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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
Net Operating Profit after Taxes (NOPAT)
Cash Operating Taxes
Invested Capital
Cost of Capital
Economic Spread Ratio
Economic Profit Margin

Edwards Lifesciences Corp., economic profit calculation

US$ in thousands

12 months ended:	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017
Net operating profit after taxes (NOPAT)¹	1,468,252)	768,464)	1,050,298)	704,251)	615,066)
Cost of capital²	18.41%	18.36%	18.35%	18.30%	17.94%
Invested capital³	3,791,600)	3,937,900)	3,697,400)	2,904,204)	2,855,739)

Economic profit⁴	770,130)	45,408)	371,877)	172,719)	102,703)

Based on: 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), 10-K (reporting date: 2017-12-31).

¹ NOPAT. See details »

² Cost of capital. See details »

³ Invested capital. See details »

⁴ 2021 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 1,468,252 – 18.41% × 3,791,600 = 770,130

The analysis of economic profit between 2017 and 2021 reveals a general upward trajectory in value creation, characterized by substantial growth in net operating profit after taxes (NOPAT) and a significant recovery following a performance contraction in 2020.

Net Operating Profit After Taxes (NOPAT): NOPAT demonstrated a strong overall increase, growing from US$ 615.1 million in 2017 to US$ 1.47 billion in 2021. While a downward trend was observed in 2020, where NOPAT decreased to US$ 768.5 million, the subsequent recovery in 2021 represents the highest absolute profit level within the analyzed period.
Invested Capital and Cost of Capital: Invested capital experienced a steady rise from US$ 2.86 billion in 2017 to a peak of US$ 3.94 billion in 2020, before slightly contracting to US$ 3.79 billion in 2021. During this same interval, the cost of capital remained relatively constant, exhibiting only a marginal increase from 17.94% to 18.41%, suggesting a stable risk profile and funding environment.
Economic Profit Performance: Economic profit exhibited significant volatility, though the long-term trend is positive. Value creation increased from US$ 102.7 million in 2017 to US$ 371.9 million in 2019. A sharp decline occurred in 2020, with economic profit falling to US$ 45.4 million, coinciding with the dip in NOPAT and the peak in invested capital. However, 2021 marked a dramatic turnaround, with economic profit surging to US$ 770.1 million, indicating that the return on invested capital significantly exceeded the cost of capital by the end of the period.

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Edwards Lifesciences Corp., NOPAT calculation

US$ in thousands

12 months ended:	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017
Net income	1,503,100)	823,400)	1,046,900)	722,200)	583,600)
Deferred income tax expense (benefit)¹	(44,000)	(52,200)	10,500)	(21,200)	27,100)
Increase (decrease) in allowance for doubtful accounts²	(300)	900)	(200)	400)	(500)
Increase (decrease) in equity equivalents³	(44,300)	(51,300)	10,300)	(20,800)	26,600)
Interest expense	18,400)	15,800)	20,700)	29,900)	23,200)
Interest expense, operating lease liability⁴	2,365)	2,697)	2,363)	2,809)	1,486)
Adjusted interest expense	20,765)	18,497)	23,063)	32,709)	24,686)
Tax benefit of interest expense⁵	(4,361)	(3,884)	(4,843)	(6,869)	(8,640)
Adjusted interest expense, after taxes⁶	16,404)	14,613)	18,220)	25,840)	16,046)
(Gain) loss on marketable securities	8,600)	300)	400)	2,900)	3,100)
Interest income	(17,400)	(23,400)	(32,200)	(32,000)	(20,300)
Investment income, before taxes	(8,800)	(23,100)	(31,800)	(29,100)	(17,200)
Tax expense (benefit) of investment income⁷	1,848)	4,851)	6,678)	6,111)	6,020)
Investment income, after taxes⁸	(6,952)	(18,249)	(25,122)	(22,989)	(11,180)
Net operating profit after taxes (NOPAT)	1,468,252)	768,464)	1,050,298)	704,251)	615,066)

Based on: 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), 10-K (reporting date: 2017-12-31).

¹ Elimination of deferred tax expense. See details »

² Addition of increase (decrease) in allowance for doubtful accounts.

³ Addition of increase (decrease) in equity equivalents to net income.

⁴ 2021 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 94,600 × 2.50% = 2,365

⁵ 2021 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 20,765 × 21.00% = 4,361

⁶ Addition of after taxes interest expense to net income.

⁷ 2021 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 8,800 × 21.00% = 1,848

⁸ Elimination of after taxes investment income.

The financial performance from 2017 to 2021 is characterized by a strong general upward trajectory in profitability, interrupted by a notable contraction in 2020. Both Net Income and Net Operating Profit After Taxes (NOPAT) demonstrate a high degree of correlation, reflecting the company's operational efficiency and its ability to generate significant profit from its core activities.

