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:
- Analysis of Liquidity Ratios
- Analysis of Solvency Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Enterprise Value (EV)
- Return on Equity (ROE) since 2005
- Return on Assets (ROA) since 2005
- Current Ratio since 2005
- Total Asset Turnover since 2005
- Price to Book Value (P/BV) since 2005
- Analysis of Revenues
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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 financial trajectory from 2021 to 2025 reveals a period of significant volatility followed by substantial growth in value creation. While the company maintained a consistent cost of capital, the volatility in net operating profit after taxes (NOPAT) directly dictated the fluctuations in economic profit, resulting in a marked recovery and expansion in the latter years of the period.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited a sharp contradiction in 2023, falling from 14,154 million US$ in 2022 to a deficit of 714 million US$. This anomaly represents a critical deviation from the otherwise upward trend. However, a strong recovery occurred in 2024, with NOPAT climbing to 16,744 million US$ and reaching 17,864 million US$ by 2025, indicating a robust restoration of operating efficiency and profitability.
- Invested Capital and Cost of Capital
- Invested capital demonstrated a general expansion, growing from 70,735 million US$ in 2021 to 97,963 million US$ in 2025. A notable acceleration in capital investment is observed between 2023 and 2025, suggesting strategic expansions or acquisitions. Simultaneously, the cost of capital remained relatively stable, fluctuating within a narrow band between 7.23% and 7.66%, which indicates a consistent risk profile and stable funding costs over the five-year horizon.
- Economic Profit Performance
- Economic profit mirrored the volatility of NOPAT, plummeting to negative 6,077 million US$ in 2023, signifying that the operating returns failed to cover the cost of invested capital during that period. Subsequent years showed a significant reversal, with economic profit peaking at 10,806 million US$ in 2024. By 2025, economic profit slightly moderated to 10,516 million US$, as the increase in invested capital began to offset some of the gains in NOPAT.
Overall, the data indicates that despite a severe contraction in 2023, the organization successfully scaled its operations and increased its absolute value creation. The transition from a negative economic profit in 2023 to over 10 billion US$ in 2025 underscores a successful operational turnaround and an ability to generate returns well above the company's cost of capital.
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 financial performance from 2021 through 2025 is characterized by a period of significant volatility, specifically a sharp contraction in 2023 followed by a strong recovery and subsequent capital expansion.
- Economic Spread Ratio Trends
- The economic spread ratio remained relatively stable between 2021 and 2022, moving from 11.65% to 11.50%. A severe downturn occurred in 2023, where the ratio plummeted to -8.69%, indicating that the return on invested capital fell below the cost of capital. A rapid recovery was observed in 2024, with the ratio reaching a period peak of 13.61%, before moderating to 10.73% by the end of 2025.
- Economic Profit Analysis
- Economic profit movements mirrored the volatility of the spread ratio. After starting at 8,237 million USD in 2021 and rising slightly to 8,501 million USD in 2022, the figure shifted to a negative 6,077 million USD in 2023. Performance rebounded strongly in 2024 to 10,806 million USD and remained elevated at 10,516 million USD in 2025.
- Invested Capital and Efficiency
- Invested capital exhibited a general upward trajectory, increasing from 70,735 million USD in 2021 to 97,963 million USD in 2025. Notably, the most significant increase in capital occurred between 2024 and 2025. However, this capital growth coincided with a decline in the economic spread ratio from 13.61% to 10.73%, suggesting that the most recent capital deployments have not yet generated a proportional increase in economic profit, resulting in a slight reduction in value-creation efficiency.
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 financial performance from 2021 to 2025 is characterized by consistent revenue growth juxtaposed with significant volatility in economic value creation. While sales exhibited a steady upward trajectory, economic profit experienced a severe contraction in 2023 before recovering to levels exceeding previous peaks.
- Revenue Growth Trend
- Sales increased steadily over the five-year period, rising from 48,704 million USD in 2021 to 65,011 million USD by 2025. This indicates a sustained expansion of the top line and consistent growth in commercial operations.
- Economic Profit Volatility
- Economic profit demonstrated a non-linear trend. After maintaining stability between 2021 and 2022, a sharp decline occurred in 2023, where the value fell to -6,077 million USD. This suggests that during 2023, the company's operating returns were insufficient to cover its cost of capital. A substantial recovery followed in 2024, reaching 10,806 million USD, before stabilizing at 10,516 million USD in 2025.
- Economic Profit Margin Analysis
- The economic profit margin closely mirrored the trajectory of absolute economic profit. The margin decreased from 16.91% in 2021 to 14.34% in 2022, followed by a sharp drop to -10.11% in 2023. The subsequent rebound to 16.84% in 2024 and 16.18% in 2025 indicates a restoration of value-creation efficiency, returning the margin to levels comparable to the 2021 baseline.