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
Allergan PLC, economic profit calculation
US$ in thousands
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2019 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= -5,356,995 – 19.80% × 80,268,300 = -21,251,134
The financial performance from 2015 to 2019 is characterized by a persistent failure to generate positive economic profit, indicating that the company did not create value above its cost of capital during this period. The combination of consistently negative net operating profit after taxes (NOPAT) and a high cost of capital resulted in substantial economic losses across all five years.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT remained negative throughout the entire analysis period, exhibiting significant volatility. A sharp decline occurred in 2017, where losses peaked at -10.55 billion USD. While there was a partial recovery in 2018 and 2019, the figures remained negative, ending the period at -5.36 billion USD.
- Invested Capital
- A consistent downward trend is observed in invested capital, which decreased every year from 2015 to 2019. The capital base contracted from 127.50 billion USD in 2015 to 80.27 billion USD by the end of 2019, representing a total reduction of approximately 37%.
- Cost of Capital
- The cost of capital remained relatively stable but high, fluctuating within a narrow range between 16.98% in 2017 and 19.80% in 2019. This high threshold for required returns intensified the economic losses given the negative operating results.
- Economic Profit
- Economic profit remained deeply negative for the duration of the period, with values ranging from a low of -28.40 billion USD in 2015 to -21.25 billion USD in 2019. Despite the significant reduction in the invested capital base, the inability to achieve a positive NOPAT ensured that the company continued to destroy economic value throughout the five-year window.
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Net Operating Profit after Taxes (NOPAT)
Allergan PLC, NOPAT calculation
US$ in thousands
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowance for doubtful accounts.
3 Addition of increase (decrease) in deferred revenue.
4 Addition of increase (decrease) in accrued product warranties.
5 Addition of increase (decrease) in restructuring reserve.
6 Addition of increase (decrease) in equity equivalents to net income (loss) attributable to shareholders.
7 2019 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 570,500 × 2.50% = 14,263
8 2019 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 797,263 × 12.50% = 99,658
9 Addition of after taxes interest expense to net income (loss) attributable to shareholders.
10 2019 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 76,800 × 12.50% = 9,600
11 Elimination of after taxes investment income.
12 Elimination of discontinued operations.
- Net Income (Loss) Attributable to Shareholders
-
The net income attributable to shareholders shows significant volatility over the observed period. Starting from approximately 3.9 billion US dollars at the end of 2015, it experienced a substantial increase to nearly 15 billion US dollars by the end of 2016. This peak was followed by a sharp reversal into negative territory, with losses amounting to approximately 4.1 billion US dollars in 2017. The negative trend continued in subsequent years, with losses deepening to around 5.1 billion and 5.3 billion US dollars in 2018 and 2019, respectively.
- Net Operating Profit After Taxes (NOPAT)
-
The NOPAT metric also reflects a deteriorating operating performance over the period. It began in 2015 with a negative figure of about 3.5 billion US dollars, improved slightly in 2016 to approximately minus 2 billion US dollars, indicating a reduction in operating losses. However, in 2017, NOPAT deteriorated sharply, reaching a loss exceeding 10.5 billion US dollars. This was followed by some improvement yet continued negative results in 2018 and 2019, with losses of about 5.7 billion and 5.4 billion US dollars, respectively.
- Overall Financial Trends
-
The company’s financial performance exhibits considerable instability over the five-year span. The marked peak in net income in 2016 appears anomalous given the general trend of losses in other years. Both net income and operating profitability suffer from large losses in recent years following the 2016 peak, suggesting potential challenges affecting operational efficiency and profitability after 2016.
The divergence between net income and NOPAT indicates that non-operating factors, such as one-time gains or losses, may have influenced net income, particularly in 2016. The sustained negative operating profit after taxes highlights fundamental operational difficulties that warrant further investigation.
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Cash Operating Taxes
Allergan PLC, cash operating taxes calculation
US$ in thousands
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
The data reveals significant fluctuations in the provision (benefit) for income taxes over the five years analyzed. Initially, there is a substantial tax benefit recorded, with the provision showing negative values each year from 2015 through 2018, indicating the company recognized income tax benefits rather than expenses during this period. The magnitude of the benefit peaks in 2017 with an amount exceeding -6.6 million US dollars, suggesting an extraordinary tax gain or adjustment that year. However, in 2019, this trend reverses, and the provision shifts to a positive value of approximately 146 thousand US dollars, reflecting a tax expense rather than a benefit.