NOPAT Growth and Volatility: Net Operating Profit After Taxes increased steadily from US$ 615,066 thousand in 2017 to US$ 1,050,298 thousand in 2019. A contraction occurred in 2020, where NOPAT declined to US$ 768,464 thousand, followed by a sharp recovery in 2021, reaching a peak of US$ 1,468,252 thousand. This indicates a robust capacity for operational recovery following a period of volatility.
Net Income Trajectory: Net Income mirrored the movement of NOPAT, rising from US$ 583,600 thousand in 2017 to US$ 1,046,900 thousand in 2019. After a decrease to US$ 823,400 thousand in 2020, Net Income grew substantially to US$ 1,503,100 thousand in 2021, showing a total growth of approximately 157% over the five-year period.
Relationship Between Operational and Bottom-Line Profit: The close alignment between NOPAT and Net Income suggests that the company's overall profitability is primarily driven by its operating results rather than non-operating income or financing activities. While NOPAT exceeded Net Income in 2017 and 2019, Net Income was higher in 2018, 2020, and 2021, indicating minor fluctuations in the influence of interest expenses and tax adjustments on the final net earnings.

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Edwards Lifesciences Corp., cash operating taxes calculation

US$ in thousands

12 months ended:	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017
Income tax provision	198,900)	93,300)	119,600)	39,200)	451,300)
Less: Deferred income tax expense (benefit)	(44,000)	(52,200)	10,500)	(21,200)	27,100)
Add: Tax savings from interest expense	4,361)	3,884)	4,843)	6,869)	8,640)
Less: Tax imposed on investment income	1,848)	4,851)	6,678)	6,111)	6,020)
Cash operating taxes	245,413)	144,533)	107,265)	61,158)	426,820)

Based on: 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), 10-K (reporting date: 2017-12-31).

The tax profile exhibits significant volatility between 2017 and 2021, characterized by a sharp decline in 2018 followed by a period of sustained growth. A notable divergence between accounting provisions and actual cash outflows is evident, particularly in the latter portion of the analyzed period.

Trend Analysis of Income Tax Provision: The income tax provision decreased precipitously from 451.3 million USD in 2017 to 39.2 million USD in 2018. Following this contraction, the provision entered a period of recovery, increasing to 119.6 million USD in 2019, dipping slightly to 93.3 million USD in 2020, and ultimately rising to 198.9 million USD by December 31, 2021.
Trend Analysis of Cash Operating Taxes: Cash operating taxes followed a similar initial trajectory, falling from 426.8 million USD in 2017 to 61.2 million USD in 2018. Unlike the provision, cash taxes demonstrated a consistent and uninterrupted upward trend from 2018 through 2021, growing annually to reach 245.4 million USD.
Provision versus Cash Outflow Divergence: A shift in the relationship between accrued taxes and cash payments is observed. In 2017 and 2019, the income tax provision exceeded cash operating taxes. However, in 2018, 2020, and 2021, cash operating taxes were higher than the provision. This disparity peaked in 2021, where cash taxes exceeded the provision by approximately 46.5 million USD, suggesting that actual cash outflows for taxes outpaced the accounting expense recognized for that period.

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Edwards Lifesciences Corp., invested capital calculation (financing approach)

US$ in thousands

	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017
Short-term debt	—)	—)	—)	—)	598,000)
Long-term debt	595,700)	595,000)	594,400)	593,800)	438,400)
Operating lease liability¹	94,600)	99,900)	84,400)	82,604)	67,539)
Total reported debt & leases	690,300)	694,900)	678,800)	676,404)	1,103,939)
Stockholders’ equity	5,835,900)	4,574,300)	4,148,300)	3,140,400)	2,956,200)
Net deferred tax (assets) liabilities²	(222,100)	(202,800)	(135,400)	(165,000)	(186,000)
Allowance for doubtful accounts³	9,300)	9,600)	8,700)	8,900)	8,500)
Equity equivalents⁴	(212,800)	(193,200)	(126,700)	(156,100)	(177,500)
Accumulated other comprehensive (income) loss, net of tax⁵	157,700)	161,100)	156,000)	138,500)	132,700)
Adjusted stockholders’ equity	5,780,800)	4,542,200)	4,177,600)	3,122,800)	2,911,400)
Construction in progress⁶	(333,800)	(313,300)	(265,000)	(168,800)	(88,200)
Marketable securities⁷	(2,345,700)	(985,900)	(894,000)	(726,200)	(1,071,400)
Invested capital	3,791,600)	3,937,900)	3,697,400)	2,904,204)	2,855,739)

Based on: 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), 10-K (reporting date: 2017-12-31).

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 equity equivalents to stockholders’ equity.

⁵ Removal of accumulated other comprehensive income.

⁶ Subtraction of construction in progress.

⁷ Subtraction of marketable securities.

