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
Johnson & Johnson, economic profit 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 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
= 28,330 – 8.67% × 138,153 = 16,349
The financial trajectory from 2021 to 2025 is characterized by a period of significant volatility in value creation, marked by a sharp contraction through 2023 followed by a substantial recovery by the end of the period.
- Net Operating Profit After Taxes (NOPAT)
- A pronounced downward trend was observed between 2021 and 2023, with NOPAT decreasing from US$ 18,861 million to a low of US$ 8,905 million. Following this trough, a strong recovery occurred, with figures rising to US$ 11,461 million in 2024 and reaching a period peak of US$ 28,330 million in 2025.
- Cost of Capital and Invested Capital
- The cost of capital remained highly stable throughout the five-year duration, fluctuating minimally between 8.59% and 8.67%. Invested capital exhibited more variability, increasing from US$ 98,066 million in 2021 to US$ 113,818 million in 2022, before contracting in 2023 and expanding significantly to US$ 138,153 million by December 28, 2025.
- Economic Profit Analysis
- Economic profit experienced a severe decline from 2021 to 2023, falling from US$ 10,429 million to US$ 310 million. This indicates that by 2023, the operating returns were only marginally above the required cost of capital. However, a reversal of this trend is evident in the final two years, with economic profit increasing to US$ 2,300 million in 2024 and surging to US$ 16,349 million in 2025, representing a substantial acceleration in economic value added.
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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
= 1,400 × 3.54% = 50
5 2025 Calculation
Tax benefit of interest expense, net of portion capitalized = Adjusted interest expense, net of portion capitalized × Statutory income tax rate
= 1,021 × 21.00% = 214
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
= 1,056 × 21.00% = 222
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$28,330 million in 2025. This indicates a period of operational challenges followed by improved performance.
- Year-over-Year Changes
- A decrease in NOPAT of approximately 14.8% is noted between 2021 and 2022. The most significant decline occurred between 2022 and 2023, with a decrease of roughly 44.3%. Conversely, the largest increase in NOPAT was observed between 2024 and 2025, showing a growth of approximately 147.2%. The increase from 2023 to 2024 was approximately 28.7%.
- Relationship to Net Earnings
- While both NOPAT and net earnings fluctuate, they do not move in perfect correlation. For example, net earnings decreased substantially from 2021 to 2022, while the NOPAT decrease was less pronounced. In 2023, net earnings increased significantly, but NOPAT remained comparatively low. This divergence suggests factors beyond core operational profitability are influencing net earnings, such as non-operating items or accounting adjustments.
The substantial recovery in NOPAT during 2024 and 2025 suggests successful implementation of operational improvements, cost controls, or favorable market conditions. Further investigation into the drivers behind these changes is warranted to understand the sustainability of the recent performance.
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Cash Operating Taxes
Johnson & Johnson, cash operating taxes calculation
US$ 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$4,232 million in 2025. This suggests a potential decoupling from the provision for taxes on income in the later years, possibly due to timing differences in tax payments or changes in tax credits utilized.
The divergence between the provision for taxes on income and cash operating taxes is particularly noticeable in 2024 and 2025. While the provision for taxes on income increased substantially in 2025, cash operating taxes decreased. This discrepancy warrants further investigation to determine the underlying causes, such as changes in the utilization of net operating loss carryforwards, installment payments, or other tax planning strategies. The fluctuations observed in both metrics suggest a dynamic tax environment and the potential for significant impacts on future financial performance.
- Relationship between Metrics
- In 2021, 2022, and 2023, cash operating taxes were consistently higher than the provision for taxes on income. However, this relationship shifted in 2024 and 2025, with the provision for taxes on income exceeding cash operating taxes. This reversal could indicate a build-up of deferred tax liabilities or a change in the timing of tax payments relative to reported income.
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Invested Capital
Johnson & Johnson, invested capital calculation (financing approach)
US$ 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$81,544 million. These fluctuations may be attributable to profitability, dividend payouts, and share repurchase activities.
The substantial increase in invested capital in 2025 appears to be driven by a combination of increased debt and shareholders’ equity. The relative contributions of each component to the overall invested capital change over time, suggesting shifts in the company’s capital structure.
