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
Boston Scientific Corp., economic profit 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 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
= 1,099 – 13.58% × 22,868 = -2,007
An analysis of the financial performance from 2018 to 2022 reveals a persistent failure to generate positive economic profit. Despite fluctuations in operating performance and a steady increase in the invested capital base, the returns on capital remained insufficient to cover the cost of capital throughout the entire five-year period.
- Net Operating Profit After Taxes (NOPAT)
- Significant volatility is observed in NOPAT, which started at 1,711 million US$ in 2018 and experienced a precipitous decline to 153 million US$ by 2020. Although a recovery was evident in 2021 with an increase to 1,270 million US$, the figure slightly contracted to 1,099 million US$ in 2022.
- Invested Capital Growth
- A consistent upward trend is observed in invested capital, which grew from 16,047 million US$ in 2018 to 22,868 million US$ in 2022. This steady expansion indicates a continuous increase in the capital deployed into the business operations.
- Cost of Capital Stability
- The cost of capital remained relatively stable, oscillating within a narrow range between 12.95% and 13.76%. A minor decrease occurred between 2018 and 2020, followed by a gradual upward trend through 2022, ending at 13.58%.
- Economic Profit Trajectory
- Economic profit remained negative across all analyzed years, confirming that the company did not create economic value during this timeframe. The economic deficit expanded from -497 million US$ in 2018 to a peak loss of -2,572 million US$ in 2020. While the deficit narrowed to -1,650 million US$ in 2021, it widened again to -2,007 million US$ in 2022.
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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
= 408 × 3.30% = 13
6 2022 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 483 × 21.00% = 102
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
= 0 × 21.00% = 0
9 Elimination of after taxes investment income.
The financial performance between 2018 and 2022 is characterized by significant volatility in both bottom-line earnings and operational profitability. While a recovery trend was established after a sharp downturn in 2020, the results exhibit non-linear growth and substantial fluctuations in profitability metrics.
- Net Income Volatility
- Net income experienced extreme fluctuations over the five-year period. A peak of US$ 4,700 million was recorded in 2019, which was immediately followed by a collapse to a net loss of US$ 82 million in 2020. Profitability returned in 2021 at US$ 1,041 million before declining to US$ 698 million in 2022.
- Net Operating Profit After Taxes (NOPAT) Trends
- NOPAT followed a distinct U-shaped trajectory. Operational profitability declined steadily from US$ 1,711 million in 2018 to a low of US$ 153 million in 2020. This decline was reversed in 2021 with a recovery to US$ 1,270 million, followed by a moderate reduction to US$ 1,099 million in 2022.
- Divergence Between Operating and Net Results
- A significant divergence is observed in 2019, where net income surged to its highest point despite a contraction in NOPAT, indicating that the net result was heavily influenced by non-operating gains or one-time accounting adjustments. In contrast, 2020 showed that while NOPAT remained positive, the company incurred a net loss, suggesting that non-operating expenses or exceptional items outweighed the operating profit.
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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).
An analysis of tax-related expenditures reveals significant volatility between 2018 and 2022, characterized by a transition from substantial tax benefits to increasing cash outflows.
- Income Tax Expense (Benefit)
- Accounting tax expenses exhibited extreme fluctuations, with significant tax benefits reported in 2018 (-$249 million) and 2019 (-$4,013 million). From 2020 onward, this trend reversed, moving into positive expense territory and increasing steadily from $2 million in 2020 to $443 million by 2022.
- Cash Operating Taxes
- Cash tax payments show a general upward trajectory following a period of initial instability. After a modest benefit in 2018 (-$33 million) and a spike in 2019 ($377 million), cash taxes decreased to $165 million in 2020 before rising consistently to $252 million in 2021 and $552 million in 2022.
- Comparative Divergence and EVA Impact
- A notable divergence is observed between accrual-based tax expenses and actual cash tax payments, most prominently in 2019, where a massive accounting benefit coincided with a significant cash outflow. This suggests the influence of substantial non-cash deferred tax adjustments. Regarding Economic Value Added (EVA) considerations, the consistent rise in cash operating taxes from 2020 to 2022 indicates an increasing cash burden that reduces the after-tax operating profit available to cover the cost of capital.
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Invested Capital
Boston Scientific Corp., invested capital calculation (financing approach)
US$ 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.
Invested capital exhibited a sustained upward trajectory from 2018 to 2022, increasing from US$ 16,047 million to US$ 22,868 million. The most significant growth occurred between 2018 and 2019, representing a 27% increase in the capital base, followed by a period of moderate, steady expansion over the subsequent three years.
- Stockholders' Equity Trends
- A consistent growth pattern is observed in stockholders' equity, which rose from US$ 8,726 million in 2018 to US$ 17,573 million in 2022. This represents a total increase of approximately 101% over the five-year period. The steady climb indicates strong internal capital accumulation or equity injections, serving as the primary driver for the overall expansion of the total invested capital base.
