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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.

Economic Profit
Net Operating Profit after Taxes (NOPAT)
Cash Operating Taxes
Invested Capital
Cost of Capital
Economic Spread Ratio
Economic Profit Margin

Arista Networks Inc., economic profit calculation

US$ in thousands

12 months ended:	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Net operating profit after taxes (NOPAT)¹	2,071,397)	1,201,609)	1,018,218)	674,541)	732,777)
Cost of capital²	14.61%	14.61%	14.60%	14.58%	14.56%
Invested capital³	4,784,625)	3,101,194)	1,895,024)	1,870,862)	1,764,403)

Economic profit⁴	1,372,127)	748,601)	741,494)	401,718)	475,843)

Based on: 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), 10-K (reporting date: 2019-12-31).

¹ NOPAT. See details »

² Cost of capital. See details »

³ Invested capital. See details »

⁴ 2023 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 2,071,397 – 14.61% × 4,784,625 = 1,372,127

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Item	Description	The company
Economic profit	Economic profit is a measure of corporate performance computed by taking the spread between the return on invested capital and the cost of capital, and multiplying by the invested capital.	Arista Networks Inc. economic profit increased from 2021 to 2022 and from 2022 to 2023.

Arista Networks Inc., NOPAT calculation

US$ in thousands

12 months ended:	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Net income	2,087,321)	1,352,446)	840,854)	634,557)	859,867)
Deferred income tax expense (benefit)¹	(370,796)	(244,379)	(99,047)	(8,563)	(75,779)
Increase (decrease) in product sales rebate, returns reserve and others²	4,517)	306)	591)	(1,663)	(2,960)
Increase (decrease) in deferred revenue³	464,958)	111,934)	278,485)	75,539)	(11,939)
Increase (decrease) in equity equivalents⁴	98,679)	(132,139)	180,029)	65,313)	(90,678)
Interest expense	—)	—)	—)	—)	—)
Interest expense, operating lease liability⁵	3,538)	3,256)	3,841)	4,509)	5,053)
Adjusted interest expense	3,538)	3,256)	3,841)	4,509)	5,053)
Tax benefit of interest expense⁶	(743)	(684)	(807)	(947)	(1,061)
Adjusted interest expense, after taxes⁷	2,795)	2,572)	3,035)	3,562)	3,992)
(Gain) loss on marketable securities	3,816)	632)	—)	(9,432)	—)
Interest income	(152,421)	(27,556)	(7,215)	(27,139)	(51,144)
Investment income, before taxes	(148,605)	(26,924)	(7,215)	(36,571)	(51,144)
Tax expense (benefit) of investment income⁸	31,207)	5,654)	1,515)	7,680)	10,740)
Investment income, after taxes⁹	(117,398)	(21,270)	(5,700)	(28,891)	(40,404)
Net operating profit after taxes (NOPAT)	2,071,397)	1,201,609)	1,018,218)	674,541)	732,777)

Based on: 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), 10-K (reporting date: 2019-12-31).

¹ Elimination of deferred tax expense. See details »

² Addition of increase (decrease) in product sales rebate, returns reserve and others.

³ Addition of increase (decrease) in deferred revenue.

⁴ Addition of increase (decrease) in equity equivalents to net income.

⁵ 2023 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 65,519 × 5.40% = 3,538

⁶ 2023 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 3,538 × 21.00% = 743

⁷ Addition of after taxes interest expense to net income.

⁸ 2023 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 148,605 × 21.00% = 31,207

⁹ Elimination of after taxes investment income.

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Item	Description	The company
NOPAT	Net operating profit after taxes is income from operations, but after removement of taxes calculated on cash basis that are relevant to operating income.	Arista Networks Inc. NOPAT increased from 2021 to 2022 and from 2022 to 2023.

Arista Networks Inc., cash operating taxes calculation

US$ in thousands

12 months ended:	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Provision for income taxes	334,705)	229,350)	90,025)	104,306)	2,403)
Less: Deferred income tax expense (benefit)	(370,796)	(244,379)	(99,047)	(8,563)	(75,779)
Add: Tax savings from interest expense	743)	684)	807)	947)	1,061)
Less: Tax imposed on investment income	31,207)	5,654)	1,515)	7,680)	10,740)
Cash operating taxes	675,037)	468,759)	188,364)	106,136)	68,503)

Based on: 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), 10-K (reporting date: 2019-12-31).

