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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Danaher Corp. pages available for free this week:
- Income Statement
- Statement of Comprehensive Income
- Common-Size Balance Sheet: Assets
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Enterprise Value to EBITDA (EV/EBITDA)
- Price to FCFE (P/FCFE)
- Capital Asset Pricing Model (CAPM)
- Dividend Discount Model (DDM)
- Price to Book Value (P/BV) since 2005
- Analysis of Revenues
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Economic Profit
Danaher Corp., economic profit calculation
US$ in millions
| 12 months ended: | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | |
|---|---|---|---|---|---|---|
| Net operating profit after taxes (NOPAT)1 | ||||||
| Cost of capital2 | ||||||
| Invested capital3 | ||||||
| Economic profit4 | ||||||
Based on: 10-K (reporting date: 2024-12-31), 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).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2024 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 initial growth, followed by a substantial decline. The cost of capital increased steadily for three years before stabilizing and decreasing slightly in the final year. Invested capital generally increased before experiencing a decrease in the most recent period. These factors combined to produce consistently negative economic profit values throughout the five-year span.
- NOPAT Trend
- NOPAT increased from US$4,986 million in 2020 to US$6,722 million in 2021, and further to US$6,866 million in 2022. However, a significant decrease was observed in 2023, falling to US$3,099 million, with a slight recovery to US$3,391 million in 2024. This suggests a weakening in operational profitability in the latter part of the period.
- Cost of Capital Trend
- The cost of capital rose from 13.54% in 2020 to 14.31% in 2022, indicating increasing financing costs. It peaked at 14.48% in 2023 before decreasing slightly to 14.41% in 2024. The overall upward trend suggests a more expensive capital structure.
- Invested Capital Trend
- Invested capital increased from US$67,123 million in 2020 to US$78,342 million in 2022, reflecting growth in the company’s asset base. In 2024, invested capital decreased to US$73,131 million, potentially indicating asset divestitures or reduced investment.
- Economic Profit Analysis
- Economic profit remained negative throughout the period, ranging from -US$3,554 million to -US$8,277 million. The most substantial negative economic profit occurred in 2023, coinciding with the largest decrease in NOPAT and the highest cost of capital. The negative values indicate that the company’s returns on invested capital were consistently below its cost of capital.
The combination of increasing capital costs and, ultimately, declining NOPAT resulted in a worsening economic profit position. While NOPAT showed initial improvement, it was insufficient to offset the rising cost of capital and maintain positive economic profit. The decrease in invested capital in the final year did not translate into improved economic profit, suggesting that the primary driver of the negative result is the difference between NOPAT and the cost of capital.
Net Operating Profit after Taxes (NOPAT)
Danaher Corp., NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2024-12-31), 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).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowance for doubtful accounts.
3 Addition of increase (decrease) in contract liabilities.
4 Addition of increase (decrease) in equity equivalents to net earnings.
5 2024 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= × =
6 2024 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= × 21.00% =
7 Addition of after taxes interest expense to net earnings.
8 2024 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= × 21.00% =
9 Elimination of after taxes investment income.
10 Elimination of discontinued operations.
- Net Earnings
-
The net earnings demonstrate a significant upward trend from 2020 to 2022, increasing from 3,646 million US dollars in 2020 to a peak of 7,209 million US dollars in 2022. This represents nearly a doubling over the two-year period, indicating strong profitability growth.
However, there is a notable decline starting in 2023, with net earnings decreasing to 4,764 million US dollars, followed by a further decline to 3,899 million US dollars in 2024. This reversal suggests challenges impacting profitability or potential one-time events reducing net income in the latter periods.
- Net Operating Profit After Taxes (NOPAT)
-
NOPAT exhibits an increasing trend from 2020 through 2022, rising from 4,986 million US dollars in 2020 to 6,866 million US dollars in 2022. This indicates improving operating performance and effective tax management in this period.
Contrary to net earnings, there is a sharp decline in NOPAT in 2023 to 3,099 million US dollars, reflecting a substantial decrease in operating profitability. However, in 2024, NOPAT slightly recovers to 3,391 million US dollars, suggesting a partial operational improvement compared to the previous year.
- Overall Trends and Insights
-
Both net earnings and NOPAT show robust growth from 2020 to 2022, indicating a period of strong financial performance. The decline starting in 2023 is pronounced for both metrics, although net earnings remain relatively higher than NOPAT in both 2023 and 2024. This divergence may point toward increased non-operating income or variations in tax expense or extraordinary items impacting net earnings differently.
The partial rebound in NOPAT in 2024, combined with the continuing decline in net earnings, suggests operational improvements are underway, but other factors are continuing to suppress overall profitability. Overall, the data reflects a challenging environment in the most recent years following a period of solid growth.
Cash Operating Taxes
Danaher Corp., cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2024-12-31), 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).
The financial data reflects the tax-related expenses of the company over a five-year period. There are two primary tax metrics provided: Income tax provision and Cash operating taxes, both measured in millions of US dollars.