- Debt and Lease Obligations
- Total reported debt and leases experienced a sharp increase between 2018 and 2019, rising from US$ 7,364 million to US$ 10,351 million. Subsequent years demonstrate a gradual downward trend, with debt levels receding to US$ 9,343 million by December 31, 2022. This suggests a strategic shift toward debt reduction following a period of significant leveraging in 2019.
- Capital Structure Composition
- The composition of invested capital shifted notably toward equity. In 2018, debt and equity were relatively balanced, with debt comprising approximately 46% of the invested capital. By 2022, equity grew to represent approximately 77% of the total invested capital, while the proportion of debt declined to approximately 23%. This transition indicates a reduction in financial leverage and an increased reliance on equity to support the organization's asset base.
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Cost of Capital
Boston Scientific Corp., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 67,693) | 67,693) | ÷ | 77,459) | = | 0.87 | 0.87 | × | 15.18% | = | 13.27% | ||
| 5.50% Mandatory Convertible Preferred Stock, Series A, par value $0.01 per share | 1,155) | 1,155) | ÷ | 77,459) | = | 0.01 | 0.01 | × | 5.50% | = | 0.08% | ||
| Outstanding debt obligations3 | 8,203) | 8,203) | ÷ | 77,459) | = | 0.11 | 0.11 | × | 2.65% × (1 – 21.00%) | = | 0.22% | ||
| Operating lease liability4 | 408) | 408) | ÷ | 77,459) | = | 0.01 | 0.01 | × | 3.30% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 77,459) | 1.00 | 13.58% | ||||||||||
Based on: 10-K (reporting date: 2022-12-31).
1 US$ 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 | 62,362) | 62,362) | ÷ | 74,172) | = | 0.84 | 0.84 | × | 15.18% | = | 12.76% | ||
| 5.50% Mandatory Convertible Preferred Stock, Series A, par value $0.01 per share | 1,154) | 1,154) | ÷ | 74,172) | = | 0.02 | 0.02 | × | 5.50% | = | 0.09% | ||
| Outstanding debt obligations3 | 10,196) | 10,196) | ÷ | 74,172) | = | 0.14 | 0.14 | × | 3.58% × (1 – 21.00%) | = | 0.39% | ||
| Operating lease liability4 | 460) | 460) | ÷ | 74,172) | = | 0.01 | 0.01 | × | 2.60% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 74,172) | 1.00 | 13.25% | ||||||||||
Based on: 10-K (reporting date: 2021-12-31).
1 US$ 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 | 54,915) | 54,915) | ÷ | 67,263) | = | 0.82 | 0.82 | × | 15.18% | = | 12.39% | ||
| 5.50% Mandatory Convertible Preferred Stock, Series A, par value $0.01 per share | 1,103) | 1,103) | ÷ | 67,263) | = | 0.02 | 0.02 | × | 5.50% | = | 0.09% | ||
| Outstanding debt obligations3 | 10,774) | 10,774) | ÷ | 67,263) | = | 0.16 | 0.16 | × | 3.55% × (1 – 21.00%) | = | 0.45% | ||
| Operating lease liability4 | 471) | 471) | ÷ | 67,263) | = | 0.01 | 0.01 | × | 2.40% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 67,263) | 1.00 | 12.95% | ||||||||||
Based on: 10-K (reporting date: 2020-12-31).
1 US$ 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 | 55,722) | 55,722) | ÷ | 67,085) | = | 0.83 | 0.83 | × | 15.18% | = | 12.61% | ||
| 5.50% Mandatory Convertible Preferred Stock, Series A, par value $0.01 per share | —) | —) | ÷ | 67,085) | = | 0.00 | 0.00 | × | 0.00% | = | 0.00% | ||
| Outstanding debt obligations3 | 11,020) | 11,020) | ÷ | 67,085) | = | 0.16 | 0.16 | × | 3.70% × (1 – 21.00%) | = | 0.48% | ||
| Operating lease liability4 | 343) | 343) | ÷ | 67,085) | = | 0.01 | 0.01 | × | 3.70% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 67,085) | 1.00 | 13.10% | ||||||||||
Based on: 10-K (reporting date: 2019-12-31).
1 US$ 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 | 55,244) | 55,244) | ÷ | 62,791) | = | 0.88 | 0.88 | × | 15.18% | = | 13.36% | ||
| 5.50% Mandatory Convertible Preferred Stock, Series A, par value $0.01 per share | —) | —) | ÷ | 62,791) | = | 0.00 | 0.00 | × | 0.00% | = | 0.00% | ||
| Outstanding debt obligations3 | 7,239) | 7,239) | ÷ | 62,791) | = | 0.12 | 0.12 | × | 4.25% × (1 – 21.00%) | = | 0.39% | ||
| Operating lease liability4 | 308) | 308) | ÷ | 62,791) | = | 0.00 | 0.00 | × | 4.25% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 62,791) | 1.00 | 13.76% | ||||||||||
Based on: 10-K (reporting date: 2018-12-31).