In contrast, the cash operating taxes exhibit a more variable and less consistent pattern. The cash taxes paid decreased from about 398 thousand US dollars in 2015 to roughly 295 thousand in 2016 but then surged to approximately 1.24 million in 2017. This rise contrasts with the significant tax benefit recorded in the provision for the same year. A striking observation is seen in 2018 when the cash operating taxes turn negative, indicating a tax refund or credit of nearly 399 thousand US dollars. Following this, the cash taxes return to a positive figure of approximately 897 thousand US dollars in 2019.
Overall, the provision for income taxes and cash operating taxes demonstrate divergent movements during several years, which may indicate timing differences, adjustments, or tax strategy effects on reported versus actual cash tax payments. The large tax benefits recorded in provisions in earlier years, especially 2017, suggest one-time tax events or re-measurements impacting the income statement, while the cash operating taxes reflect the actual tax payments made or refunded, exhibiting a more volatile profile with a notable negative value in 2018.
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Invested Capital
Allergan PLC, invested capital calculation (financing approach)
US$ in thousands
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
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.
5 Addition of accrued product warranties.
6 Addition of restructuring reserve.
7 Addition of equity equivalents to shareholders’ equity.
8 Removal of accumulated other comprehensive income.
9 Subtraction of construction in progress.
10 Subtraction of marketable securities and other long-term investments.
The financial data reveals several important trends over the five-year period ending December 31, 2019. The total reported debt and leases exhibit a consistent downward trajectory. Starting from approximately $42.89 billion in 2015, the debt decreases every year, reaching about $23.22 billion by the end of 2019. This represents a significant reduction in the company's leverage or obligations associated with debt and leases over the period.
Shareholders’ equity also demonstrates a declining pattern throughout these years. From $76.59 billion at the end of 2015, it slightly decreases to $76.19 billion in 2016 and continues this downward trend to $58.17 billion by 2019. This consistent reduction indicates possible challenges with retained earnings, equity issuance, or other comprehensive income affecting the equity base.
The invested capital, which encompasses the company's overall capital invested in operations, similarly shows a decreasing trend. Beginning at approximately $127.50 billion in 2015, invested capital reduces each year, culminating at about $80.27 billion in 2019. This decline suggests a potential shrinking scale of invested assets or capital employed, which could relate to asset divestitures, depreciation outpacing capital expenditure, or capital structure adjustments.
- Total reported debt & leases
- Substantial reduction by nearly 46% from 2015 to 2019, indicating active debt repayment or lease obligation reduction.
- Shareholders’ equity
- Gradual decline of roughly 24% over the period, possibly signaling diminished profitability, dividend distribution exceeding earnings, share repurchases, or adverse comprehensive income impacts.
- Invested capital
- Marked decrease of approximately 37%, reflecting either asset shrinkage, depreciation exceeding reinvestment, or strategic restructuring.
In summary, all three key financial measures present downward trends, with debt levels showing the most pronounced reduction, followed by invested capital and shareholders’ equity. The data implies an overall contraction in the scale of the business's financial operations and capitalization, alongside a strategic effort to reduce leverage.
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Cost of Capital
Allergan PLC, cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 65,142,399) | 65,142,399) | ÷ | 89,464,599) | = | 0.73 | 0.73 | × | 26.06% | = | 18.97% | ||
| Preferred shares, $0.0001 par value per share (book value) | —) | —) | ÷ | 89,464,599) | = | 0.00 | 0.00 | × | 0.00% | = | 0.00% | ||
| Long-term debt and capital leases, including current portion3 | 23,751,700) | 23,751,700) | ÷ | 89,464,599) | = | 0.27 | 0.27 | × | 3.50% × (1 – 12.50%) | = | 0.81% | ||
| Operating lease liability4 | 570,500) | 570,500) | ÷ | 89,464,599) | = | 0.01 | 0.01 | × | 2.50% × (1 – 12.50%) | = | 0.01% | ||
| Total: | 89,464,599) | 1.00 | 19.80% | ||||||||||
Based on: 10-K (reporting date: 2019-12-31).
