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
Merck & Co. Inc., economic profit 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 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
= 17,864 – 7.49% × 97,963 = 10,526
The analysis of economic profit and value creation from 2021 to 2025 reveals a period of significant volatility punctuated by a sharp contraction and a subsequent strong recovery.
- Net Operating Profit After Taxes (NOPAT)
- A non-linear trend is evident in NOPAT, characterized by a severe downturn in 2023 where profits turned negative at -714 million. This outlier was followed by a robust recovery in 2024 and 2025, with NOPAT climbing to 16,744 million and 17,864 million respectively, indicating a restoration and expansion of operational earning power.
- Cost of Capital
- The cost of capital remained relatively stable throughout the analyzed period, fluctuating within a narrow corridor between 7.22% and 7.65%. This stability suggests that the company's risk profile and the market's required rate of return remained consistent despite operational fluctuations.
- Invested Capital
- There is a general upward trajectory in invested capital, growing from 70,735 million in 2021 to 97,963 million by 2025. A brief contraction was observed in 2023, coinciding with the decline in NOPAT, followed by an aggressive increase in capital deployment over the following two years.
- Economic Profit
- Economic profit exhibited a dramatic swing, falling from a positive 8,508 million in 2022 to a deficit of -6,070 million in 2023. This negative value indicates that the return on invested capital was insufficient to cover the cost of capital during that year. Value creation resumed aggressively in 2024, reaching 10,814 million, and remained strong in 2025 at 10,526 million.
The overall financial trajectory indicates that the operational disruption in 2023 was a temporary event. The subsequent growth in both invested capital and NOPAT has allowed for the generation of higher absolute economic profit in the final two years compared to the baseline established in 2021 and 2022.
AI Ask an analyst for more
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
= 1,195 × 3.50% = 42
7 2025 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 1,399 × 21.00% = 294
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
= 817 × 21.00% = 172
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$17,864 million in 2025.
- Comparison of Net Income and NOPAT
- While both metrics generally move in the same direction, the magnitude of change differs. The decline in 2023 was far more pronounced for NOPAT than for net income. This suggests that factors impacting operating profitability, rather than solely net income, were the primary drivers of the 2023 downturn. The recovery in 2024 and 2025 was also substantial for NOPAT, indicating improved operational performance. The difference between net income and NOPAT suggests the presence of non-operating items or tax effects influencing net income.
- NOPAT Volatility
- The significant fluctuation in NOPAT, particularly the negative value in 2023, warrants further investigation. This volatility could be attributed to changes in operating expenses, revenue recognition, or other factors affecting the core profitability of the business. The subsequent recovery suggests these issues were addressed or were temporary in nature.
AI Ask an analyst for more
Cash Operating Taxes
Merck & Co. Inc., cash operating taxes calculation
US$ 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$1,793 million). This sustained difference suggests a significant impact on free cash flow and should be considered when evaluating economic value added.
The consistent upward trend in cash operating taxes, particularly when contrasted with the more volatile reported income taxes, indicates a growing cash commitment to tax obligations. This trend should be monitored closely as it directly impacts available cash for reinvestment, debt reduction, or shareholder returns.
AI Ask an analyst for more
Invested Capital
Merck & Co. Inc., invested capital calculation (financing approach)
US$ 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$52,606 million. The fluctuations in equity likely reflect retained earnings, share issuances, and share repurchases.
The combined effect of these trends in debt and equity resulted in the overall pattern observed in invested capital. The substantial increase in invested capital between 2024 and 2025 appears to be driven by a combination of increased debt and equity, with debt contributing a larger proportion of the growth.
AI Ask an analyst for more
Cost of Capital
Merck & Co. Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 306,404) | 306,404) | ÷ | 353,199) | = | 0.87 | 0.87 | × | 8.17% | = | 7.08% | ||
| Loans payable and long-term debt, including current portion3 | 45,600) | 45,600) | ÷ | 353,199) | = | 0.13 | 0.13 | × | 3.89% × (1 – 21.00%) | = | 0.40% | ||
| Operating lease liability4 | 1,195) | 1,195) | ÷ | 353,199) | = | 0.00 | 0.00 | × | 3.50% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 353,199) | 1.00 | 7.49% | ||||||||||
Based on: 10-K (reporting date: 2025-12-31).
