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 – 13.51% × 22,868 = -1,991
The financial performance between 2018 and 2022 is characterized by persistent negative economic profit, indicating that operating returns consistently remained below the required cost of capital. Although a significant recovery in operating profits was observed following a sharp decline in 2020, the overall trend reflects a continued inability to generate economic value over the analyzed period.
- Net Operating Profit After Taxes (NOPAT)
- A period of high volatility is evident in NOPAT. After starting at US$ 1,711 million in 2018, operating profits experienced a steep decline, reaching a trough of US$ 153 million in 2020. A strong recovery followed in 2021 with NOPAT rising to US$ 1,270 million, before slightly moderating to US$ 1,099 million in 2022.
- Invested Capital and Cost of Capital
- Invested capital demonstrates a consistent upward trend, increasing from US$ 16,047 million in 2018 to US$ 22,868 million in 2022. This growth in the capital base occurred while the cost of capital remained relatively stable, fluctuating within a narrow band between a low of 12.88% in 2020 and a high of 13.69% in 2018.
- Economic Profit Analysis
- Economic profit remained negative throughout the five-year duration, signifying continuous value destruction. The deficit widened significantly from US$ 486 million in 2018 to a peak loss of US$ 2,558 million in 2020. While the recovery in NOPAT helped reduce the economic loss to US$ 1,635 million in 2021, the continued expansion of invested capital contributed to a renewed decline in economic profit to US$ 1,991 million by the end of 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 | × | 15.10% | = | 13.19% | ||
| 5.50% Mandatory Convertible Preferred Stock, Series A, par value $0.01 per share | 1,155) | 1,155) | ÷ | 77,459) | = | 0.01 | 0.01 | × | 5.50% | = | 0.08% | ||
| Outstanding debt obligations3 | 8,203) | 8,203) | ÷ | 77,459) | = | 0.11 | 0.11 | × | 2.65% × (1 – 21.00%) | = | 0.22% | ||
| Operating lease liability4 | 408) | 408) | ÷ | 77,459) | = | 0.01 | 0.01 | × | 3.30% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 77,459) | 1.00 | 13.51% | ||||||||||
Based on: 10-K (reporting date: 2022-12-31).
1 US$ 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 | × | 15.10% | = | 12.69% | ||
| 5.50% Mandatory Convertible Preferred Stock, Series A, par value $0.01 per share | 1,154) | 1,154) | ÷ | 74,172) | = | 0.02 | 0.02 | × | 5.50% | = | 0.09% | ||
| Outstanding debt obligations3 | 10,196) | 10,196) | ÷ | 74,172) | = | 0.14 | 0.14 | × | 3.58% × (1 – 21.00%) | = | 0.39% | ||
| Operating lease liability4 | 460) | 460) | ÷ | 74,172) | = | 0.01 | 0.01 | × | 2.60% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 74,172) | 1.00 | 13.18% | ||||||||||
Based on: 10-K (reporting date: 2021-12-31).
1 US$ 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 | × | 15.10% | = | 12.32% | ||
| 5.50% Mandatory Convertible Preferred Stock, Series A, par value $0.01 per share | 1,103) | 1,103) | ÷ | 67,263) | = | 0.02 | 0.02 | × | 5.50% | = | 0.09% | ||
| Outstanding debt obligations3 | 10,774) | 10,774) | ÷ | 67,263) | = | 0.16 | 0.16 | × | 3.55% × (1 – 21.00%) | = | 0.45% | ||
| Operating lease liability4 | 471) | 471) | ÷ | 67,263) | = | 0.01 | 0.01 | × | 2.40% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 67,263) | 1.00 | 12.88% | ||||||||||
Based on: 10-K (reporting date: 2020-12-31).
1 US$ 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 | × | 15.10% | = | 12.54% | ||
| 5.50% Mandatory Convertible Preferred Stock, Series A, par value $0.01 per share | —) | —) | ÷ | 67,085) | = | 0.00 | 0.00 | × | 0.00% | = | 0.00% | ||
| Outstanding debt obligations3 | 11,020) | 11,020) | ÷ | 67,085) | = | 0.16 | 0.16 | × | 3.70% × (1 – 21.00%) | = | 0.48% | ||
| Operating lease liability4 | 343) | 343) | ÷ | 67,085) | = | 0.01 | 0.01 | × | 3.70% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 67,085) | 1.00 | 13.03% | ||||||||||
Based on: 10-K (reporting date: 2019-12-31).