1 US$ 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 | (2,007) | (1,650) | (2,572) | (1,843) | (497) | |
| Invested capital2 | 22,868) | 22,038) | 21,053) | 20,389) | 16,047) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -8.78% | -7.49% | -12.22% | -9.04% | -3.10% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Abbott Laboratories | -2.51% | -2.02% | — | — | — | |
| Elevance Health Inc. | 0.01% | 1.33% | — | — | — | |
| Intuitive Surgical Inc. | -2.99% | 12.62% | — | — | — | |
| Medtronic PLC | -5.14% | -6.78% | — | — | — | |
| UnitedHealth Group Inc. | 3.88% | 3.74% | — | — | — | |
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 × -2,007 ÷ 22,868 = -8.78%
4 Click competitor name to see calculations.
The financial performance from 2018 to 2022 is characterized by a consistent failure to generate positive economic value, as indicated by negative economic profit and a negative economic spread ratio throughout the entire period. While invested capital grew steadily, the inability to achieve returns exceeding the cost of capital resulted in a persistent destruction of economic value.
- Economic Profit Trends
- Economic profit remained negative for all five years, exhibiting significant volatility. The deficit widened sharply from -497 million US dollars in 2018 to a peak loss of -2,572 million US dollars in 2020. A partial recovery occurred in 2021, with the loss narrowing to -1,650 million US dollars, before increasing again to -2,007 million US dollars by the end of 2022.
- Invested Capital Expansion
- A consistent upward trajectory in invested capital is observed, increasing from 16,047 million US dollars in 2018 to 22,868 million US dollars in 2022. This steady expansion of the capital base occurred despite the negative economic profit, suggesting continued capital deployment during this timeframe.
- Economic Spread Ratio Analysis
- The economic spread ratio mirrored the trajectory of the economic profit, remaining negative throughout the period. The ratio deteriorated from -3.10% in 2018 to its lowest point of -12.22% in 2020. Following this trough, the ratio improved to -7.49% in 2021 before declining again to -8.78% in 2022. The persistent negative spread confirms that the return on invested capital consistently lagged behind the cost of capital.
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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 | (2,007) | (1,650) | (2,572) | (1,843) | (497) | |
| Net sales | 12,682) | 11,888) | 9,913) | 10,735) | 9,823) | |
| Add: Increase (decrease) in deferred revenue | 25) | 89) | (5) | 27) | —) | |
| Adjusted net sales | 12,707) | 11,977) | 9,908) | 10,762) | 9,823) | |
| Performance Ratio | ||||||
| Economic profit margin2 | -15.80% | -13.78% | -25.96% | -17.13% | -5.06% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Abbott Laboratories | -3.52% | -2.92% | — | — | — | |
| Elevance Health Inc. | 0.00% | 0.62% | — | — | — | |
| Intuitive Surgical Inc. | -2.58% | 9.93% | — | — | — | |
| Medtronic PLC | -11.28% | -16.28% | — | — | — | |
| UnitedHealth Group Inc. | 1.99% | 1.83% | — | — | — | |
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 × -2,007 ÷ 12,707 = -15.80%
3 Click competitor name to see calculations.
The financial performance concerning economic value creation reveals a consistent failure to generate positive economic profit between 2018 and 2022. Despite an overall increase in adjusted net sales, the company has consistently operated with a negative economic profit, indicating that earnings have not exceeded the cost of capital employed during this period.
- Economic Profit Trends
- Economic profit exhibited significant volatility and a deep downward trend in the early part of the period. The deficit expanded from -497 million USD in 2018 to a peak negative value of -2,572 million USD by 2020. While 2021 showed a relative improvement to -1,650 million USD, this gain was reversed in 2022, with the figure dropping back to -2,007 million USD.
- Adjusted Net Sales Trajectory
- Adjusted net sales demonstrated a general growth pattern, increasing from 9,823 million USD in 2018 to 12,707 million USD in 2022. A temporary contraction occurred in 2020, where sales fell to 9,908 million USD, coinciding with the period of maximum economic profit loss.
- Economic Profit Margin Analysis
- The economic profit margin remained negative throughout the five-year observation window. The margin deteriorated sharply from -5.06% in 2018 to -25.96% in 2020. A partial recovery was noted in 2021 at -13.78%, followed by a slight decline to -15.80% in 2022. The persistence of these negative margins suggests that the growth in sales has not been sufficient to offset the capital charges associated with business operations.
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