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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Boston Scientific Corp. pages available for free this week:
- Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Liquidity Ratios
- Analysis of Short-term (Operating) Activity Ratios
- Enterprise Value (EV)
- Enterprise Value to FCFF (EV/FCFF)
- Capital Asset Pricing Model (CAPM)
- Selected Financial Data since 2005
- Operating Profit Margin since 2005
- Return on Assets (ROA) since 2005
- Analysis of Revenues
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Economic Profit
Boston Scientific Corp., economic profit calculation
US$ in millions
| 12 months ended: | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | |
|---|---|---|---|---|---|---|
| Net operating profit after taxes (NOPAT)1 | ||||||
| Cost of capital2 | ||||||
| Invested capital3 | ||||||
| Economic profit4 | ||||||
Based on: 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), 10-K (reporting date: 2018-12-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2022 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= – × =
The period under review demonstrates a consistent pattern of negative economic profit. Net operating profit after taxes (NOPAT) exhibited significant volatility, while the cost of capital remained relatively stable. Invested capital increased steadily throughout the period, contributing to the sustained negative economic profit.
- NOPAT Trend
- NOPAT decreased substantially from US$1,711 million in 2018 to US$829 million in 2019. A further, more dramatic decline occurred in 2020, reaching a low of US$153 million. A recovery was observed in 2021, with NOPAT increasing to US$1,270 million, but this was followed by a decrease to US$1,099 million in 2022. This volatility in NOPAT significantly impacts the overall economic profit calculation.
- Cost of Capital
- The cost of capital experienced a slight decrease from 13.57% in 2018 to 12.77% in 2020. It then increased to 13.06% in 2021 and further to 13.39% in 2022. While fluctuations were present, the cost of capital remained within a relatively narrow range throughout the five-year period, suggesting that changes in economic profit are primarily driven by NOPAT and invested capital.
- Invested Capital
- Invested capital showed a consistent upward trend, increasing from US$16,047 million in 2018 to US$22,868 million in 2022. This continuous growth in invested capital, coupled with the fluctuating NOPAT, contributed to the consistently negative economic profit.
- Economic Profit
- Economic profit was negative in each year of the period. The largest negative economic profit was recorded in 2020 at US$-2,535 million. While 2021 saw a reduction in the negative economic profit to US$-1,609 million, it increased again in 2022 to US$-1,963 million. The magnitude of the negative economic profit suggests that the company’s returns are not covering its cost of capital.
In summary, the company consistently failed to generate economic profit over the analyzed period. The increasing invested capital, combined with volatile NOPAT, resulted in sustained negative economic profit, despite a relatively stable cost of capital.
Net Operating Profit after Taxes (NOPAT)
Boston Scientific Corp., NOPAT calculation
US$ in millions
Based on: 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), 10-K (reporting date: 2018-12-31).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowance for credit losses.
3 Addition of increase (decrease) in deferred revenue.
4 Addition of increase (decrease) in equity equivalents to net income (loss).
5 2022 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= × =
6 2022 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= × 21.00% =
7 Addition of after taxes interest expense to net income (loss).
8 2022 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= × 21.00% =
9 Elimination of after taxes investment income.
- Net Income (Loss)
- The net income demonstrates significant volatility over the analyzed periods. It increased markedly from US$1,671 million in 2018 to a peak of US$4,700 million in 2019. However, the year 2020 saw a sharp reversal, with net income turning into a loss of US$82 million. Following this dip, net income recovered to US$1,041 million in 2021 but declined again to US$698 million in 2022. Overall, the trend indicates substantial fluctuations, with the highest profitability recorded in 2019 and a noticeable setback in 2020, followed by a partial recovery and a subsequent decline.
- Net Operating Profit After Taxes (NOPAT)
- The NOPAT figures display a different pattern compared to net income. Beginning at US$1,711 million in 2018, NOPAT fell steadily to US$829 million in 2019 and then to a low of US$153 million in 2020. However, it experienced a strong recovery in the subsequent two years, rising to US$1,270 million in 2021 and slightly decreasing to US$1,099 million in 2022. This implies that while operational profitability was significantly impacted during 2019 and 2020, there was a notable operational improvement in 2021 and 2022, albeit not reaching the levels seen in 2018.