1 US$ 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 | 230,955) | 230,955) | ÷ | 264,714) | = | 0.87 | 0.87 | × | 8.17% | = | 7.13% | ||
| Loans payable and long-term debt, including current portion3 | 32,600) | 32,600) | ÷ | 264,714) | = | 0.12 | 0.12 | × | 3.39% × (1 – 21.00%) | = | 0.33% | ||
| Operating lease liability4 | 1,159) | 1,159) | ÷ | 264,714) | = | 0.00 | 0.00 | × | 3.20% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 264,714) | 1.00 | 7.47% | ||||||||||
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 | 326,306) | 326,306) | ÷ | 359,519) | = | 0.91 | 0.91 | × | 8.17% | = | 7.41% | ||
| Loans payable and long-term debt, including current portion3 | 32,000) | 32,000) | ÷ | 359,519) | = | 0.09 | 0.09 | × | 3.32% × (1 – 21.00%) | = | 0.23% | ||
| Operating lease liability4 | 1,213) | 1,213) | ÷ | 359,519) | = | 0.00 | 0.00 | × | 3.30% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 359,519) | 1.00 | 7.65% | ||||||||||
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 | 278,966) | 278,966) | ÷ | 306,960) | = | 0.91 | 0.91 | × | 8.17% | = | 7.42% | ||
| Loans payable and long-term debt, including current portion3 | 26,700) | 26,700) | ÷ | 306,960) | = | 0.09 | 0.09 | × | 2.95% × (1 – 21.00%) | = | 0.20% | ||
| Operating lease liability4 | 1,294) | 1,294) | ÷ | 306,960) | = | 0.00 | 0.00 | × | 3.10% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 306,960) | 1.00 | 7.63% | ||||||||||
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 | 192,917) | 192,917) | ÷ | 230,146) | = | 0.84 | 0.84 | × | 8.17% | = | 6.85% | ||
| Loans payable and long-term debt, including current portion3 | 35,700) | 35,700) | ÷ | 230,146) | = | 0.16 | 0.16 | × | 2.92% × (1 – 21.00%) | = | 0.36% | ||
| Operating lease liability4 | 1,529) | 1,529) | ÷ | 230,146) | = | 0.01 | 0.01 | × | 2.60% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 230,146) | 1.00 | 7.22% | ||||||||||
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 | 10,526) | 10,814) | (6,070) | 8,508) | 8,244) | |
| Invested capital2 | 97,963) | 79,426) | 69,966) | 73,942) | 70,735) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | 10.74% | 13.62% | -8.67% | 11.51% | 11.65% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| AbbVie Inc. | 0.92% | -2.01% | -3.73% | 5.69% | 5.05% | |
| Amgen Inc. | 6.40% | -0.40% | 2.41% | 6.95% | 6.94% | |
| Bristol-Myers Squibb Co. | 5.87% | -21.81% | 1.75% | -0.98% | 1.30% | |
| Danaher Corp. | -10.74% | -10.91% | -11.68% | -6.67% | -5.84% | |
| Eli Lilly & Co. | 30.38% | 14.72% | 1.65% | 8.75% | 10.41% | |
| Gilead Sciences Inc. | 12.83% | -10.26% | 3.05% | -0.07% | 6.93% | |
| Johnson & Johnson | 11.78% | 2.11% | 0.26% | 5.52% | 10.59% | |
| Pfizer Inc. | -3.56% | -3.24% | -9.35% | 18.13% | 11.30% | |
| Regeneron Pharmaceuticals Inc. | 14.03% | 16.85% | 13.65% | 19.02% | 62.77% | |
| Thermo Fisher Scientific Inc. | -7.48% | -8.28% | -8.75% | -7.00% | -4.98% | |
| Vertex Pharmaceuticals Inc. | 21.07% | -22.58% | 11.36% | 14.11% | 15.32% | |
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 × 10,526 ÷ 97,963 = 10.74%
4 Click competitor name to see calculations.
The analysis of economic value added indicates a period of significant volatility between 2021 and 2025, characterized by a sharp contraction in 2023 followed by a substantial recovery and capital expansion.