- Income Tax Provision
- This metric experienced a notable increase from 849 million USD in 2020 to a peak of 1,251 million USD in 2021. After this peak, the provision declined to 1,083 million USD in 2022 and continued to decrease steadily through 2023 and 2024, reaching 747 million USD. This pattern suggests a reduction in tax liabilities or changes in taxable income and accounting estimates after 2021.
- Cash Operating Taxes
- Cash operating taxes started at 380 million USD in 2020, then surged significantly to 1,534 million USD in 2021 and further increased to reach 1,684 million USD in 2022. The upward trend continued in 2023, peaking at 2,032 million USD. However, in 2024, there was a substantial decline to 1,274 million USD. This indicates an initial escalation in cash tax payments over the 2021-2023 period, followed by a marked reduction in the most recent year.
Comparing both tax measures reveals a divergence in their trends, especially after 2021. While the income tax provision decreased steadily from 2021 onwards, cash operating taxes rose sharply for three years before declining in the final year. This divergence could point to timing differences in tax payments versus accrued tax expenses, changes in deferred tax assets or liabilities, or adjustments in tax planning strategies. The significant fluctuations in cash operating taxes imply periods of higher actual tax cash outflows, which may have liquidity implications.
Overall, the data suggests the company experienced fluctuating tax obligations, with peak tax provisions in 2021 and peak cash taxes in 2023, followed by declines in both in 2024. The contrasting movements between provision and cash taxes highlight the complexity of the company's tax situation over these years, warranting further examination of underlying causes such as tax policy changes, profitability shifts, or one-time tax events.
Invested Capital
Danaher Corp., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2024-12-31), 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).
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 contract liabilities.
5 Addition of equity equivalents to total Danaher stockholders’ equity.
6 Removal of accumulated other comprehensive income.
7 Subtraction of investments.
- Total reported debt & leases
-
There is a consistent downward trend in total reported debt and leases over the five-year period. The debt decreased from US$22,178 million in 2020 to US$17,146 million in 2024, reflecting a reduction of approximately 22.6%. This suggests a progressive deleveraging strategy or improved debt management, potentially reducing financial risk and interest expenses.
- Total Danaher stockholders’ equity
-
Stockholders’ equity shows an overall upward trend from US$39,766 million in 2020 to a peak of US$53,486 million in 2023. However, a decline is observed in 2024, dropping to US$49,543 million. The initial continuous growth may indicate profitable operations, retained earnings accumulation, or equity issuance. The decrease in 2024 could be due to dividends, share buybacks, or losses, warranting further investigation.
- Invested capital
-
Invested capital steadily increased from US$67,123 million in 2020 to US$78,561 million in 2023, suggesting ongoing investment in assets or operations. In 2024, it declined to US$73,131 million. The upward movement aligns with growth or expansion strategies, while the recent decrease could signal asset disposals, reduced investment activity, or operational optimization.
- Summary
-
The financial data indicates that the company has been actively managing its capital structure by decreasing debt levels while increasing equity and invested capital in the initial years. The modest reduction in equity and invested capital in the final year could imply a strategic shift or response to market conditions. Overall, the trends suggest enhanced financial stability with cautious reinvestment, although the 2024 changes merit additional scrutiny to understand underlying causes.
Cost of Capital
Danaher Corp., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| 4.75% Mandatory Convertible Preferred Stock, Series A | ÷ | = | × | = | |||||||||
| 5.00% Mandatory Convertible Preferred Stock, Series B | ÷ | = | × | = | |||||||||
| Notes payable and long-term debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2024-12-31).
1 US$ in millions
2 Equity. See details »
3 Notes payable and long-term debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| 4.75% Mandatory Convertible Preferred Stock, Series A | ÷ | = | × | = | |||||||||
| 5.00% Mandatory Convertible Preferred Stock, Series B | ÷ | = | × | = | |||||||||
| Notes payable and long-term debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2023-12-31).
1 US$ in millions
2 Equity. See details »
3 Notes payable and long-term debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| 4.75% Mandatory Convertible Preferred Stock, Series A | ÷ | = | × | = | |||||||||
| 5.00% Mandatory Convertible Preferred Stock, Series B | ÷ | = | × | = | |||||||||
| Notes payable and long-term debt3 | ÷ | = | × | × (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 Notes payable and long-term debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| 4.75% Mandatory Convertible Preferred Stock, Series A | ÷ | = | × | = | |||||||||
| 5.00% Mandatory Convertible Preferred Stock, Series B | ÷ | = | × | = | |||||||||
| Notes payable and long-term debt3 | ÷ | = | × | × (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 Notes payable and long-term debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| 4.75% Mandatory Convertible Preferred Stock, Series A | ÷ | = | × | = | |||||||||
| 5.00% Mandatory Convertible Preferred Stock, Series B | ÷ | = | × | = | |||||||||
| Notes payable and long-term debt3 | ÷ | = | × | × (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 Notes payable and long-term debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Danaher Corp., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | ||||||
| Invested capital2 | ||||||
| Performance Ratio | ||||||
| Economic spread ratio3 | ||||||
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| AbbVie Inc. | ||||||
| Amgen Inc. | ||||||
| Bristol-Myers Squibb Co. | ||||||
| Eli Lilly & Co. | ||||||
| Gilead Sciences Inc. | ||||||
| Johnson & Johnson | ||||||
| Merck & Co. Inc. | ||||||
| Pfizer Inc. | ||||||
| Regeneron Pharmaceuticals Inc. | ||||||
| Thermo Fisher Scientific Inc. | ||||||
| Vertex Pharmaceuticals Inc. | ||||||
Based on: 10-K (reporting date: 2024-12-31), 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).