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Item	Description	The company
Cash operating taxes	Cash operating taxes are estimated by adjusting income tax expense for changes in deferred taxes and tax benefit from the interest deduction.	Arista Networks Inc. cash operating taxes increased from 2021 to 2022 and from 2022 to 2023.

Arista Networks Inc., invested capital calculation (financing approach)

US$ in thousands

	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Operating lease liability¹	65,519)	63,842)	76,825)	90,170)	99,074)
Total reported debt & leases	65,519)	63,842)	76,825)	90,170)	99,074)
Stockholders’ equity	7,219,059)	4,885,820)	3,978,600)	3,320,291)	2,894,686)
Net deferred tax (assets) liabilities²	(945,792)	(574,870)	(313,221)	(213,595)	(197,315)
Product sales rebate, returns reserve and others³	9,911)	5,394)	5,088)	4,497)	6,160)
Deferred revenue⁴	1,506,204)	1,041,246)	929,312)	650,827)	575,288)
Equity equivalents⁵	570,323)	471,770)	621,179)	441,729)	384,133)
Accumulated other comprehensive (income) loss, net of tax⁶	3,328)	33,908)	8,300)	(238)	(143)
Adjusted stockholders’ equity	7,792,710)	5,391,498)	4,608,079)	3,761,782)	3,278,676)
Construction-in-process⁷	(4,242)	(2,124)	(2,378)	(1,441)	(265)
Marketable securities⁸	(3,069,362)	(2,352,022)	(2,787,502)	(1,979,649)	(1,613,082)
Invested capital	4,784,625)	3,101,194)	1,895,024)	1,870,862)	1,764,403)

Based on: 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), 10-K (reporting date: 2019-12-31).

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 equity equivalents to stockholders’ equity.

⁶ Removal of accumulated other comprehensive income.

⁷ Subtraction of construction-in-process.

⁸ Subtraction of marketable securities.

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Item	Description	The company
Invested capital	Capital is an approximation of the economic book value of all cash invested in going-concern business activities.	Arista Networks Inc. invested capital increased from 2021 to 2022 and from 2022 to 2023.

Arista Networks Inc., cost of capital calculations

Dec 31, 2023

	Capital (fair value)¹	Weights					Cost of capital
Equity²	83,007,350)	83,007,350)	÷	83,072,869)	=	1.00	1.00	×	14.62%	=	14.61%
Operating lease liability³	65,519)	65,519)	÷	83,072,869)	=	0.00	0.00	×	5.40% × (1 – 21.00%)	=	0.00%
Total:	83,072,869)					1.00					14.61%

Based on: 10-K (reporting date: 2023-12-31).

¹ US$ in thousands

² Equity. See details »

³ Operating lease liability. See details »

Dec 31, 2022

	Capital (fair value)¹	Weights					Cost of capital
Equity²	43,342,691)	43,342,691)	÷	43,406,533)	=	1.00	1.00	×	14.62%	=	14.60%
Operating lease liability³	63,842)	63,842)	÷	43,406,533)	=	0.00	0.00	×	5.10% × (1 – 21.00%)	=	0.01%
Total:	43,406,533)					1.00					14.61%

Based on: 10-K (reporting date: 2022-12-31).

¹ US$ in thousands

² Equity. See details »

³ Operating lease liability. See details »

Dec 31, 2021

	Capital (fair value)¹	Weights					Cost of capital
Equity²	39,991,189)	39,991,189)	÷	40,068,014)	=	1.00	1.00	×	14.62%	=	14.60%
Operating lease liability³	76,825)	76,825)	÷	40,068,014)	=	0.00	0.00	×	5.00% × (1 – 21.00%)	=	0.01%
Total:	40,068,014)					1.00					14.60%

Based on: 10-K (reporting date: 2021-12-31).