1 US$ in thousands
2 Equity. See details »
3 Long-term debt and capital leases, including current portion. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 46,256,695) | 46,256,695) | ÷ | 69,993,768) | = | 0.66 | 0.66 | × | 26.06% | = | 17.22% | ||
| Preferred shares, $0.0001 par value per share (book value) | —) | —) | ÷ | 69,993,768) | = | 0.00 | 0.00 | × | 0.00% | = | 0.00% | ||
| Long-term debt and capital leases, including current portion3 | 23,380,200) | 23,380,200) | ÷ | 69,993,768) | = | 0.33 | 0.33 | × | 3.47% × (1 – 12.50%) | = | 1.01% | ||
| Operating lease liability4 | 356,873) | 356,873) | ÷ | 69,993,768) | = | 0.01 | 0.01 | × | 3.47% × (1 – 12.50%) | = | 0.02% | ||
| Total: | 69,993,768) | 1.00 | 18.25% | ||||||||||
Based on: 10-K (reporting date: 2018-12-31).
1 US$ in thousands
2 Equity. See details »
3 Long-term debt and capital leases, including current portion. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 54,185,762) | 54,185,762) | ÷ | 90,292,543) | = | 0.60 | 0.60 | × | 26.06% | = | 15.64% | ||
| Preferred shares, $0.0001 par value per share (book value) | 4,929,700) | 4,929,700) | ÷ | 90,292,543) | = | 0.05 | 0.05 | × | 5.50% | = | 0.30% | ||
| Long-term debt and capital leases, including current portion3 | 30,795,000) | 30,795,000) | ÷ | 90,292,543) | = | 0.34 | 0.34 | × | 3.45% × (1 – 12.50%) | = | 1.03% | ||
| Operating lease liability4 | 382,081) | 382,081) | ÷ | 90,292,543) | = | 0.00 | 0.00 | × | 3.45% × (1 – 12.50%) | = | 0.01% | ||
| Total: | 90,292,543) | 1.00 | 16.98% | ||||||||||
Based on: 10-K (reporting date: 2017-12-31).
1 US$ in thousands
2 Equity. See details »
3 Long-term debt and capital leases, including current portion. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 82,254,088) | 82,254,088) | ÷ | 120,534,910) | = | 0.68 | 0.68 | × | 26.06% | = | 17.78% | ||
| Preferred shares, $0.0001 par value per share (book value) | 4,929,700) | 4,929,700) | ÷ | 120,534,910) | = | 0.04 | 0.04 | × | 5.50% | = | 0.22% | ||
| Long-term debt and capital leases, including current portion3 | 33,060,900) | 33,060,900) | ÷ | 120,534,910) | = | 0.27 | 0.27 | × | 3.61% × (1 – 12.50%) | = | 0.87% | ||
| Operating lease liability4 | 290,222) | 290,222) | ÷ | 120,534,910) | = | 0.00 | 0.00 | × | 3.61% × (1 – 12.50%) | = | 0.01% | ||
| Total: | 120,534,910) | 1.00 | 18.88% | ||||||||||
Based on: 10-K (reporting date: 2016-12-31).
1 US$ in thousands
2 Equity. See details »
3 Long-term debt and capital leases, including current portion. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 117,644,469) | 117,644,469) | ÷ | 165,394,949) | = | 0.71 | 0.71 | × | 26.06% | = | 18.54% | ||
| Preferred shares, $0.0001 par value per share (book value) | 4,929,700) | 4,929,700) | ÷ | 165,394,949) | = | 0.03 | 0.03 | × | 5.50% | = | 0.16% | ||
| Long-term debt and capital leases, including current portion3 | 42,658,200) | 42,658,200) | ÷ | 165,394,949) | = | 0.26 | 0.26 | × | 3.67% × (1 – 12.50%) | = | 0.83% | ||
| Operating lease liability4 | 162,581) | 162,581) | ÷ | 165,394,949) | = | 0.00 | 0.00 | × | 3.67% × (1 – 12.50%) | = | 0.00% | ||
| Total: | 165,394,949) | 1.00 | 19.53% | ||||||||||
Based on: 10-K (reporting date: 2015-12-31).