- Economic Profit Trends
- Economic profit remained stable between 2021 and 2022, with a slight increase from 8,244 million USD to 8,508 million USD. A severe downturn occurred in 2023, where profit dropped to negative 6,070 million USD, representing a significant erosion of value. However, a strong recovery was realized in 2024, reaching a peak of 10,814 million USD, before stabilizing slightly at 10,526 million USD in 2025.
- Invested Capital Growth
- Invested capital demonstrated a general upward trajectory over the five-year period. After an initial increase to 73,942 million USD in 2022, a marginal contraction to 69,966 million USD was noted in 2023. Subsequently, the capital base grew aggressively, increasing to 79,426 million USD in 2024 and reaching 97,963 million USD by 2025, suggesting significant investments in the business infrastructure or acquisitions.
- Economic Spread Ratio Performance
- The economic spread ratio mirrors the volatility of economic profit, reflecting the efficiency of capital utilization relative to the cost of capital. The ratio held steady around 11.5% through 2022 before plummeting to negative 8.67% in 2023, indicating that the return on invested capital fell below the cost of capital during that period. A sharp rebound to 13.62% in 2024 shows a return to high value creation, which then moderated to 10.74% in 2025 as the invested capital base expanded more rapidly than the corresponding economic profit.
AI Ask an analyst for more
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 | 10,526) | 10,814) | (6,070) | 8,508) | 8,244) | |
| Sales | 65,011) | 64,168) | 60,115) | 59,283) | 48,704) | |
| Performance Ratio | ||||||
| Economic profit margin2 | 16.19% | 16.85% | -10.10% | 14.35% | 16.93% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| AbbVie Inc. | 0.93% | -2.48% | -4.68% | 8.04% | 8.62% | |
| Amgen Inc. | 10.67% | -0.79% | 6.28% | 11.14% | 11.50% | |
| Bristol-Myers Squibb Co. | 7.22% | -28.29% | 2.63% | -1.52% | 2.25% | |
| Danaher Corp. | -32.92% | -33.67% | -38.34% | -16.57% | -14.59% | |
| Eli Lilly & Co. | 23.12% | 11.70% | 1.42% | 7.44% | 9.60% | |
| Gilead Sciences Inc. | 19.00% | -15.90% | 5.19% | -0.12% | 12.27% | |
| Johnson & Johnson | 17.28% | 2.53% | 0.31% | 6.62% | 11.07% | |
| Pfizer Inc. | -7.94% | -6.89% | -24.33% | 19.85% | 12.06% | |
| Regeneron Pharmaceuticals Inc. | 12.96% | 14.78% | 12.45% | 19.15% | 42.45% | |
| Thermo Fisher Scientific Inc. | -15.81% | -15.85% | -17.47% | -12.91% | -10.13% | |
| Vertex Pharmaceuticals Inc. | 18.58% | -18.54% | 15.25% | 20.83% | 18.99% | |
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 × 10,526 ÷ 65,011 = 16.19%
3 Click competitor name to see calculations.
The financial performance from 2021 to 2025 is characterized by consistent revenue growth contrasted with significant volatility in economic value creation. While top-line sales demonstrated a steady upward trajectory, the ability to generate economic profit experienced a severe disruption in 2023 before recovering to levels exceeding previous peaks.
- Revenue Growth Trends
- Sales increased progressively throughout the period, rising from US$ 48,704 million in 2021 to US$ 65,011 million by 2025. This consistent growth indicates a sustained expansion of market presence and revenue generation capabilities over the five-year horizon.
- Economic Profit Volatility
- Economic profit exhibited a non-linear trend. Following a moderate increase between 2021 and 2022, a sharp reversal occurred in 2023, with economic profit falling to negative US$ 6,070 million. A robust recovery was observed in 2024, where economic profit reached a period high of US$ 10,814 million, before stabilizing at US$ 10,526 million in 2025.
- Economic Profit Margin Analysis
- The economic profit margin followed the fluctuations of absolute economic profit. The margin compressed from 16.93% in 2021 to 14.35% in 2022, followed by a significant drop to -10.10% in 2023. This negative margin indicates that the return on capital was insufficient to cover the cost of capital during that fiscal year. Subsequent recovery in 2024 brought the margin back to 16.85%, settling at 16.19% in 2025, which suggests a return to a stable state of value creation relative to sales.
AI Ask an analyst for more