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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Merck & Co. Inc. pages available for free this week:
- Balance Sheet: Assets
- Analysis of Liquidity Ratios
- Analysis of Short-term (Operating) Activity Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Common Stock Valuation Ratios
- Enterprise Value (EV)
- Dividend Discount Model (DDM)
- Return on Assets (ROA) since 2005
- Price to Earnings (P/E) since 2005
- Price to Book Value (P/BV) since 2005
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Economic Profit
Merck & Co. Inc., economic profit calculation
US$ in millions
| 12 months ended: | Dec 31, 2025 | Dec 31, 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: 2025-12-31), 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).
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 period under review demonstrates significant fluctuations in economic profit. Net operating profit after taxes (NOPAT) initially increased, experienced a substantial decline, and then recovered strongly. This pattern is reflected in the economic profit figures. Invested capital generally increased over the period, though a decrease was observed in 2023.
- NOPAT Trend
- Net operating profit after taxes increased from US$13,349 million in 2021 to US$14,154 million in 2022, representing a growth of approximately 6.0%. A dramatic decrease occurred in 2023, with NOPAT falling to a loss of US$714 million. Subsequent years saw a strong recovery, reaching US$16,744 million in 2024 and further increasing to US$17,864 million in 2025.
- Cost of Capital
- The cost of capital remained relatively stable throughout the period, fluctuating between 7.16% and 7.59%. A slight increase was observed from 2021 to 2022, followed by a minor increase in 2023. The cost of capital then decreased slightly in 2024 and 2025, remaining around 7.4%.
- Invested Capital Trend
- Invested capital increased from US$70,735 million in 2021 to US$73,942 million in 2022. A decrease was noted in 2023, falling to US$69,966 million. Substantial increases followed in 2024 and 2025, reaching US$79,426 million and US$97,963 million respectively. This suggests significant capital deployment in the later years of the period.
- Economic Profit Analysis
- Economic profit mirrored the NOPAT trend. It rose from US$8,286 million in 2021 to US$8,555 million in 2022. The significant decline in NOPAT in 2023 resulted in a negative economic profit of US$6,025 million. Economic profit rebounded strongly in 2024 and 2025, reaching US$10,863 million and US$10,585 million, respectively. The fluctuations indicate a sensitivity of economic profit to changes in NOPAT, despite the relatively stable cost of capital.
The substantial increase in invested capital in 2024 and 2025, coupled with the recovery in NOPAT, contributed to the positive economic profit observed in those years. The negative economic profit in 2023 warrants further investigation to understand the underlying causes of the NOPAT decline.
Net Operating Profit after Taxes (NOPAT)
Merck & Co. Inc., NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2025-12-31), 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).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowance for doubtful accounts.
3 Addition of increase (decrease) in LIFO reserve. See details »
4 Addition of increase (decrease) in restructuring reserves.
5 Addition of increase (decrease) in equity equivalents to net income attributable to Merck & Co., Inc..
6 2025 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= × =
7 2025 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= × 21.00% =
8 Addition of after taxes interest expense to net income attributable to Merck & Co., Inc..
9 2025 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= × 21.00% =
10 Elimination of after taxes investment income.
11 Elimination of discontinued operations.
Net income attributable to Merck & Co., Inc. and Net Operating Profit After Taxes (NOPAT) demonstrate distinct performance patterns over the five-year period. While net income generally exhibits an upward trajectory, NOPAT reveals a more volatile performance, including a significant decline in 2023.
- Overall Trend - Net Income
- Net income attributable to Merck & Co., Inc. increased from US$13,049 million in 2021 to US$14,519 million in 2022. A substantial decrease was observed in 2023, falling to US$365 million, before recovering significantly to US$17,117 million in 2024 and further increasing to US$18,254 million in 2025. This indicates a generally positive trend with a notable disruption in 2023.
- Overall Trend - NOPAT
- NOPAT followed a similar pattern to net income through 2022, increasing from US$13,349 million in 2021 to US$14,154 million in 2022. However, NOPAT experienced a dramatic decline in 2023, resulting in a negative value of US$-714 million. Subsequent years showed a strong recovery, with NOPAT reaching US$16,744 million in 2024 and US$17,864 million in 2025.
- Comparison of Net Income and NOPAT
- While both metrics generally move in the same direction, the magnitude of change differs. The decline in 2023 was far more pronounced for NOPAT than for net income. This suggests that factors impacting operating profitability, rather than solely net income, were the primary drivers of the 2023 downturn. The recovery in 2024 and 2025 was also substantial for NOPAT, indicating improved operational performance. The difference between net income and NOPAT suggests the presence of non-operating items or tax effects influencing net income.