1 US$ in thousands
2 Equity. See details »
3 Long-term debt and capital leases, including current portion. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Allergan PLC, economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Economic profit1 | (21,251,134) | (22,300,099) | (28,134,563) | (23,006,760) | (28,404,657) | |
| Invested capital2 | 80,268,300) | 91,098,773) | 103,552,681) | 111,246,522) | 127,501,981) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -26.48% | -24.48% | -27.17% | -20.68% | -22.28% | |
| 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. | — | — | — | — | — | |
| Vertex Pharmaceuticals Inc. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2019 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -21,251,134 ÷ 80,268,300 = -26.48%
4 Click competitor name to see calculations.
The financial performance from 2015 to 2019 is characterized by a persistent failure to generate positive economic value, as indicated by consistently negative economic profit and a negative economic spread ratio throughout the period.
- Economic Profit Trends
- Economic profit remained negative over the five-year duration, indicating that the entity did not generate returns sufficient to cover its cost of capital. Although there was a overall reduction in the magnitude of the losses—moving from -28.4 billion US dollars in 2015 to -21.3 billion US dollars in 2019—the trend was non-linear, with a notable increase in losses observed in 2017.
- Invested Capital Dynamics
- A consistent and significant downward trend in invested capital is observed. The capital base declined every year, starting at 127.5 billion US dollars in 2015 and falling to 80.3 billion US dollars by 2019. This represents a steady contraction of the capital employed in the business.
- Economic Spread Ratio Analysis
- The economic spread ratio remained deeply negative throughout the analysis period, fluctuating between -20.68% and -27.17%. Despite the substantial reduction in invested capital, the ratio did not show a sustained recovery, ending at -26.48% in 2019. The persistence of these negative percentages confirms that the return on invested capital consistently lagged behind the cost of capital, thereby eroding shareholder value over the reported timeframe.
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Economic Profit Margin
Allergan PLC, economic profit margin calculation, comparison to benchmarks
| Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Economic profit1 | (21,251,134) | (22,300,099) | (28,134,563) | (23,006,760) | (28,404,657) | |
| Net revenues | 16,088,900) | 15,787,400) | 15,940,700) | 14,570,600) | 15,071,000) | |
| Add: Increase (decrease) in deferred revenue | (9,500) | (1,800) | 22,200) | (2,500) | (8,100) | |
| Adjusted net revenues | 16,079,400) | 15,785,600) | 15,962,900) | 14,568,100) | 15,062,900) | |
| Performance Ratio | ||||||
| Economic profit margin2 | -132.16% | -141.27% | -176.25% | -157.93% | -188.57% | |
| 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. | — | — | — | — | — | |
| Vertex Pharmaceuticals Inc. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
1 Economic profit. See details »
2 2019 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted net revenues
= 100 × -21,251,134 ÷ 16,079,400 = -132.16%
3 Click competitor name to see calculations.
The economic performance over the five-year period from 2015 to 2019 is characterized by persistent negative economic profit and a consistently negative economic profit margin, indicating that the returns generated were insufficient to cover the cost of capital employed.
- Economic Profit Trends
- Economic profit remained negative throughout the entire analysis period. A peak deficit occurred in 2015 at -28,404,657 thousand USD. While a moderate recovery was noted in 2016, the deficit widened again in 2017 to -28,134,563 thousand USD. However, from 2017 through 2019, a steady upward trajectory in economic profit is observed, with the deficit narrowing to -21,251,134 thousand USD by the end of 2019.
- Adjusted Net Revenues
- Adjusted net revenues exhibited relative stability with a slight overall growth trend. After a minor decrease between 2015 and 2016, revenues increased to 15,962,900 thousand USD in 2017 and reached a period high of 16,079,400 thousand USD in 2019. This suggests that the improvement in economic profit was not driven by aggressive revenue expansion, but rather by other operational or capital adjustments.
- Economic Profit Margin Analysis
- The economic profit margin remained deeply negative, reflecting a significant gap between operational performance and the cost of capital. The margin reached its lowest point in 2015 at -188.57%. Similar to the absolute economic profit, the margin fluctuated in 2017 (-176.25%) before showing a consistent trend of improvement. By 2019, the margin improved to -132.16%, representing the most favorable position within the observed period, although it remains substantially below the break-even point.
Overall, while the organization has failed to achieve a positive economic value added, there is a visible trend of recovery starting in 2018. The simultaneous increase in adjusted net revenues and the narrowing of the economic profit margin suggest a gradual improvement in capital efficiency over the latter half of the period.
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