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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- Income Statement
- Statement of Comprehensive Income
- Balance Sheet: Liabilities and Stockholders’ Equity
- Cash Flow Statement
- Analysis of Profitability Ratios
- Analysis of Geographic Areas
- Enterprise Value (EV)
- Enterprise Value to EBITDA (EV/EBITDA)
- Present Value of Free Cash Flow to Equity (FCFE)
- Aggregate Accruals
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Economic Profit
Johnson & Johnson, economic profit calculation
US$ in millions
| 12 months ended: | Dec 28, 2025 | Dec 29, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | |
|---|---|---|---|---|---|---|
| Net operating profit after taxes (NOPAT)1 | ||||||
| Cost of capital2 | ||||||
| Invested capital3 | ||||||
| Economic profit4 | ||||||
Based on: 10-K (reporting date: 2025-12-28), 10-K (reporting date: 2024-12-29), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2025 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= – × =
The analysis of economic performance between 2021 and 2025 reveals a period of significant volatility in value creation, characterized by a sharp decline in profitability reaching a trough in 2023, followed by a substantial recovery by 2025.
- Net Operating Profit After Taxes (NOPAT)
- A downward trajectory is observed from 2021 to 2023, with NOPAT falling from 18,861 million US$ to a low of 8,905 million US$. However, this trend reversed sharply in the subsequent two years, culminating in a peak of 28,330 million US$ by December 28, 2025, indicating a strong recovery in operational efficiency and earnings power.
- Cost of Capital
- The cost of capital remained remarkably stable throughout the five-year period, fluctuating within a narrow range between 8.64% and 8.72%. This stability suggests a consistent risk profile and a steady cost of financing regardless of the fluctuations in operational profit.
- Invested Capital
- Invested capital showed moderate fluctuation between 2021 and 2024, peaking initially in 2022 at 113,818 million US$ before contracting in 2023. A significant expansion occurred in 2025, with invested capital rising to 138,153 million US$, suggesting a period of aggressive investment or asset acquisition coincident with the surge in NOPAT.
- Economic Profit
- Economic profit exhibited the most dramatic variance, decreasing from 10,381 million US$ in 2021 to nearly zero in 2023, where it reached a minimum of 261 million US$. This indicates that by 2023, the company was barely generating returns above its cost of capital. A rapid acceleration followed, with economic profit surging to 16,281 million US$ by 2025, demonstrating a substantial increase in the creation of shareholder value above the minimum required return.
The correlation between the growth in invested capital and the surge in NOPAT in 2025 suggests that the strategic deployment of capital successfully yielded high returns, significantly outweighing the stable cost of capital and resulting in a peak period of economic value added.
Net Operating Profit after Taxes (NOPAT)
Johnson & Johnson, NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2025-12-28), 10-K (reporting date: 2024-12-29), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowances for doubtful accounts.
3 Addition of increase (decrease) in equity equivalents to net earnings.
4 2025 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= × =
5 2025 Calculation
Tax benefit of interest expense, net of portion capitalized = Adjusted interest expense, net of portion capitalized × Statutory income tax rate
= × 21.00% =
6 Addition of after taxes interest expense to net earnings.
7 2025 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= × 21.00% =
8 Elimination of after taxes investment income.
9 Elimination of discontinued operations.
The reported Net Operating Profit After Taxes (NOPAT) demonstrates considerable fluctuation over the five-year period. While net earnings exhibit volatility, NOPAT presents a distinct pattern of decline followed by recovery.
- Overall Trend
- NOPAT decreased from US$18,861 million in 2021 to US$8,905 million in 2023, representing a substantial reduction. However, a significant recovery is then observed, with NOPAT increasing to US$11,461 million in 2024 and further to US$28,330 million in 2025. This indicates a period of operational challenges followed by improved performance.
- Year-over-Year Changes
- A decrease in NOPAT of approximately 14.8% is noted between 2021 and 2022. The most significant decline occurred between 2022 and 2023, with a decrease of roughly 44.3%. Conversely, the largest increase in NOPAT was observed between 2024 and 2025, showing a growth of approximately 147.2%. The increase from 2023 to 2024 was approximately 28.7%.
- Relationship to Net Earnings
- While both NOPAT and net earnings fluctuate, they do not move in perfect correlation. For example, net earnings decreased substantially from 2021 to 2022, while the NOPAT decrease was less pronounced. In 2023, net earnings increased significantly, but NOPAT remained comparatively low. This divergence suggests factors beyond core operational profitability are influencing net earnings, such as non-operating items or accounting adjustments.