Between 2017 and 2021, the company experienced a significant shift in its financial structure, characterized by a transition toward equity-based financing and a reduction in overall leverage. The overall capital base expanded, providing a larger foundation for calculating economic value added.

Total Reported Debt and Leases: A substantial reduction in total debt and leases occurred between 2017 and 2018, with the balance decreasing from US$ 1,103,939 thousand to US$ 676,404 thousand. Following this initial decline, the debt level remained relatively stable for the remainder of the period, fluctuating within a narrow range between US$ 676,404 thousand and US$ 694,900 thousand through the end of 2021.
Stockholders' Equity: A consistent and strong upward trend is observed in stockholders' equity, which grew from US$ 2,956,200 thousand in 2017 to US$ 5,835,900 thousand by 2021. This sustained growth indicates a significant accumulation of retained earnings or capital contributions, resulting in a more equity-heavy capital structure and enhanced solvency.
Invested Capital: Invested capital exhibited a general growth trajectory from 2017 to 2020, increasing from US$ 2,855,739 thousand to a peak of US$ 3,937,900 thousand. A moderate contraction was observed in 2021, where the value declined to US$ 3,791,600 thousand. This indicates an overall expansion of the capital employed in the business, although the slight decrease in the final year suggests a possible optimization of assets or a change in investment intensity.

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Edwards Lifesciences Corp., cost of capital calculations

Dec 31, 2021

	Capital (fair value)¹	Weights					Cost of capital
Equity²	67,138,137)	67,138,137)	÷	67,908,137)	=	0.99	0.99	×	18.59%	=	18.38%
Debt³	675,400)	675,400)	÷	67,908,137)	=	0.01	0.01	×	3.40% × (1 – 21.00%)	=	0.03%
Operating lease liability⁴	94,600)	94,600)	÷	67,908,137)	=	0.00	0.00	×	2.50% × (1 – 21.00%)	=	0.00%
Total:	67,908,137)					1.00					18.41%

Based on: 10-K (reporting date: 2021-12-31).

¹ US$ in thousands

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2020

	Capital (fair value)¹	Weights					Cost of capital
Equity²	54,739,079)	54,739,079)	÷	55,550,179)	=	0.99	0.99	×	18.59%	=	18.32%
Debt³	711,200)	711,200)	÷	55,550,179)	=	0.01	0.01	×	3.50% × (1 – 21.00%)	=	0.04%
Operating lease liability⁴	99,900)	99,900)	÷	55,550,179)	=	0.00	0.00	×	2.70% × (1 – 21.00%)	=	0.00%
Total:	55,550,179)					1.00					18.36%

Based on: 10-K (reporting date: 2020-12-31).

¹ US$ in thousands

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2019

	Capital (fair value)¹	Weights					Cost of capital
Equity²	48,213,210)	48,213,210)	÷	48,965,210)	=	0.98	0.98	×	18.59%	=	18.31%
Debt³	667,600)	667,600)	÷	48,965,210)	=	0.01	0.01	×	3.40% × (1 – 21.00%)	=	0.04%
Operating lease liability⁴	84,400)	84,400)	÷	48,965,210)	=	0.00	0.00	×	2.80% × (1 – 21.00%)	=	0.00%
Total:	48,965,210)					1.00					18.35%

Based on: 10-K (reporting date: 2019-12-31).

¹ US$ in thousands

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2018

	Capital (fair value)¹	Weights					Cost of capital
Equity²	36,936,698)	36,936,698)	÷	37,626,302)	=	0.98	0.98	×	18.59%	=	18.25%
Debt³	607,000)	607,000)	÷	37,626,302)	=	0.02	0.02	×	3.40% × (1 – 21.00%)	=	0.04%
Operating lease liability⁴	82,604)	82,604)	÷	37,626,302)	=	0.00	0.00	×	3.40% × (1 – 21.00%)	=	0.01%
Total:	37,626,302)					1.00					18.30%

Based on: 10-K (reporting date: 2018-12-31).

¹ US$ in thousands

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2017

	Capital (fair value)¹	Weights					Cost of capital
Equity²	28,107,473)	28,107,473)	÷	29,217,712)	=	0.96	0.96	×	18.59%	=	17.89%
Debt³	1,042,700)	1,042,700)	÷	29,217,712)	=	0.04	0.04	×	2.20% × (1 – 35.00%)	=	0.05%
Operating lease liability⁴	67,539)	67,539)	÷	29,217,712)	=	0.00	0.00	×	2.20% × (1 – 35.00%)	=	0.00%
Total:	29,217,712)					1.00					17.94%

Based on: 10-K (reporting date: 2017-12-31).