- Comparative Insights
- The considerable divergence between net income and NOPAT in 2019, where net income peaked but NOPAT decreased, may suggest the influence of non-operating factors such as gains, losses, or tax effects that boosted net income independently from operational performance. The loss in net income in 2020 contrasted with a very low but positive NOPAT indicates operational struggles compounded by additional factors impacting overall profitability negatively. The recovery trend in both metrics in 2021 highlights an improvement phase, although 2022 figures show some erosion in profitability relative to 2021. The continued volatility points to potential underlying operational and external challenges affecting the company’s financial outcomes across the five-year period.
Cash Operating Taxes
Boston Scientific Corp., cash operating taxes calculation
US$ in millions
Based on: 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), 10-K (reporting date: 2018-12-31).
- Income Tax Expense (Benefit)
- The income tax expense exhibited significant fluctuations over the five-year period. In 2018 and 2019, the company recorded substantial tax benefits of -$249 million and -$4,013 million, respectively. However, the trend reversed in 2020, with a slight positive tax expense of $2 million, followed by a gradual increase to $36 million in 2021 and $443 million in 2022. This shift from large tax benefits to increasing tax expenses suggests a considerable change in tax-related factors affecting the company, possibly reflecting changes in profitability, tax regulations, or deferred tax assets and liabilities.
- Cash Operating Taxes
- Cash operating taxes showed a consistent upward trend throughout the period analyzed. Starting with a negative value of -$33 million in 2018, cash taxes rose to $377 million in 2019, before experiencing a slight decrease to $165 million in 2020. From 2020 onwards, cash taxes increased steadily to $252 million in 2021 and further to $552 million in 2022. This progression indicates growing cash tax outflows, which may correlate with increasing taxable income, changes in tax strategies, or adjustments in tax payment timings.
Invested Capital
Boston Scientific Corp., invested capital calculation (financing approach)
US$ in millions
Based on: 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), 10-K (reporting date: 2018-12-31).
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 capital in progress.
- Total reported debt & leases
- The total reported debt and leases experienced a significant increase from 7,364 million USD in 2018 to 10,351 million USD in 2019. Following this peak, the figure showed a gradual decline over the next three years, decreasing to 9,614 million USD in 2020, 9,525 million USD in 2021, and further to 9,343 million USD by the end of 2022. This pattern indicates a notable rise in leverage in 2019 followed by a steady reduction in debt levels thereafter.
- Stockholders’ equity
- Stockholders’ equity demonstrated a consistent and substantial upward trend throughout the period. Starting at 8,726 million USD in 2018, equity rose sharply to 13,877 million USD in 2019, and continued to grow annually, reaching 15,326 million USD in 2020, 16,622 million USD in 2021, and 17,573 million USD in 2022. This steady increase reflects a strengthening equity base over the five-year span.
- Invested capital
- Invested capital showed a pattern of continuous growth, rising from 16,047 million USD in 2018 to 20,389 million USD in 2019. Growth continued but at a slower pace in subsequent years, reaching 21,053 million USD in 2020, 22,038 million USD in 2021, and 22,868 million USD in 2022. The data suggests a deliberate increase in capital investment over time, with the most notable expansion occurring between 2018 and 2019.
Cost of Capital
Boston Scientific Corp., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| 5.50% Mandatory Convertible Preferred Stock, Series A, par value $0.01 per share | ÷ | = | × | = | |||||||||
| Outstanding debt obligations3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2022-12-31).
1 US$ in millions
2 Equity. See details »
3 Outstanding debt obligations. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| 5.50% Mandatory Convertible Preferred Stock, Series A, par value $0.01 per share | ÷ | = | × | = | |||||||||
| Outstanding debt obligations3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2021-12-31).
1 US$ in millions
2 Equity. See details »
3 Outstanding debt obligations. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| 5.50% Mandatory Convertible Preferred Stock, Series A, par value $0.01 per share | ÷ | = | × | = | |||||||||
| Outstanding debt obligations3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2020-12-31).
1 US$ in millions
2 Equity. See details »
3 Outstanding debt obligations. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| 5.50% Mandatory Convertible Preferred Stock, Series A, par value $0.01 per share | ÷ | = | × | = | |||||||||
| Outstanding debt obligations3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2019-12-31).
1 US$ in millions
2 Equity. See details »
3 Outstanding debt obligations. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| 5.50% Mandatory Convertible Preferred Stock, Series A, par value $0.01 per share | ÷ | = | × | = | |||||||||
| Outstanding debt obligations3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2018-12-31).