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Cost of Capital
Johnson & Johnson, cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 580,448) | 580,448) | ÷ | 628,081) | = | 0.92 | 0.92 | × | 9.15% | = | 8.46% | ||
| Borrowings3 | 46,233) | 46,233) | ÷ | 628,081) | = | 0.07 | 0.07 | × | 3.54% × (1 – 21.00%) | = | 0.21% | ||
| Operating lease liability4 | 1,400) | 1,400) | ÷ | 628,081) | = | 0.00 | 0.00 | × | 3.54% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 628,081) | 1.00 | 8.67% | ||||||||||
Based on: 10-K (reporting date: 2025-12-28).
1 US$ 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 | 378,598) | 378,598) | ÷ | 414,432) | = | 0.91 | 0.91 | × | 9.15% | = | 8.36% | ||
| Borrowings3 | 34,634) | 34,634) | ÷ | 414,432) | = | 0.08 | 0.08 | × | 3.48% × (1 – 21.00%) | = | 0.23% | ||
| Operating lease liability4 | 1,200) | 1,200) | ÷ | 414,432) | = | 0.00 | 0.00 | × | 3.48% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 414,432) | 1.00 | 8.60% | ||||||||||
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 | 377,093) | 377,093) | ÷ | 406,525) | = | 0.93 | 0.93 | × | 9.15% | = | 8.49% | ||
| Borrowings3 | 28,332) | 28,332) | ÷ | 406,525) | = | 0.07 | 0.07 | × | 3.14% × (1 – 21.00%) | = | 0.17% | ||
| Operating lease liability4 | 1,100) | 1,100) | ÷ | 406,525) | = | 0.00 | 0.00 | × | 3.14% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 406,525) | 1.00 | 8.67% | ||||||||||
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 | 412,102) | 412,102) | ÷ | 451,461) | = | 0.91 | 0.91 | × | 9.15% | = | 8.36% | ||
| Borrowings3 | 38,059) | 38,059) | ÷ | 451,461) | = | 0.08 | 0.08 | × | 3.38% × (1 – 21.00%) | = | 0.23% | ||
| Operating lease liability4 | 1,300) | 1,300) | ÷ | 451,461) | = | 0.00 | 0.00 | × | 3.38% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 451,461) | 1.00 | 8.59% | ||||||||||
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 | 436,958) | 436,958) | ÷ | 474,909) | = | 0.92 | 0.92 | × | 9.15% | = | 8.42% | ||
| Borrowings3 | 36,951) | 36,951) | ÷ | 474,909) | = | 0.08 | 0.08 | × | 2.76% × (1 – 21.00%) | = | 0.17% | ||
| Operating lease liability4 | 1,000) | 1,000) | ÷ | 474,909) | = | 0.00 | 0.00 | × | 2.76% × (1 – 21.00%) | = | 0.00% | ||
| Total: | 474,909) | 1.00 | 8.60% | ||||||||||
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 | 16,349) | 2,300) | 310) | 6,340) | 10,429) | |
| Invested capital2 | 138,153) | 106,513) | 99,118) | 113,818) | 98,066) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | 11.83% | 2.16% | 0.31% | 5.57% | 10.64% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| AbbVie Inc. | 0.97% | -1.97% | -3.68% | 5.73% | 5.09% | |
| Amgen Inc. | 6.45% | -0.35% | 2.47% | 7.01% | 7.00% | |
| Bristol-Myers Squibb Co. | 5.90% | -21.78% | 1.78% | -0.94% | 1.33% | |
| Danaher Corp. | -10.61% | -10.77% | -11.54% | -6.53% | -5.71% | |
| Eli Lilly & Co. | 30.43% | 14.78% | 1.71% | 8.80% | 10.47% | |
| Gilead Sciences Inc. | 12.88% | -10.21% | 3.09% | -0.03% | 6.97% | |
| Merck & Co. Inc. | 10.78% | 13.65% | -8.64% | 11.54% | 11.69% | |
| Pfizer Inc. | -3.50% | -3.19% | -9.30% | 18.20% | 11.36% | |
| Regeneron Pharmaceuticals Inc. | 14.09% | 16.91% | 13.72% | 19.08% | 62.83% | |
| Thermo Fisher Scientific Inc. | -7.36% | -8.15% | -8.62% | -6.87% | -4.86% | |
| Vertex Pharmaceuticals Inc. | 21.11% | -22.54% | 11.41% | 14.16% | 15.37% | |
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 × 16,349 ÷ 138,153 = 11.83%
4 Click competitor name to see calculations.
The analysis of economic value creation reveals a period of significant volatility characterized by a sharp decline in value generation followed by a substantial recovery. The most critical inflection point occurred in 2023, when economic performance nearly converged with the cost of capital, before ascending to peak levels by the end of 2025.
