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:
- Income Statement
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Common Stock Valuation Ratios
- Enterprise Value to FCFF (EV/FCFF)
- Dividend Discount Model (DDM)
- Present Value of Free Cash Flow to Equity (FCFE)
- Price to Earnings (P/E) since 2005
- Analysis of Revenues
- Analysis of Debt
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Economic Profit
Merck & Co. Inc., economic profit calculation
US$ in millions
| 12 months ended: | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | |
|---|---|---|---|---|---|---|
| Net operating profit after taxes (NOPAT)1 | ||||||
| Cost of capital2 | ||||||
| Invested capital3 | ||||||
| Economic profit4 | ||||||
Based on: 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), 10-K (reporting date: 2020-12-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2024 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) exhibited substantial growth from 2020 to 2022, followed by a considerable decline in 2023, and a strong recovery in 2024. Invested capital generally increased over the five-year period, although a slight decrease was noted in 2023. The cost of capital remained relatively stable, with a slight increase in 2022 and 2023 before decreasing in 2024.
- NOPAT Trend
- NOPAT increased markedly from US$6,669 million in 2020 to US$13,349 million in 2021, and further to US$14,154 million in 2022. A substantial decrease occurred in 2023, resulting in a net loss of US$714 million. This was followed by a significant rebound in 2024, with NOPAT reaching US$16,744 million.
- Cost of Capital
- The cost of capital experienced a modest increase from 7.55% in 2020 to 8.05% in 2022, peaking at 8.07% in 2023. It then decreased slightly to 7.87% in 2024. These changes, while present, were relatively contained compared to the fluctuations observed in NOPAT.
- Invested Capital
- Invested capital showed an upward trend overall, increasing from US$57,182 million in 2020 to US$70,735 million in 2021 and US$73,942 million in 2022. A slight decrease to US$69,966 million was observed in 2023, before increasing again to US$79,426 million in 2024, reaching a new high for the period.
- Economic Profit
- Economic profit mirrored the NOPAT trend. It rose from US$2,350 million in 2020 to US$7,970 million in 2021 and US$8,198 million in 2022. A significant loss of US$6,363 million was recorded in 2023, corresponding with the negative NOPAT. Economic profit recovered strongly in 2024, reaching US$10,494 million, representing the highest value within the observed timeframe.
The substantial decline in economic profit in 2023 warrants further investigation, as it coincided with a negative NOPAT. The recovery in 2024 suggests a return to profitability, but the underlying factors driving these fluctuations should be analyzed to inform future strategic decisions. The consistent increase in invested capital, despite the 2023 dip, indicates ongoing investment in the business.
Net Operating Profit after Taxes (NOPAT)
Merck & Co. Inc., NOPAT calculation
US$ in millions
Based on: 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), 10-K (reporting date: 2020-12-31).
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 2024 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= × =
7 2024 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 2024 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.
- The net income showed a significant increase from 7,067 million US dollars in 2020 to 13,049 million US dollars in 2021, reflecting strong profitability growth. This upward trend continued into 2022 with net income reaching 14,519 million US dollars. However, there is a notable decrease in 2023, with net income sharply dropping to 365 million US dollars. The data shows a strong recovery in 2024, with net income rebounding to 17,117 million US dollars, the highest figure in the observed period.
- Net operating profit after taxes (NOPAT)
- The NOPAT followed a similar pattern to net income. It increased substantially from 6,669 million US dollars in 2020 to 13,349 million in 2021 and then experienced a slight rise to 14,154 million in 2022. In 2023, NOPAT turned negative, registering a loss of 714 million US dollars, indicating operational challenges or extraordinary costs during that year. By 2024, NOPAT recovered strongly to 16,744 million US dollars, surpassing all previous years except 2024 net income.
- Overall Trends and Observations
- Both profitability indicators demonstrate strong performance growth in the initial years from 2020 to 2022. The year 2023 stands out as an anomaly with both net income and NOPAT declining sharply, with NOPAT even becoming negative, suggesting operational difficulties or exceptional adverse events during that period. The rapid recovery in 2024 indicates effective measures to restore profitability and operational efficiency.
Cash Operating Taxes
Merck & Co. Inc., cash operating taxes calculation
US$ in millions
Based on: 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), 10-K (reporting date: 2020-12-31).
- Taxes on income from continuing operations
- The amount decreased from 1709 million US dollars in 2020 to 1521 million US dollars in 2021, followed by an increase to 1918 million US dollars in 2022. It then dropped to 1512 million US dollars in 2023 before rising significantly to 2803 million US dollars in 2024. This indicates a fluctuating pattern with a notable peak in 2024.
- Cash operating taxes
- There was a sharp decline from 2510 million US dollars in 2020 to 1553 million US dollars in 2021. Subsequently, cash operating taxes increased substantially to 3760 million in 2022, with a slight decrease to 3497 million in 2023, and then rose again to 4246 million US dollars in 2024. Overall, the data reflects considerable volatility with a general upward trend after 2021.
Invested Capital
Merck & Co. Inc., invested capital calculation (financing approach)
US$ in millions
Based on: 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), 10-K (reporting date: 2020-12-31).
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 analysis of the financial data over the five-year period reveals several notable trends in debt levels, stockholders’ equity, and invested capital.