1 US$ in millions
2 Equity. See details »
3 Outstanding debt obligations. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Boston Scientific Corp., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | ||||||
| Invested capital2 | ||||||
| Performance Ratio | ||||||
| Economic spread ratio3 | ||||||
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Abbott Laboratories | ||||||
| Elevance Health Inc. | ||||||
| Intuitive Surgical Inc. | ||||||
| Medtronic PLC | ||||||
| UnitedHealth Group Inc. | ||||||
Based on: 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), 10-K (reporting date: 2018-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2022 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × ÷ =
4 Click competitor name to see calculations.
The period under review demonstrates a consistent pattern of negative economic profit, coupled with increasing invested capital. This has resulted in a declining economic spread ratio over the observed timeframe, with a slight recovery in the most recent year.
- Economic Profit
- Economic profit exhibits a negative trend, worsening from a loss of US$466 million in 2018 to a peak loss of US$2,535 million in 2020. While a reduction in the loss is noted in 2021 (US$1,609 million) and 2022 (US$1,963 million), the company continues to generate negative economic profit across all reported years.
- Invested Capital
- Invested capital shows a consistent upward trend throughout the period, increasing from US$16,047 million in 2018 to US$22,868 million in 2022. This indicates a continuous reinvestment of resources into the business, despite the negative economic profit.
- Economic Spread Ratio
- The economic spread ratio, calculated as a percentage, reflects the relationship between economic profit and invested capital. The ratio declines significantly from -2.91% in 2018 to -12.04% in 2020, mirroring the increasing losses in economic profit and rising invested capital. A modest improvement is observed in 2021 (-7.30%) and 2022 (-8.59%), suggesting a slight stabilization, but the ratio remains negative, indicating that returns are not exceeding the cost of capital.
The consistent negative economic profit, alongside increasing invested capital, suggests the company’s investments are not currently generating returns sufficient to cover the cost of capital. The slight improvement in the economic spread ratio in the latter years may indicate early signs of improved capital allocation or operational efficiency, but further monitoring is required to confirm a sustained positive trend.
Economic Profit Margin
Boston Scientific Corp., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | ||||||
| Net sales | ||||||
| Add: Increase (decrease) in deferred revenue | ||||||
| Adjusted net sales | ||||||
| Performance Ratio | ||||||
| Economic profit margin2 | ||||||
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Abbott Laboratories | ||||||
| Elevance Health Inc. | ||||||
| Intuitive Surgical Inc. | ||||||
| Medtronic PLC | ||||||
| UnitedHealth Group Inc. | ||||||
Based on: 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), 10-K (reporting date: 2018-12-31).
1 Economic profit. See details »
2 2022 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted net sales
= 100 × ÷ =
3 Click competitor name to see calculations.
The economic profit margin exhibited a consistently negative trend over the five-year period. While economic profit itself fluctuated in absolute terms, it remained negative each year, indicating the company’s return on capital employed was less than its cost of capital. Adjusted net sales generally increased over the period, but this growth did not translate into positive economic profit.
- Economic Profit Margin Trend
- The economic profit margin deteriorated significantly from -4.75% in 2018 to -25.58% in 2020, representing the largest single-year decline in the observed period. A partial recovery occurred in 2021, with the margin improving to -13.44%, but this improvement was not sustained, as the margin decreased again to -15.45% in 2022. This suggests increasing pressure on profitability relative to the capital employed.
- Relationship between Sales and Economic Profit Margin
- Despite an increase in adjusted net sales from US$9,823 million in 2018 to US$12,707 million in 2022, the economic profit margin remained negative and, overall, worsened. This indicates that the increase in sales was insufficient to offset rising costs of capital or declining returns on invested capital. The widening gap between sales growth and margin decline warrants further investigation into cost structures and capital efficiency.
- Economic Profit Fluctuation
- Economic profit experienced its largest negative value in 2020 at -US$2,535 million. While it improved in 2021 to -US$1,609 million, it remained substantial. The 2022 value of -US$1,963 million suggests a return to levels closer to those experienced in 2019, but still represents a significant shortfall in generating returns exceeding the cost of capital.
The consistent negative economic profit margin across the period suggests fundamental challenges in generating shareholder value. The company’s ability to improve its economic profit margin will likely depend on strategies to enhance operational efficiency, optimize capital allocation, and/or improve pricing power.