1 US$ 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 | × | 15.10% | = | 13.28% | ||
| 5.50% Mandatory Convertible Preferred Stock, Series A, par value $0.01 per share | —) | —) | ÷ | 62,791) | = | 0.00 | 0.00 | × | 0.00% | = | 0.00% | ||
| Outstanding debt obligations3 | 7,239) | 7,239) | ÷ | 62,791) | = | 0.12 | 0.12 | × | 4.25% × (1 – 21.00%) | = | 0.39% | ||
| Operating lease liability4 | 308) | 308) | ÷ | 62,791) | = | 0.00 | 0.00 | × | 4.25% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 62,791) | 1.00 | 13.69% | ||||||||||
Based on: 10-K (reporting date: 2018-12-31).
1 US$ 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 | (1,991) | (1,635) | (2,558) | (1,829) | (486) | |
| Invested capital2 | 22,868) | 22,038) | 21,053) | 20,389) | 16,047) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -8.70% | -7.42% | -12.15% | -8.97% | -3.03% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Abbott Laboratories | -2.40% | -1.92% | — | — | — | |
| Elevance Health Inc. | 0.18% | 1.50% | — | — | — | |
| Intuitive Surgical Inc. | -3.27% | 12.34% | — | — | — | |
| Medtronic PLC | -5.04% | -6.68% | — | — | — | |
| UnitedHealth Group Inc. | 4.11% | 3.96% | — | — | — | |
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 × -1,991 ÷ 22,868 = -8.70%
4 Click competitor name to see calculations.
The analysis of economic value added reveals a consistent trend of negative economic profit from 2018 through 2022. Despite a steady expansion of the invested capital base, the organization has not achieved a positive economic spread, indicating that returns on invested capital have remained below the cost of capital throughout the observed period.
- Economic Profit Trends
- Economic profit remained negative for all five years, showing a significant deterioration from -486 million US$ in 2018 to a low of -2,558 million US$ in 2020. Although a partial recovery occurred in 2021 as losses narrowed to -1,635 million US$, the figure declined again to -1,991 million US$ by the end of 2022, suggesting volatility in the ability to generate value above the cost of capital.
- Invested Capital Expansion
- A consistent upward trajectory is observed in invested capital, which increased from 16,047 million US$ in 2018 to 22,868 million US$ in 2022. This represents a steady growth in the resource base deployed into operations; however, this capital expansion has not correlated with an improvement in economic profit.
- Economic Spread Ratio Performance
- The economic spread ratio highlights a persistent failure to meet the required rate of return, reaching its lowest point of -12.15% in 2020. While the ratio showed signs of improvement in 2021 at -7.42%, it deteriorated again to -8.70% in 2022. The negative values across the entire period confirm that the business has been destroying economic value rather than creating it.
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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 | (1,991) | (1,635) | (2,558) | (1,829) | (486) | |
| 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 | -15.66% | -13.65% | -25.82% | -16.99% | -4.94% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Abbott Laboratories | -3.38% | -2.77% | — | — | — | |
| Elevance Health Inc. | 0.08% | 0.70% | — | — | — | |
| Intuitive Surgical Inc. | -2.82% | 9.71% | — | — | — | |
| Medtronic PLC | -11.06% | -16.04% | — | — | — | |
| UnitedHealth Group Inc. | 2.10% | 1.94% | — | — | — | |
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 × -1,991 ÷ 12,707 = -15.66%
3 Click competitor name to see calculations.
An analysis of the financial performance from 2018 to 2022 reveals a persistent state of negative economic profit, indicating that the returns generated on invested capital did not exceed the company's cost of capital during this five-year period.
- Economic Profit Trends
- Economic profit exhibited a significant downward trajectory in the early part of the period, moving from a deficit of US$ 486 million in 2018 to a peak deficit of US$ 2,558 million in 2020. A partial recovery was observed in 2021, where the deficit narrowed to US$ 1,635 million, followed by a subsequent increase in the loss to US$ 1,991 million by the end of 2022.
- Adjusted Net Sales Performance
- Adjusted net sales grew overall from US$ 9,823 million in 2018 to US$ 12,707 million in 2022. A brief contraction occurred in 2020, with sales falling to US$ 9,908 million, which aligns with the year of the most substantial economic profit deficit. Despite the recovery and growth in sales in 2021 and 2022, this revenue expansion did not translate into positive economic value added.
- Economic Profit Margin Analysis
- The economic profit margin fluctuated considerably, reflecting the instability of value creation. The margin deteriorated from -4.94% in 2018 to a period low of -25.82% in 2020. While there was a notable improvement to -13.65% in 2021, the margin remained negative and shifted to -15.66% in 2022. This pattern suggests that while top-line growth was achieved, the operational efficiency or capital allocation was insufficient to cover the cost of capital.
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