The substantial recovery in NOPAT during 2024 and 2025 suggests successful implementation of operational improvements, cost controls, or favorable market conditions. Further investigation into the drivers behind these changes is warranted to understand the sustainability of the recent performance.
Cash Operating Taxes
Johnson & Johnson, cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2025-12-28), 10-K (reporting date: 2024-12-29), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31).
The provision for taxes on income and cash operating taxes exhibited fluctuating behavior over the observed five-year period. A review of the figures reveals distinct patterns in both metrics, suggesting potential influences from changes in accounting practices, tax regulations, or operational performance.
- Provision for Taxes on Income
- The provision for taxes on income increased significantly from US$1,898 million in 2021 to US$3,784 million in 2022. This was followed by a substantial decrease to US$1,736 million in 2023. A moderate increase occurred in 2024, reaching US$2,621 million, before a considerable rise to US$5,777 million in 2025. This pattern indicates considerable volatility, potentially linked to one-time gains or losses, changes in tax rates, or alterations in deferred tax assets and liabilities.
- Cash Operating Taxes
- Cash operating taxes demonstrated an upward trend from US$4,010 million in 2021 to US$5,411 million in 2022, mirroring the increase observed in the provision for taxes on income. A further increase to US$5,700 million occurred in 2023, representing the highest value in the observed period. Subsequently, cash operating taxes decreased to US$4,692 million in 2024 and continued to decline to US$4,232 million in 2025. This suggests a potential decoupling from the provision for taxes on income in the later years, possibly due to timing differences in tax payments or changes in tax credits utilized.
The divergence between the provision for taxes on income and cash operating taxes is particularly noticeable in 2024 and 2025. While the provision for taxes on income increased substantially in 2025, cash operating taxes decreased. This discrepancy warrants further investigation to determine the underlying causes, such as changes in the utilization of net operating loss carryforwards, installment payments, or other tax planning strategies. The fluctuations observed in both metrics suggest a dynamic tax environment and the potential for significant impacts on future financial performance.
- Relationship between Metrics
- In 2021, 2022, and 2023, cash operating taxes were consistently higher than the provision for taxes on income. However, this relationship shifted in 2024 and 2025, with the provision for taxes on income exceeding cash operating taxes. This reversal could indicate a build-up of deferred tax liabilities or a change in the timing of tax payments relative to reported income.
Invested Capital
Johnson & Johnson, invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2025-12-28), 10-K (reporting date: 2024-12-29), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31).
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 shareholders’ equity.
5 Removal of accumulated other comprehensive income.
6 Subtraction of construction in progress.
7 Subtraction of current marketable securities.
The invested capital of the company exhibited a fluctuating pattern over the five-year period. Total reported debt & leases and shareholders’ equity, the components of invested capital, both demonstrated variability during this time. An initial increase in invested capital was followed by a period of decline and subsequent growth.
- Invested Capital Trend
- Invested capital increased from US$98,066 million in 2021 to US$113,818 million in 2022, representing a substantial rise. This was followed by a decrease to US$99,118 million in 2023. A further increase was observed in 2024, reaching US$106,513 million, before a significant jump to US$138,153 million in 2025. This suggests a period of expansion followed by consolidation and then renewed growth.
- Debt & Leases
- Total reported debt & leases increased from US$34,751 million in 2021 to US$40,959 million in 2022. A notable decrease occurred in 2023, with debt falling to US$30,432 million. Debt levels then rose again in 2024 to US$37,834 million, and continued to increase substantially in 2025, reaching US$49,333 million. This indicates a dynamic debt management strategy, potentially influenced by investment opportunities or financing needs.
- Shareholders’ Equity
- Shareholders’ equity showed a modest increase from US$74,023 million in 2021 to US$76,804 million in 2022. A decline was then recorded in 2023, with equity decreasing to US$68,774 million. Equity recovered somewhat in 2024, reaching US$71,490 million, and experienced a more significant increase in 2025, rising to US$81,544 million. These fluctuations may be attributable to profitability, dividend payouts, and share repurchase activities.
The substantial increase in invested capital in 2025 appears to be driven by a combination of increased debt and shareholders’ equity. The relative contributions of each component to the overall invested capital change over time, suggesting shifts in the company’s capital structure.
Cost of Capital
Johnson & Johnson, cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Borrowings3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2025-12-28).
1 US$ in millions
2 Equity. See details »
3 Borrowings. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Borrowings3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2024-12-29).