- NOPAT Volatility
- The significant fluctuation in NOPAT, particularly the negative value in 2023, warrants further investigation. This volatility could be attributed to changes in operating expenses, revenue recognition, or other factors affecting the core profitability of the business. The subsequent recovery suggests these issues were addressed or were temporary in nature.
Cash Operating Taxes
Merck & Co. Inc., cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2025-12-31), 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).
The reported taxes on income from continuing operations exhibited fluctuations over the five-year period. Initial values increased from 2021 to 2022, followed by a decrease in 2023, and then a substantial rise in 2024 and 2025, remaining relatively stable between those final two years. However, a more pronounced trend is observed in cash operating taxes.
- Cash Operating Taxes Trend
- Cash operating taxes demonstrate a significant increase from 2021 to 2022, nearly doubling from US$1,553 million to US$3,760 million. This increase is followed by a moderate decline in 2023 to US$3,497 million. Subsequent years, 2024 and 2025, show continued growth, reaching US$4,246 million and US$4,597 million respectively. The pattern suggests a generally increasing tax burden as measured by cash outflows.
The divergence between taxes on income from continuing operations and cash operating taxes is notable. While income taxes fluctuated, cash operating taxes consistently increased over the period, albeit with a slight dip in 2023. This difference could be attributable to timing differences between reported income tax expense and actual cash payments, such as deferred tax assets or liabilities, or changes in tax credits utilized. The substantial increase in cash operating taxes from 2021 to 2022 warrants further investigation to understand the underlying drivers, potentially including changes in tax laws, profitability, or the utilization of tax loss carryforwards.
- Comparative Analysis
- The difference between the two tax measures widened considerably in 2022 and remained elevated through 2025. In 2021, the difference was US$32 million. By 2022, this difference grew to US$1,842 million. While the gap narrowed somewhat in 2023 (US$1,985 million), it expanded again in 2024 (US$1,443 million) and 2025 (US$1,793 million). This sustained difference suggests a significant impact on free cash flow and should be considered when evaluating economic value added.
The consistent upward trend in cash operating taxes, particularly when contrasted with the more volatile reported income taxes, indicates a growing cash commitment to tax obligations. This trend should be monitored closely as it directly impacts available cash for reinvestment, debt reduction, or shareholder returns.
Invested Capital
Merck & Co. Inc., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2025-12-31), 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).
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 LIFO reserve. See details »
5 Addition of restructuring reserves.
6 Addition of equity equivalents to total Merck & Co., Inc. stockholders’ equity.
7 Removal of accumulated other comprehensive income.
8 Subtraction of construction in progress.
9 Subtraction of investments in debt and publicly traded equity securities.
The invested capital of the company exhibited fluctuations over the five-year period. Total reported debt & leases and total stockholders’ equity both contribute to the calculation of invested capital, and their individual trends influence the overall invested capital figure.
- Invested Capital Trend
- Invested capital increased from US$70,735 million in 2021 to US$73,942 million in 2022, representing a growth of approximately 4.5%. A subsequent decrease was observed in 2023, with invested capital falling to US$69,966 million. This was followed by a more substantial increase in 2024, reaching US$79,426 million, and continued growth in 2025 to US$97,963 million. The most significant increase occurred between 2024 and 2025.
- Debt & Leases
- Total reported debt & leases decreased from US$34,631 million in 2021 to US$31,985 million in 2022. An increase was then noted in 2023, reaching US$36,268 million, and continued into 2024 with a value of US$38,270 million. A considerable rise occurred in 2025, with debt & leases reaching US$50,534 million. This suggests a shift towards increased reliance on debt financing in the latter part of the period.
- Stockholders’ Equity
- Total stockholders’ equity increased significantly from US$38,184 million in 2021 to US$45,991 million in 2022. A decrease was observed in 2023, with equity falling to US$37,581 million. Equity then rebounded in 2024 to US$46,313 million and continued to grow in 2025, reaching US$52,606 million. The fluctuations in equity likely reflect retained earnings, share issuances, and share repurchases.
The combined effect of these trends in debt and equity resulted in the overall pattern observed in invested capital. The substantial increase in invested capital between 2024 and 2025 appears to be driven by a combination of increased debt and equity, with debt contributing a larger proportion of the growth.
Cost of Capital
Merck & Co. Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Loans payable and long-term debt, including current portion3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2025-12-31).
