 million in 2024. This pattern underscores challenges in generating returns exceeding the cost of capital over the latter years.
In summary, the company experienced a peak in operating profitability and economic profit around 2021, followed by declines in profitability and value creation despite marginal improvements in invested capital. The steadily increasing cost of capital may have exacerbated the pressure on economic profits. The negative economic profit in recent years signals a need for strategic focus on improving operating efficiency or optimizing capital deployment to enhance shareholder value.
Net Operating Profit after Taxes (NOPAT)
Abbott Laboratories, NOPAT calculation
US$ in millions
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 allowance for doubtful accounts.
3 Addition of increase (decrease) in restructuring Plans, accrued balance.
4 Addition of increase (decrease) in equity equivalents to net earnings.
5 2024 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= × =
6 2024 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= × 21.00% =
7 Addition of after taxes interest expense to net earnings.
8 2024 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= × 21.00% =
9 Elimination of after taxes investment income.
10 Elimination of discontinued operations.
The financial performance over the observed periods highlights variability in both net earnings and net operating profit after taxes (NOPAT), with distinct trends and fluctuations evident.
- Net Earnings
- Net earnings demonstrated significant growth from 2020 to 2021, increasing from 4,495 million US dollars to 7,071 million US dollars. Following this peak, there was a slight decline in 2022 to 6,933 million US dollars, and a more pronounced decrease in 2023 to 5,723 million US dollars. However, in 2024, net earnings surged substantially, reaching 13,402 million US dollars, representing the highest value in the entire period under review.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT also exhibited a rising trend from 2020 to 2021, increasing from 4,838 million US dollars to 7,014 million US dollars. Subsequently, NOPAT decreased each year through 2023, falling to 5,289 million US dollars. In 2024, there was a modest recovery, with NOPAT rising to 5,601 million US dollars, although this value remained below the peak observed in 2021.
The patterns indicate a strong performance improvement initially, peaking in 2021 for both profitability metrics, followed by a downturn over the next two years. Notably, net earnings exhibited a remarkable recovery and acceleration in 2024, far exceeding previous years' performance, whereas NOPAT showed only a slight improvement without returning to earlier peak levels. This divergence in 2024 suggests that factors impacting net earnings positively may not have equivalently affected operating efficiency or core profitability as measured by NOPAT.
Cash Operating Taxes
Abbott Laboratories, cash operating taxes calculation
US$ in millions
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).
The data reveals notable fluctuations in both taxes on earnings from continuing operations and cash operating taxes over the five-year period analyzed.
- Taxes on earnings from continuing operations
-
This item shows an overall increasing trend from 497 million USD in 2020 to a peak of 1,373 million USD in 2022, followed by a decline to 941 million USD in 2023. Notably, 2024 exhibits a significant negative value of -6,389 million USD, indicating a substantial tax benefit or reversal relative to earnings taxation for that year.
- Cash operating taxes
-
Cash operating taxes also increased from 718 million USD in 2020 to 2,118 million USD in 2022. However, in contrast to taxes on earnings, cash operating taxes declined only slightly to 1,463 million USD in 2023, followed by a moderate increase to 1,626 million USD in 2024. The cash tax payments did not reflect the large negative swing seen in tax expenses on earnings for 2024.
This divergence in 2024 between taxes on earnings and cash operating taxes may suggest the presence of deferred tax assets, tax refunds, adjustments, or accounting reclassifications influencing reported earnings taxes without an immediate effect on cash taxes paid. The general increase in both tax metrics until 2022 aligns with growing taxable earnings or changes in tax rates but the pronounced changes in 2023 and especially 2024 highlight significant tax-related events or accounting impacts during these years.
Invested Capital
Abbott Laboratories, invested capital calculation (financing approach)
US$ in millions
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 allowance for doubtful accounts receivable.
4 Addition of restructuring Plans, accrued balance.
5 Addition of equity equivalents to total Abbott shareholders’ investment.
6 Removal of accumulated other comprehensive income.
7 Subtraction of construction in progress.
8 Subtraction of marketable securities.
- Total reported debt & leases
-
The total reported debt and leases demonstrate a consistent downward trend over the observed five-year period. Beginning at approximately 19,890 million US dollars in 2020, the debt level gradually decreased each year, reaching around 15,275 million US dollars by the end of 2024. This steady reduction suggests a focus on debt management or deleveraging initiatives, contributing to an improved financial structure.
- Total Abbott shareholders’ investment
-
Shareholders’ investment exhibits a steady increase across the years. Starting at 32,784 million US dollars in 2020, this figure rose progressively to 47,664 million US dollars by 2024. The growth reflects a strengthening equity base, possibly due to accumulated earnings, retained profits, or new equity infusions, enhancing the company's financial stability and shareholder value.
- Invested capital
-
Invested capital shows a relatively stable pattern with slight fluctuations throughout the period. The value starts at 60,387 million US dollars in 2020 and peaks near 62,076 million in 2021 before slightly declining and stabilizing around 60,065 million by 2024. This relative stability indicates consistent investment levels in the business operations and assets, with minor adjustments potentially reflecting operational changes or capital expenditure variations.