¹ US$ in thousands

² Equity. See details »

³ Operating lease liability. See details »

Dec 31, 2020

	Capital (fair value)¹	Weights					Cost of capital
Equity²	23,736,066)	23,736,066)	÷	23,826,236)	=	1.00	1.00	×	14.62%	=	14.57%
Operating lease liability³	90,170)	90,170)	÷	23,826,236)	=	0.00	0.00	×	5.00% × (1 – 21.00%)	=	0.01%
Total:	23,826,236)					1.00					14.58%

Based on: 10-K (reporting date: 2020-12-31).

¹ US$ in thousands

² Equity. See details »

³ Operating lease liability. See details »

Dec 31, 2019

	Capital (fair value)¹	Weights					Cost of capital
Equity²	17,091,578)	17,091,578)	÷	17,190,652)	=	0.99	0.99	×	14.62%	=	14.54%
Operating lease liability³	99,074)	99,074)	÷	17,190,652)	=	0.01	0.01	×	5.10% × (1 – 21.00%)	=	0.02%
Total:	17,190,652)					1.00					14.56%

Based on: 10-K (reporting date: 2019-12-31).

¹ US$ in thousands

² Equity. See details »

³ Operating lease liability. See details »

Arista Networks Inc., economic spread ratio calculation, comparison to benchmarks

	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Selected Financial Data (US$ in thousands)
Economic profit¹	1,372,127)	748,601)	741,494)	401,718)	475,843)
Invested capital²	4,784,625)	3,101,194)	1,895,024)	1,870,862)	1,764,403)
Performance Ratio
Economic spread ratio³	28.68%	24.14%	39.13%	21.47%	26.97%
Benchmarks
Economic Spread Ratio, Competitors⁴
Apple Inc.	141.25%	202.73%	199.06%	146.99%	91.03%
Cisco Systems Inc.	8.52%	8.40%	7.65%	11.87%	6.08%
Super Micro Computer Inc.	10.42%	0.73%	-6.70%	-9.48%	-4.39%

Based on: 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), 10-K (reporting date: 2019-12-31).

¹ Economic profit. See details »

² Invested capital. See details »

³ 2023 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × 1,372,127 ÷ 4,784,625 = 28.68%

⁴ Click competitor name to see calculations.

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Performance ratio	Description	The company
Economic spread ratio	The ratio of economic profit to invested capital, also equal to the difference between return on invested capital (ROIC) and cost of capital.	Arista Networks Inc. economic spread ratio deteriorated from 2021 to 2022 but then slightly improved from 2022 to 2023.

Arista Networks Inc., economic profit margin calculation, comparison to benchmarks

	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Selected Financial Data (US$ in thousands)
Economic profit¹	1,372,127)	748,601)	741,494)	401,718)	475,843)

Revenue	5,860,168)	4,381,310)	2,948,037)	2,317,512)	2,410,706)
Add: Increase (decrease) in deferred revenue	464,958)	111,934)	278,485)	75,539)	(11,939)
Adjusted revenue	6,325,126)	4,493,244)	3,226,522)	2,393,051)	2,398,767)
Performance Ratio
Economic profit margin²	21.69%	16.66%	22.98%	16.79%	19.84%
Benchmarks
Economic Profit Margin, Competitors³
Apple Inc.	22.22%	23.96%	23.13%	19.26%	17.77%
Cisco Systems Inc.	8.47%	9.42%	8.53%	12.38%	6.41%
Super Micro Computer Inc.	3.53%	0.31%	-2.42%	-3.52%	-1.42%

Based on: 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), 10-K (reporting date: 2019-12-31).

¹ Economic profit. See details »

² 2023 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted revenue
= 100 × 1,372,127 ÷ 6,325,126 = 21.69%

³ Click competitor name to see calculations.

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Performance ratio	Description	The company
Economic profit margin	The ratio of economic profit to sales. It is the company profit margin covering income efficiency and asset management. Economic profit margin is not biased in favor of capital-intensive business models, because any added capital is a cost to the economic profit margin.	Arista Networks Inc. economic profit margin deteriorated from 2021 to 2022 but then improved from 2022 to 2023 not reaching 2021 level.

Arista Networks Inc. (NYSE:ANET)

Economic Value Added (EVA)

Economic Profit

Net Operating Profit after Taxes (NOPAT)

Cash Operating Taxes

Invested Capital

Cost of Capital

Economic Spread Ratio

Economic Profit Margin