- Total reported debt & leases
- The total reported debt and leases show a fluctuating pattern. Starting at US$33,453 million in 2020, the amount increased slightly to US$34,631 million in 2021, then decreased to US$31,985 million in 2022. However, it rose again in the subsequent years, reaching US$36,268 million in 2023 and US$38,270 million in 2024. Overall, despite a dip in 2022, debt levels exhibit a general upward trajectory by the end of the period.
- Total Merck & Co., Inc. stockholders’ equity
- Stockholders’ equity experienced significant variation across the years. It increased substantially from US$25,317 million in 2020 to US$38,184 million in 2021, and further to US$45,991 million in 2022. A decline was observed in 2023, where equity dropped to US$37,581 million, before rising sharply again to US$46,313 million in 2024. This pattern suggests some volatility, but with an overall growth trend in shareholders' equity.
- Invested capital
- The invested capital consistently grew from US$57,182 million in 2020 to US$70,735 million in 2021, and then to US$73,942 million in 2022. A decrease occurred in 2023, moving down to US$69,966 million, followed by a recovery and substantial increase to US$79,426 million in 2024. The invested capital thus shows growth overall, tempered by a temporary decline in 2023.
In summary, the financial data indicate a generally growing capital base characterized by increasing equity and invested capital over the five years, despite fluctuations in 2023. Total debt and leases also follow an upward trend overall, with a marked increase particularly in the last two years. The fluctuations in 2023 across all three measures may suggest temporary financial adjustments or external factors impacting the company during that period.
Cost of Capital
Merck & Co. Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Loans payable and long-term debt, including current portion3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2024-12-31).
1 US$ 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 »
| 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: 2020-12-31).
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, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| 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: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2024 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × ÷ =
4 Click competitor name to see calculations.
The economic spread ratio exhibited considerable fluctuation between 2020 and 2024. Initial increases were followed by a substantial decline and subsequent recovery, indicating shifts in the company’s profitability relative to its capital employed.
- Economic Spread Ratio Trend
- In 2020, the economic spread ratio stood at 4.11%. This value increased significantly to 11.27% in 2021 and remained relatively stable at 11.09% in 2022. A marked reversal occurred in 2023, with the ratio plummeting to -9.09%, signifying a loss in value creation compared to the cost of capital. The ratio rebounded strongly in 2024, reaching 13.21%, exceeding prior levels and suggesting improved capital efficiency and profitability.
The economic spread ratio’s movement closely mirrors the changes in economic profit. The substantial increase in economic profit from 2020 to 2022 corresponds with the rise in the economic spread ratio. Conversely, the negative economic profit reported in 2023 directly resulted in a negative economic spread ratio. The return to positive economic profit in 2024 drove the ratio back into positive territory and to its highest point over the observed period.
- Invested Capital Relationship
- Invested capital generally increased from 2020 to 2024, moving from US$57,182 million to US$79,426 million. While invested capital increased in 2023, the significant decline in economic profit overwhelmed this increase, leading to the negative economic spread ratio. The substantial improvement in the economic spread ratio in 2024 suggests that the increase in invested capital was effectively deployed to generate returns exceeding the cost of capital.
The volatility in the economic spread ratio highlights the sensitivity of the company’s value creation to changes in profitability. The substantial recovery in 2024 is a positive indicator, but continued monitoring of this ratio is warranted to assess the sustainability of this performance.
Economic Profit Margin
Merck & Co. Inc., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ 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: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
1 Economic profit. See details »
2 2024 Calculation
Economic profit margin = 100 × Economic profit ÷ Sales
= 100 × ÷ =
3 Click competitor name to see calculations.
The economic profit exhibited significant fluctuation between 2020 and 2024. Initial increases were followed by a substantial decline and subsequent recovery. Sales demonstrated a consistent upward trend throughout the period. The economic profit margin mirrored the volatility of the economic profit, experiencing both considerable gains and a notable loss before rebounding.
- Economic Profit
- Economic profit increased substantially from US$2,350 million in 2020 to US$7,970 million in 2021, indicating improved profitability relative to the cost of capital. This positive trend continued into 2022, with economic profit reaching US$8,198 million. However, 2023 saw a dramatic reversal, with economic profit falling to a loss of US$6,363 million. A strong recovery occurred in 2024, with economic profit rising to US$10,494 million, exceeding the previous high.
- Sales
- Sales increased steadily over the five-year period. From US$47,994 million in 2020, sales grew to US$48,704 million in 2021, then experienced a more significant increase to US$59,283 million in 2022. This growth continued with sales reaching US$60,115 million in 2023 and further increasing to US$64,168 million in 2024. This consistent growth suggests a strengthening market position or successful sales strategies.
- Economic Profit Margin
- The economic profit margin initially rose from 4.90% in 2020 to 16.36% in 2021, reflecting the increased economic profit relative to sales. It remained high at 13.83% in 2022. The margin then experienced a sharp decline in 2023, falling to -10.58%, corresponding with the negative economic profit. The margin rebounded strongly in 2024, reaching 16.35%, mirroring the recovery in economic profit and indicating a return to strong profitability relative to sales and the cost of capital.
The significant decline in economic profit margin in 2023 warrants further investigation to understand the underlying factors contributing to the loss, despite continued sales growth. The subsequent recovery in 2024 is encouraging, but sustained performance will need to be monitored.