- Overall Insights
-
The financial data highlights a strategic decrease in debt concurrent with increasing shareholder equity, indicating a strengthening financial position. The reduction in debt paired with rising equity suggests improved solvency and reduced financial risk. Stability in invested capital implies maintained operational capacity, supporting sustainable growth. Collectively, these trends point to robust financial management and a focus on enhancing the company’s balance sheet quality over the observed period.
Cost of Capital
Abbott Laboratories, cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2024-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2023-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2022-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2021-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2020-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Abbott Laboratories, 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 millions) | ||||||
| Economic profit1 | ||||||
| Invested capital2 | ||||||
| Performance Ratio | ||||||
| Economic spread ratio3 | ||||||
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Elevance Health Inc. | ||||||
| Intuitive Surgical Inc. | ||||||
| Medtronic PLC | ||||||
| UnitedHealth Group 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
- The economic profit demonstrated considerable volatility over the five-year period. It began at a significant negative value of -1933 million US dollars in 2020, improved to a modest positive of 40 million in 2021, then reverted to negative territory in the subsequent years, registering -239 million in 2022, a pronounced decline to -1555 million in 2023, and a slight improvement to -1380 million in 2024. This pattern reflects substantial challenges in generating returns above the cost of capital over the entire period, with only a brief positive performance in 2021.
- Invested Capital
- The invested capital showed relative stability with minor fluctuations. Starting at 60,387 million US dollars in 2020, it experienced a gradual increase to 62,076 million in 2021, followed by a slight decline in the following years, reaching 61,288 million in 2022, further decreasing to 59,651 million in 2023, and a small recovery to 60,065 million in 2024. Overall, the invested capital remained within a narrow range, indicating consistent levels of asset investment or resource allocation.
- Economic Spread Ratio
- The economic spread ratio, which indicates the return on invested capital relative to its cost, reflected a similar fluctuating trend as the economic profit. It started with a negative value of -3.2% in 2020, moved to a near-neutral positive value of 0.06% in 2021, then reverted to negative values again: -0.39% in 2022, -2.61% in 2023, and -2.3% in 2024. These results suggest that the company struggled to consistently generate returns exceeding its capital costs, with only a brief marginal improvement in 2021.
- Summary Insights
- The data points to a challenging period in terms of value creation, as evidenced by persistent negative economic profit and economic spread ratios for most of the years under review. While invested capital levels remained fairly steady, the company’s return on capital failed to recover sustainably after the brief positive episode in 2021. This implies ongoing issues with profitability relative to the cost of capital, resulting in economic losses and indicating potential operational or strategic factors that may need addressing to improve long-term financial performance.
Economic Profit Margin
Abbott Laboratories, 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 millions) | ||||||
| Economic profit1 | ||||||
| Net sales | ||||||
| Performance Ratio | ||||||
| Economic profit margin2 | ||||||
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Elevance Health Inc. | ||||||
| Intuitive Surgical Inc. | ||||||
| Medtronic PLC | ||||||
| UnitedHealth Group 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 ÷ Net sales
= 100 × ÷ =
3 Click competitor name to see calculations.
- Net Sales
- The data indicates that net sales increased significantly from 34,608 million US dollars in 2020 to 43,075 million US dollars in 2021. This positive trend continued moderately into 2022, reaching 43,653 million US dollars. However, there was a decline in 2023 to 40,109 million US dollars, followed by a slight recovery in 2024 to 41,950 million US dollars. Overall, net sales demonstrate growth with some volatility in the later years.
- Economic Profit
- The economic profit shows a fluctuating and generally negative trend throughout the period. It was substantially negative in 2020 at -1,933 million US dollars but turned positive in 2021 with a modest 40 million US dollars. This improvement was short-lived as economic profit reverted to negative figures in 2022 (-239 million US dollars) and worsened further in 2023 (-1,555 million US dollars) and 2024 (-1,380 million US dollars). The volatility and predominantly negative values suggest ongoing challenges in generating value beyond the cost of capital.
- Economic Profit Margin
- The economic profit margin follows a pattern similar to economic profit. Starting at a considerable negative margin of -5.59% in 2020, it improved to a nearly neutral level of 0.09% in 2021. This margin declined again to -0.55% in 2022 and deteriorated significantly in 2023 and 2024 to -3.88% and -3.29%, respectively. The margin reflects the company's struggle to achieve sustainable profitability relative to sales over the examined period.
- Summary of Trends
- While net sales generally increased, the economic profit and its margin reveal persistent challenges with profitability. The brief positive spike in 2021 suggests a temporary improvement, but the subsequent negative results indicate structural or operational issues impairing the firm's ability to sustain economic profit. The divergence between growing sales and declining economic profitability could point towards increased costs, inefficiencies, or competitive pressures affecting the overall financial health.