1 US$ in millions
2 Equity. See details »
3 Borrowings. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Borrowings3 | ÷ | = | × | × (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 Borrowings. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Borrowings3 | ÷ | = | × | × (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 Borrowings. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Borrowings3 | ÷ | = | × | × (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 Borrowings. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Johnson & Johnson, economic spread ratio calculation, comparison to benchmarks
| Dec 28, 2025 | Dec 29, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| 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. | ||||||
| Danaher Corp. | ||||||
| Eli Lilly & Co. | ||||||
| Gilead Sciences Inc. | ||||||
| Merck & Co. Inc. | ||||||
| Pfizer Inc. | ||||||
| Regeneron Pharmaceuticals Inc. | ||||||
| Thermo Fisher Scientific Inc. | ||||||
| Vertex Pharmaceuticals Inc. | ||||||
Based on: 10-K (reporting date: 2025-12-28), 10-K (reporting date: 2024-12-29), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2025 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × ÷ =
4 Click competitor name to see calculations.
The analysis of economic value added reveals a period of significant volatility in value creation, characterized by a sharp contraction followed by a robust recovery in the latter stages of the period.
- Economic Spread Ratio Trend
- A substantial decline is observed between 2021 and 2023, with the ratio falling from 10.59% to a critical low of 0.26%. This trajectory indicates a period where the return on invested capital nearly converged with the cost of capital, effectively neutralizing economic value generation. A recovery phase began in 2024, culminating in a peak of 11.78% by December 2025, the highest level within the observed timeframe.
- Economic Profit Performance
- Economic profit closely mirrored the movement of the spread ratio. A steep downward trend is evident from 2021 to 2023, where profit plummeted from 10,381 million USD to 261 million USD. This was followed by a sharp reversal, with economic profit increasing to 2,248 million USD in 2024 and surging to 16,281 million USD in 2025, signaling a strong restoration of surplus value creation.
- Invested Capital Dynamics
- Invested capital exhibited fluctuating movements, increasing to 113,818 million USD in 2022 before contracting to 99,118 million USD in 2023. The period ended with a significant expansion of the capital base to 138,153 million USD in 2025. Notably, the capital increase in 2025 was highly efficient, as it coincided with the peak economic spread ratio, suggesting that the additional investment generated returns significantly above the cost of capital.
Economic Profit Margin
Johnson & Johnson, economic profit margin calculation, comparison to benchmarks
| Dec 28, 2025 | Dec 29, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | ||||||
| Sales to customers | ||||||
| Performance Ratio | ||||||
| Economic profit margin2 | ||||||
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| AbbVie Inc. | ||||||
| Amgen Inc. | ||||||
| Bristol-Myers Squibb Co. | ||||||
| Danaher Corp. | ||||||
| Eli Lilly & Co. | ||||||
| Gilead Sciences Inc. | ||||||
| Merck & Co. Inc. | ||||||
| Pfizer Inc. | ||||||
| Regeneron Pharmaceuticals Inc. | ||||||
| Thermo Fisher Scientific Inc. | ||||||
| Vertex Pharmaceuticals Inc. | ||||||
Based on: 10-K (reporting date: 2025-12-28), 10-K (reporting date: 2024-12-29), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31).
1 Economic profit. See details »
2 2025 Calculation
Economic profit margin = 100 × Economic profit ÷ Sales to customers
= 100 × ÷ =
3 Click competitor name to see calculations.
The financial trajectory of the economic profit margin is characterized by a severe contraction followed by a robust recovery. Between 2021 and 2023, there was a significant decline in value creation, which transitioned into a period of aggressive growth through 2025, ultimately exceeding the initial 2021 performance levels.
- Economic Profit Trends
- A substantial decrease in economic profit is observed from 2021 to 2023, falling from 10,381 million USD to a low of 261 million USD. This downward trend reversed starting in 2024, with a sharp acceleration in 2025 that resulted in a peak value of 16,281 million USD.
- Sales to Customers Performance
- Revenue streams remained relatively stable despite the volatility in economic profit. Sales fluctuated within a range of 85,159 million USD in 2023 to 94,943 million USD in 2022, ending the period at 94,193 million USD in 2025. The stability of the top line suggests that the fluctuations in economic profit were likely driven by changes in the cost of capital or operating efficiencies rather than revenue volatility.
- Economic Profit Margin Analysis
- The economic profit margin exhibits a V-shaped pattern. The margin compressed from 11.07% in 2021 to a critical low of 0.31% in 2023, indicating a period where economic profit barely exceeded the cost of capital. A subsequent recovery saw the margin climb to 2.53% in 2024 and surge to 17.28% by 2025, representing a significant improvement in the efficiency of value generation relative to sales.