¹ US$ in thousands

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Edwards Lifesciences Corp., economic spread ratio calculation, comparison to benchmarks

	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017
Selected Financial Data (US$ in thousands)
Economic profit¹	770,130)	45,408)	371,877)	172,719)	102,703)
Invested capital²	3,791,600)	3,937,900)	3,697,400)	2,904,204)	2,855,739)
Performance Ratio
Economic spread ratio³	20.31%	1.15%	10.06%	5.95%	3.60%
Benchmarks
Economic Spread Ratio, Competitors⁴
Abbott Laboratories	-1.92%	—	—	—	—
Elevance Health Inc.	1.50%	—	—	—	—
Intuitive Surgical Inc.	12.34%	—	—	—	—
Medtronic PLC	-6.68%	—	—	—	—
UnitedHealth Group Inc.	3.96%	—	—	—	—

Based on: 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), 10-K (reporting date: 2017-12-31).

¹ Economic profit. See details »

² Invested capital. See details »

³ 2021 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × 770,130 ÷ 3,791,600 = 20.31%

⁴ Click competitor name to see calculations.

The financial performance between 2017 and 2021 is characterized by significant volatility in economic profit and a fluctuating economic spread ratio, despite a relatively stable trajectory in invested capital.

Economic Profit Trends: Economic profit demonstrated a strong upward trend from 2017 to 2019, increasing from $102.7 million to $371.9 million. This growth was interrupted in 2020 by a sharp decline to $45.4 million. However, a substantial recovery occurred in 2021, with economic profit reaching a five-year peak of $770.1 million.
Invested Capital Dynamics: Invested capital experienced a period of steady expansion from 2017 through 2020, rising from $2.86 billion to $3.94 billion. In 2021, a slight contraction was observed, with invested capital decreasing to $3.79 billion, suggesting a shift toward more efficient capital utilization or a reduction in asset intensity.
Economic Spread Ratio Analysis: The economic spread ratio exhibited significant variance over the period. An initial growth phase saw the ratio rise from 3.60% in 2017 to 10.06% in 2019, indicating improving efficiency in generating returns above the cost of capital. A severe contraction to 1.15% occurred in 2020, aligning with the drop in economic profit. The period concluded with a dramatic increase to 20.31% in 2021, representing a substantial expansion in the spread and a marked increase in the value created per unit of invested capital.

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Edwards Lifesciences Corp., economic profit margin calculation, comparison to benchmarks

	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017
Selected Financial Data (US$ in thousands)
Economic profit¹	770,130)	45,408)	371,877)	172,719)	102,703)
Net sales	5,232,500)	4,386,300)	4,348,000)	3,722,800)	3,435,300)
Performance Ratio
Economic profit margin²	14.72%	1.04%	8.55%	4.64%	2.99%
Benchmarks
Economic Profit Margin, Competitors³
Abbott Laboratories	-2.77%	—	—	—	—
Elevance Health Inc.	0.70%	—	—	—	—
Intuitive Surgical Inc.	9.71%	—	—	—	—
Medtronic PLC	-16.04%	—	—	—	—
UnitedHealth Group Inc.	1.94%	—	—	—	—

Based on: 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), 10-K (reporting date: 2017-12-31).

¹ Economic profit. See details »

² 2021 Calculation
Economic profit margin = 100 × Economic profit ÷ Net sales
= 100 × 770,130 ÷ 5,232,500 = 14.72%

³ Click competitor name to see calculations.

The overall financial performance between 2017 and 2021 is characterized by consistent revenue growth coupled with a highly volatile yet expanding capacity for economic value creation. While top-line growth remained steady, the ability to generate economic profit experienced significant fluctuations, culminating in a substantial peak in the final year of the period.

Net Sales Growth: Revenue experienced a consistent upward trajectory, increasing from 3,435,300 thousand USD in 2017 to 5,232,500 thousand USD by 2021. This indicates a sustained expansion of market reach, although the growth rate slowed notably between 2019 and 2020 before accelerating again in 2021.
Economic Profit Fluctuations: Economic profit exhibited significant instability over the five-year duration. An initial growth phase saw values rise from 102,703 thousand USD in 2017 to 371,877 thousand USD in 2019. This was followed by a sharp contraction in 2020, where economic profit fell to 45,408 thousand USD, before recovering aggressively to a period high of 770,130 thousand USD in 2021.
Economic Profit Margin Analysis: The economic profit margin reflects the underlying volatility of the value creation process. The margin improved from 2.99% in 2017 to 8.55% in 2019, before plummeting to 1.04% in 2020. The period ended with a significant expansion to 14.72% in 2021, suggesting that by the end of the period, the company had significantly increased its efficiency in generating returns above its cost of capital relative to its sales volume.

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Edwards Lifesciences Corp. (NYSE:EW)

Economic Value Added (EVA)

Economic Profit

Net Operating Profit after Taxes (NOPAT)

Cash Operating Taxes

Invested Capital

Cost of Capital

Economic Spread Ratio

Economic Profit Margin