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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Abbott Laboratories pages available for free this week:
- Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Long-term (Investment) Activity Ratios
- Analysis of Geographic Areas
- Common Stock Valuation Ratios
- Enterprise Value to FCFF (EV/FCFF)
- Net Profit Margin since 2005
- Return on Equity (ROE) since 2005
- Return on Assets (ROA) since 2005
- Current Ratio since 2005
- Total Asset Turnover since 2005
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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 financial data shows several notable trends over the five-year period examined. These trends provide insight into the company's operational efficiency, capital utilization, and overall economic profitability.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT increased significantly from 2020 to 2021, rising from $4,838 million to $7,014 million. However, after reaching this peak, NOPAT demonstrated a gradual downward trend over the next two years, falling to $6,718 million in 2022 and then to $5,289 million in 2023. By 2024, there was a slight recovery with NOPAT increasing to $5,601 million, but it had not returned to the peak levels observed in 2021.
- Cost of Capital
- The cost of capital exhibited a consistent upward trajectory throughout the period, increasing from 11.23% in 2020 to 11.64% in 2024. This steady increase suggests a rising expense associated with funding the company's operations or investments, which might influence investment decisions and risk assessments.
- Invested Capital
- Invested capital remained relatively stable with minor fluctuations. Starting at $60,387 million in 2020, it increased slightly to $62,076 million in 2021 before declining to $61,288 million in 2022 and further to $59,651 million in 2023. There was a small recovery observed in 2024 with invested capital reaching $60,065 million. This stability indicates a generally consistent level of capital deployment over time.
- Economic Profit
- Economic profit showed a variable and generally negative pattern. After a considerable negative value of -$1,943 million in 2020, it turned positive in 2021 at $29 million, indicating a brief period where returns exceeded the cost of capital. Subsequently, economic profit declined again to -$249 million in 2022, then fell sharply to -$1,565 million in 2023 and slightly improved to -$1,390 million in 2024. The persistent negative economic profit across most years implies that the company's returns have often been insufficient to cover the cost of capital, raising concerns about value creation.
In summary, the company experienced a peak in operational profitability in 2021 but faced challenges maintaining those levels in subsequent years. The steadily increasing cost of capital may have exerted downward pressure on profitability and economic profit. Despite fairly consistent invested capital, the overall negative economic profit in most years suggests difficulties in generating value beyond the cost of capital. These indicators point to areas for strategic review, particularly focusing on improving operational efficiency and capital allocation to enhance long-term shareholder value.
Net Operating Profit after Taxes (NOPAT)
Abbott Laboratories, NOPAT calculation
US$ 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.
The analysis of the financial data over the five-year period reveals several notable trends regarding economic profit, invested capital, and the economic spread ratio.
- Economic Profit
- The economic profit figures exhibit a volatile and predominantly negative pattern. In 2020, the company recorded a significant economic loss of US$ -1,943 million. A substantial recovery is seen in 2021, with economic profit shifting to a positive US$ 29 million. However, this improvement is short-lived, as the value again turns negative in 2022 at -249 million and worsens further in 2023 to -1,565 million. The decline slightly eases in 2024 but remains negative at -1,390 million. This pattern suggests struggles in generating returns above the cost of capital in most years, with only a brief positive performance.
- Invested Capital
- Invested capital remains relatively stable across the period, with values fluctuating marginally between approximately US$ 59.6 billion and US$ 62.1 billion. The highest level is recorded in 2021 at US$ 62,076 million, after which there is a gradual decrease to US$ 59,651 million in 2023, followed by a slight increase in 2024. This relative steadiness indicates a consistent level of resources committed to the company’s operations without significant expansion or contraction.
- Economic Spread Ratio
- The economic spread ratio mirrors the economic profit trend, predominantly displaying negative values. It moves from -3.22% in 2020 to a marginally positive 0.05% in 2021, returning to negative values thereafter (-0.41% in 2022, -2.62% in 2023, and -2.31% in 2024). This ratio's behavior indicates that the return on invested capital often falls short of the company's cost of capital, with a brief episode of near breakeven in 2021.
Overall, the data reflects challenges in generating sustainable economic profit and maintaining returns above capital costs in most years, despite a stable capital base. The temporary improvement in 2021 is followed by a return to negative performance, implying potential issues in operational efficiency or market conditions affecting profitability.
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.
The financial analysis reveals several key trends in the company's performance over the five-year period. Net sales show a general upward trend with fluctuations; they increased significantly from approximately 34.6 billion US dollars in 2020 to a peak of over 43 billion US dollars in 2022 before declining in 2023 and partially recovering in 2024. This indicates some volatility in sales performance, but overall a robust revenue base.
Despite the growth in net sales, the economic profit figures present a more challenging picture. The company experienced a significant negative economic profit in 2020, reflecting a loss in value creation during that year. In 2021, economic profit turned positive but only marginally, suggesting that the company was barely covering its cost of capital. However, this improvement was short-lived as economic profits returned to negative territory in 2022 and worsened further in 2023 and 2024, though with some improvement compared to the 2023 level.
The economic profit margin, which provides insight into the company's profitability relative to its sales, mirrors the economic profit trend. It improved from a strongly negative margin in 2020 to near zero in 2021, indicating a temporary recovery. Nonetheless, the margin deteriorated again in the following years, remaining in negative territory through 2024. This sustained negative margin points to ongoing challenges in generating returns above the company's cost of capital despite relatively strong sales figures.
- Net Sales Trend
- Overall growth with peak in 2022 and fluctuations thereafter.
- Economic Profit Trend
- Negative in 2020, marginally positive in 2021, then negative with increasing losses through 2023 and slight recovery in 2024.
- Economic Profit Margin
- Consistently negative except for near breakeven in 2021, indicating a struggle to generate adequate economic returns.
- Insights
- The company's ability to grow revenues has not translated into sustained economic profit, suggesting potential issues with cost management, investment returns, or competitive pressures impacting profitability.