- Economic Spread Ratio
- A pronounced contraction is observed from 2021 to 2023, with the ratio falling from 10.64% to a minimum of 0.31%. This decline indicates a narrowing margin between the return on invested capital and the weighted average cost of capital. A strong recovery followed in 2024 and 2025, culminating in a ratio of 11.83%, suggesting an enhanced ability to generate excess returns over the cost of funding.
- Economic Profit
- Economic profit mirrored the trajectory of the spread ratio, dropping from US$ 10,429 million in 2021 to a low of US$ 310 million in 2023. The subsequent surge to US$ 16,349 million in 2025 demonstrates a significant acceleration in the creation of absolute shareholder value above the required minimum return.
- Invested Capital
- The invested capital base experienced fluctuations, peaking in 2022 at US$ 113,818 million and contracting in 2023 to US$ 99,118 million. By 2025, invested capital reached its highest level at US$ 138,153 million. The simultaneous increase in both economic profit and the spread ratio despite a larger capital base indicates that the growth in returns disproportionately outpaced the increase in capital investment during the recovery phase.
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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 | 16,349) | 2,300) | 310) | 6,340) | 10,429) | |
| Sales to customers | 94,193) | 88,821) | 85,159) | 94,943) | 93,775) | |
| Performance Ratio | ||||||
| Economic profit margin2 | 17.36% | 2.59% | 0.36% | 6.68% | 11.12% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| AbbVie Inc. | 0.98% | -2.42% | -4.62% | 8.11% | 8.69% | |
| Amgen Inc. | 10.77% | -0.68% | 6.42% | 11.23% | 11.60% | |
| Bristol-Myers Squibb Co. | 7.26% | -28.25% | 2.68% | -1.47% | 2.30% | |
| Danaher Corp. | -32.52% | -33.26% | -37.90% | -16.24% | -14.27% | |
| Eli Lilly & Co. | 23.16% | 11.74% | 1.47% | 7.49% | 9.65% | |
| Gilead Sciences Inc. | 19.07% | -15.83% | 5.26% | -0.04% | 12.34% | |
| Merck & Co. Inc. | 16.24% | 16.90% | -10.05% | 14.40% | 16.98% | |
| Pfizer Inc. | -7.82% | -6.78% | -24.20% | 19.92% | 12.13% | |
| Regeneron Pharmaceuticals Inc. | 13.02% | 14.83% | 12.51% | 19.21% | 42.49% | |
| Thermo Fisher Scientific Inc. | -15.55% | -15.61% | -17.22% | -12.67% | -9.88% | |
| Vertex Pharmaceuticals Inc. | 18.62% | -18.50% | 15.31% | 20.89% | 19.04% | |
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 × 16,349 ÷ 94,193 = 17.36%
3 Click competitor name to see calculations.
The financial performance from 2021 to 2025 is characterized by significant volatility in economic profit and profit margins, contrasting with a relatively stable trend in total sales. While revenue remained within a consistent range, the ability to generate value above the cost of capital experienced a severe contraction followed by a substantial recovery.
- Economic Profit Trends
- A sharp downward trajectory is observed between 2021 and 2023, with economic profit falling from US$ 10,429 million to a period low of US$ 310 million. This decline represents a near-total erosion of economic value added during that interval. However, a strong reversal occurred starting in 2024, culminating in a peak of US$ 16,349 million by December 28, 2025, marking the highest value in the analyzed period.
- Sales to Customers Stability
- Revenue exhibited moderate fluctuations, peaking at US$ 94,943 million in 2022 before dipping to US$ 85,159 million in 2023. The subsequent recovery led to sales of US$ 94,193 million in 2025, indicating that the fluctuations in economic profit were not primarily driven by drastic changes in top-line revenue, but rather by factors affecting cost of capital or operational efficiency.
- Economic Profit Margin Analysis
- The economic profit margin mirrored the volatility of the absolute economic profit. A contraction from 11.12% in 2021 to a critical low of 0.36% in 2023 suggests a period where returns were barely sufficient to cover the imputed cost of capital. The subsequent expansion to 17.36% in 2025 indicates a significant improvement in capital productivity and value creation per dollar of sales.
The overall trend indicates a cycle of value destruction or stagnation ending in 2023, followed by a period of rapid economic value expansion through 2025. The discrepancy between the steady sales figures and the volatile economic profit margins suggests that the primary drivers of change were internal capital allocations or operational cost structures rather than market demand shifts.
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