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:
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Liquidity Ratios
- Analysis of Short-term (Operating) Activity Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Analysis of Geographic Areas
- Price to FCFE (P/FCFE)
- Dividend Discount Model (DDM)
- Return on Equity (ROE) 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, 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 financial data reveals several key trends regarding profitability, capital efficiency, and value creation over the five-year span.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited substantial growth from 2020 to 2022, increasing from $6,669 million to $14,154 million. However, a significant decline occurred in 2023, with NOPAT shifting into negative territory at -$714 million. This downturn was temporary as the figure rebounded strongly in 2024, reaching $16,744 million, the highest in the observed period.
- Cost of Capital
- The cost of capital showed a gradual increase from 7.41% in 2020 to a peak of 7.91% in 2023. In 2024, it decreased slightly to 7.71%. This trend suggests a moderately rising cost environment over the first four years, followed by a slight easing in the final year.
- Invested Capital
- Invested capital rose consistently from $57,182 million in 2020 to $73,942 million in 2022, indicating growth in asset base or investments. A decline occurred in 2023 to $69,966 million, followed by an increase to $79,426 million in 2024. The fluctuations suggest adjustments in capital allocation or divestments during 2023, with renewed investment activity thereafter.
- Economic Profit
- Economic profit mirrored the general trend of profitability with growth from $2,435 million in 2020 to $8,317 million in 2022. However, 2023 saw a dramatic reversal with a loss of $6,250 million, reflecting the combined effect of negative NOPAT and sustained invested capital. The recovery in 2024 to $10,617 million indicates restored value creation exceeding the cost of capital.
Overall, the data indicates a period of steady growth and value generation through 2022, a challenging year in 2023 marked by losses and reduced invested capital, followed by a robust recovery in 2024. The cost of capital's modest variance suggests relatively stable financing conditions despite operational volatility. The sharp dip in economic profit in 2023 highlights potential operational or external challenges impacting profitability and asset returns.
Net Operating Profit after Taxes (NOPAT)
Merck & Co. Inc., NOPAT calculation
US$ 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.
- Economic Profit
- The economic profit exhibited substantial volatility over the analyzed period. Starting at $2,435 million at the end of 2020, it increased significantly to $8,076 million in 2021 and slightly rose to $8,317 million in 2022. However, a notable downturn occurred in 2023, with economic profit turning negative to -$6,250 million. This negative performance was reversed in 2024, with economic profit climbing sharply to $10,617 million, the highest value in the observed time frame.
- Invested Capital
- Invested capital showed an overall upward trend despite some fluctuations. It grew from $57,182 million at the end of 2020 to a peak of $73,942 million in 2022. A decline took place in 2023, reducing invested capital to $69,966 million, followed by a recovery to $79,426 million in 2024, marking the highest level of invested capital throughout these years.
- Economic Spread Ratio
- The economic spread ratio mirrored the volatility seen in economic profit. It increased steadily from 4.26% in 2020 to around 11.4% in 2021, remaining relatively stable at 11.25% in 2022. A negative shift occurred in 2023, dropping the ratio to -8.93%, reflecting a period where returns were below the cost of capital. The ratio recovered to 13.37% in 2024, surpassing previous highs and indicating improved value creation in that year.
Economic Profit Margin
Merck & Co. Inc., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ 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 financial data reveals a dynamic pattern in the company's economic profit, sales, and economic profit margin over the five-year period.
- Sales
- Sales demonstrated a generally increasing trend across the years. Starting at US$47,994 million in 2020, sales rose slightly to US$48,704 million in 2021. A more notable increase occurred in 2022, with sales reaching US$59,283 million. This upward momentum continued into 2023 and 2024, reaching US$60,115 million and US$64,168 million respectively. The consistent growth in sales suggests expanding revenue generation over the period.
- Economic Profit
- The economic profit fluctuated more prominently compared to sales. In 2020, economic profit stood at US$2,435 million and experienced a significant increase in 2021 to US$8,076 million, maintaining a similar level in 2022 at US$8,317 million. However, 2023 saw a sharp decline, with economic profit turning negative at -US$6,250 million. This negative result indicated a substantial value loss during that year. The figure rebounded strongly in 2024, reaching a new high of US$10,617 million, suggesting improved cost management or profitability factors after the downturn.
- Economic Profit Margin
- This margin closely mirrors the fluctuations seen in economic profit. It started at 5.07% in 2020 and increased markedly in 2021 to 16.58%, before experiencing a slight decrease to 14.03% in 2022. A sharp reversal occurred in 2023 with the margin turning negative at -10.4%, indicating that the company was not generating economic profit relative to its sales during that year. By 2024, the margin had recovered strongly to 16.55%, exceeding all previous periods within the timeframe.
Overall, while sales steadily increased throughout the period, economic profit and economic profit margin exhibited volatility, particularly in 2023. The significant loss in economic profit and negative margin that year contrasts sharply with otherwise positive trends, highlighting a potential issue or extraordinary event impacting profitability. The subsequent recovery in 2024 demonstrates a return to favorable economic performance and enhanced profitability efficiency relative to sales.