1 Economic profit. See details »
2 Invested capital. See details »
3 2024 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × ÷ =
4 Click competitor name to see calculations.
The economic spread ratio exhibited a consistent decline over the five-year period. Initially negative, the ratio worsened significantly from 2020 to 2023 before showing a slight improvement in 2024, though remaining negative overall. This indicates a widening gap between the return generated on invested capital and the cost of that capital.
- Economic Spread Ratio
- The economic spread ratio decreased from -6.11% in 2020 to -10.54% in 2023, representing a substantial deterioration in the company’s ability to generate returns exceeding its cost of capital. A modest recovery to -9.77% was observed in 2024, but the ratio remained considerably lower than its 2020 level.
Economic profit consistently registered as negative values throughout the observed period. The magnitude of the negative economic profit increased from US$4,102 million in 2020 to US$8,277 million in 2023, mirroring the decline in the economic spread ratio. The value decreased to US$7,147 million in 2024, aligning with the slight improvement in the economic spread ratio.
- Invested Capital
- Invested capital generally increased from US$67,123 million in 2020 to US$78,561 million in 2023. A decrease to US$73,131 million was noted in 2024. This increase in capital employed did not translate into improved economic returns, as evidenced by the worsening economic spread ratio during the 2020-2023 timeframe.
The combined trend of increasing invested capital and declining economic spread ratio suggests that the company’s investments are generating returns that are progressively less able to cover the cost of funding those investments. While the 2024 figures indicate a potential stabilization, the overall trend remains a concern.
Economic Profit Margin
Danaher Corp., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | ||||||
| Sales | ||||||
| Add: Increase (decrease) in contract liabilities | ||||||
| Adjusted sales | ||||||
| Performance Ratio | ||||||
| Economic profit margin2 | ||||||
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| AbbVie Inc. | ||||||
| Amgen Inc. | ||||||
| Bristol-Myers Squibb Co. | ||||||
| Eli Lilly & Co. | ||||||
| Gilead Sciences Inc. | ||||||
| Johnson & Johnson | ||||||
| Merck & Co. Inc. | ||||||
| Pfizer Inc. | ||||||
| Regeneron Pharmaceuticals Inc. | ||||||
| Thermo Fisher Scientific Inc. | ||||||
| Vertex Pharmaceuticals Inc. | ||||||
Based on: 10-K (reporting date: 2024-12-31), 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).
1 Economic profit. See details »
2 2024 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted sales
= 100 × ÷ =
3 Click competitor name to see calculations.
The economic profit margin exhibited a consistently negative trend over the five-year period. While fluctuations occurred in the absolute value of economic profit and adjusted sales, the resulting economic profit margin remained in negative territory each year, indicating the company did not generate returns exceeding its cost of capital.
- Economic Profit Margin Trend
- The economic profit margin began at -17.92% in 2020. A relative improvement was seen in 2021, with the margin decreasing to -11.90%. However, this improvement was short-lived, as the margin deteriorated to -13.77% in 2022. A significant decline occurred in 2023, with the margin reaching -34.59%, representing the most substantial negative margin within the observed period. The margin experienced a slight positive shift in 2024, moving to -30.17%, though it remained considerably negative.
The magnitude of negative economic profit also increased over the period. Economic profit moved from negative US$4,102 million in 2020 to negative US$8,277 million in 2023, before decreasing to negative US$7,147 million in 2024. This suggests that while sales fluctuated, the cost of capital consistently exceeded the returns generated.
- Relationship between Adjusted Sales and Economic Profit Margin
- Adjusted sales increased from US$22,895 million in 2020 to US$29,862 million in 2021 and US$31,528 million in 2022. Despite these sales increases, the economic profit margin did not improve proportionally, and even worsened in 2022. A substantial decrease in adjusted sales to US$23,927 million in 2023 coincided with the largest decline in the economic profit margin. The slight recovery in the margin in 2024 occurred alongside a further, albeit smaller, decrease in adjusted sales to US$23,692 million, suggesting factors beyond sales volume are significantly influencing profitability.
The consistent negative economic profit margin indicates a potential issue with capital allocation or operational efficiency. Further investigation would be required to determine the underlying causes of this trend and to assess the company’s ability to generate shareholder value.