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:
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Long-term (Investment) Activity Ratios
- Common Stock Valuation Ratios
- Enterprise Value to EBITDA (EV/EBITDA)
- Enterprise Value to FCFF (EV/FCFF)
- Return on Equity (ROE) since 2005
- Debt to Equity since 2005
- Price to Operating Profit (P/OP) since 2005
- Price to Sales (P/S) since 2005
- Aggregate Accruals
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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 experienced a substantial decline from US$1,711 million in 2018 to US$829 million in 2019. A further, more dramatic decrease occurred in 2020, reaching a low of US$153 million. A recovery was observed in 2021, with NOPAT rising to US$1,270 million, but this was followed by a slight decrease to US$1,099 million in 2022. This volatility significantly impacts the overall economic profit calculation.
- Cost of Capital
- The cost of capital remained relatively consistent across the five-year period, fluctuating between 11.28% and 11.96%. This indicates a stable financing environment for the company, with minimal changes in the required rate of return for investors. The slight increase in 2022 to 11.80% may reflect broader macroeconomic conditions.
- Invested Capital
- Invested capital showed a consistent upward trend, increasing from US$16,047 million in 2018 to US$22,868 million in 2022. This growth in invested capital, coupled with the fluctuating NOPAT, directly contributed to the negative economic profit observed throughout the period. The increasing capital base required a higher level of NOPAT to achieve positive economic profit.
- Economic Profit
- Economic profit remained negative for all five years. The magnitude of the negative economic profit increased from US$-209 million in 2018 to a peak of US$-2,221 million in 2020, coinciding with the lowest NOPAT value. While economic profit improved to US$-1,272 million in 2021 with the NOPAT recovery, it deteriorated again to US$-1,599 million in 2022. This consistent negative economic profit suggests that the company is not generating returns exceeding its cost of capital.
In summary, the company’s performance indicates an inability to generate economic profit despite growth in invested capital. The fluctuations in NOPAT are a key driver of the negative economic profit, and sustained improvement in NOPAT is necessary to achieve positive economic returns.
Net Operating Profit after Taxes (NOPAT)
Boston Scientific Corp., NOPAT calculation
US$ 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 consistently negative economic profit, alongside increasing invested capital. This has resulted in a declining economic spread ratio over the observed timeframe, though with some moderation in the most recent year.
- Economic Profit
- Economic profit exhibits a substantial deterioration from 2018 to 2020, moving from a loss of US$209 million to a loss of US$2,221 million. A partial recovery is noted in 2021, with the loss decreasing to US$1,272 million, but this improvement was not sustained, as the loss increased again to US$1,599 million in 2022. The magnitude of the losses suggests a consistent inability to generate returns exceeding the cost of capital.
- Invested Capital
- Invested capital shows a consistent upward trend throughout the period. Beginning at US$16,047 million in 2018, it increased to US$22,868 million by 2022. This indicates continued investment in the business, despite the negative economic profit. The increasing capital base, coupled with persistent losses, contributes to the worsening economic spread ratio.
- Economic Spread Ratio
- The economic spread ratio reflects the relationship between economic profit and invested capital. The ratio declined significantly from -1.30% in 2018 to -10.55% in 2020, indicating a widening gap between the cost of capital and the returns generated. While the ratio improved to -5.77% in 2021, it deteriorated again to -6.99% in 2022. This suggests that, despite some fluctuations, the business continues to destroy economic value, and the rate of value destruction remains substantial.
Overall, the analysis reveals a pattern of increasing investment alongside declining profitability relative to the cost of capital. The negative and worsening economic spread ratio highlights a concerning trend of value destruction, despite ongoing capital deployment.
Economic Profit Margin
Boston Scientific Corp., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ 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 significant fluctuations between 2018 and 2022. Initially negative, the margin deteriorated substantially over the period before showing a slight moderation in the most recent year. A consistent pattern of negative economic profit was also observed throughout the analyzed timeframe.
- Economic Profit Margin
- The economic profit margin began at -2.13% in 2018. It experienced a marked decline in 2019, reaching -13.91%. This downward trend continued into 2020, with the margin reaching its lowest point at -22.42%. A partial recovery was noted in 2021, with the margin improving to -10.62%, although it remained considerably negative. In 2022, the margin decreased again to -12.58%, indicating a renewed weakening of economic profitability relative to sales.
- Economic Profit
- Economic profit was negative across all five years. The absolute value of economic profit increased significantly from -209 million in 2018 to -1,497 million in 2019, representing a substantial deterioration in value creation. While economic profit decreased to -2,221 million in 2020, it then improved to -1,272 million in 2021. However, it worsened again in 2022, reaching -1,599 million. This suggests that while the company generated sales, it failed to generate returns exceeding its cost of capital during this period.
- Adjusted Net Sales
- Adjusted net sales generally increased over the period. From 9,823 million in 2018, sales rose to 10,762 million in 2019. A slight decrease was observed in 2020, with sales falling to 9,908 million. Sales then rebounded strongly in 2021, reaching 11,977 million, and continued to grow in 2022 to 12,707 million. The increase in sales did not translate into positive economic profit, indicating that revenue growth alone was insufficient to cover the cost of capital.
The consistent negative economic profit margin, despite increasing sales, suggests potential issues with cost management, capital efficiency, or the pricing of products and services. The substantial fluctuations in the economic profit margin warrant further investigation to understand the underlying drivers and potential mitigation strategies.