1 US$ in millions
2 Equity. See details »
3 Loans payable and long-term debt, including current portion. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Loans payable and long-term debt, including current portion3 | ÷ | = | × | × (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 Loans payable and long-term debt, including current portion. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Loans payable and long-term debt, including current portion3 | ÷ | = | × | × (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 Loans payable and long-term debt, including current portion. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Loans payable and long-term debt, including current portion3 | ÷ | = | × | × (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 Loans payable and long-term debt, including current portion. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Loans payable and long-term debt, including current portion3 | ÷ | = | × | × (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 Loans payable and long-term debt, including current portion. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Merck & Co. Inc., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2025 | Dec 31, 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. | ||||||
| Johnson & Johnson | ||||||
| Pfizer Inc. | ||||||
| Regeneron Pharmaceuticals Inc. | ||||||
| Thermo Fisher Scientific Inc. | ||||||
| Vertex Pharmaceuticals Inc. | ||||||
Based on: 10-K (reporting date: 2025-12-31), 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).
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 economic spread ratio exhibited fluctuating performance over the five-year period. Initial stability gave way to a significant decline, followed by a substantial recovery and subsequent moderation. Economic profit demonstrated a similar pattern of initial growth, a marked downturn, and then a return to positive figures, though not to the initial levels.
- Economic Spread Ratio - Overall Trend
- The economic spread ratio began at 11.71% in 2021 and remained relatively consistent at 11.57% in 2022. A substantial decrease was observed in 2023, with the ratio falling to -8.61%. This indicates that the return on invested capital was less than the cost of capital during that year. A strong recovery occurred in 2024, with the ratio rising to 13.68%, representing the highest value in the observed period. The ratio then moderated to 10.81% in 2025.
- Economic Profit - Relationship to Spread Ratio
- Economic profit and the economic spread ratio demonstrate a clear correlation. The positive economic profit values in 2021 and 2022 align with the positive and stable spread ratios during those years. The negative economic profit in 2023 corresponds directly with the negative economic spread ratio, signifying value destruction. The return to positive economic profit in 2024 and 2025 is mirrored by the positive spread ratios, though the magnitude of the profit did not fully recover to prior levels.
- Invested Capital - Impact on Spread Ratio
- Invested capital generally increased over the period, from US$70,735 million in 2021 to US$97,963 million in 2025. The decrease in invested capital observed in 2023, coupled with the negative economic profit, likely contributed significantly to the substantial decline in the economic spread ratio that year. The subsequent increase in invested capital in 2024 and 2025, alongside recovering economic profit, supported the improvement in the spread ratio, although the higher capital base may have limited the ratio’s full potential.
The volatility in the economic spread ratio suggests potential shifts in the company’s operational efficiency or changes in the cost of capital. The negative spread ratio in 2023 warrants further investigation to understand the underlying causes and prevent recurrence. While the recovery in 2024 is encouraging, the moderation in 2025 indicates a need for continued focus on maximizing returns relative to invested capital.
Economic Profit Margin
Merck & Co. Inc., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | ||||||
| Sales | ||||||
| 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. | ||||||
| Johnson & Johnson | ||||||
| Pfizer Inc. | ||||||
| Regeneron Pharmaceuticals Inc. | ||||||
| Thermo Fisher Scientific Inc. | ||||||
| Vertex Pharmaceuticals Inc. | ||||||
Based on: 10-K (reporting date: 2025-12-31), 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).
1 Economic profit. See details »
2 2025 Calculation
Economic profit margin = 100 × Economic profit ÷ Sales
= 100 × ÷ =
3 Click competitor name to see calculations.
The economic profit margin exhibited considerable fluctuation over the five-year period. Initial values demonstrated strong profitability, followed by a significant downturn, and then a recovery to levels comparable to the beginning of the period.
- Economic Profit Margin Trend
- The economic profit margin began at 17.01% in 2021, indicating a substantial economic profit relative to sales. A decrease was observed in 2022, with the margin falling to 14.43%. This downward trend continued sharply in 2023, resulting in a negative margin of -10.02%, signifying an economic loss. A substantial recovery occurred in 2024, with the margin rebounding to 16.93%. This positive momentum continued into 2025, with a margin of 16.28%, remaining at a strong level.
The volatility in economic profit margin closely mirrors the fluctuations in economic profit itself. The negative margin in 2023 directly corresponds to the negative economic profit reported for that year. The subsequent recovery in the margin aligns with the return to positive economic profit in 2024 and 2025.
- Sales Relationship
- Sales demonstrated a consistent upward trend throughout the period, increasing from US$48,704 million in 2021 to US$65,011 million in 2025. However, the increase in sales did not consistently translate into increased economic profit. The substantial sales growth between 2021 and 2022 was accompanied by a decrease in the economic profit margin, suggesting rising costs or a less favorable capital allocation during that time. The significant sales increase from 2022 to 2023 did not prevent a substantial economic loss.
The period demonstrates that while sales growth is present, it is not a reliable indicator of economic profitability. The economic profit margin provides a more nuanced view, highlighting the importance of efficient capital allocation and cost management in generating true economic value.