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
- Cash Flow Statement
- Common-Size Income Statement
- Common-Size Balance Sheet: Assets
- Analysis of Short-term (Operating) Activity Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Enterprise Value (EV)
- Dividend Discount Model (DDM)
- Net Profit Margin since 2005
- Return on Equity (ROE) 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
= – × =
Over the observed period, the company's net operating profit after taxes (NOPAT) exhibits a generally upward trajectory from 2020 through 2022, increasing from 6,669 million US dollars to 14,154 million US dollars. However, in 2023, a significant decline is noted, with NOPAT turning negative to -714 million US dollars. This downturn is followed by a strong rebound in 2024, where NOPAT rises sharply to 16,744 million US dollars, surpassing all previous years.
The cost of capital remains relatively stable throughout the period, with a slight upward trend from 7.47% in 2020 to a peak of 7.98% in 2023, before a modest decrease to 7.78% in 2024. This stability suggests a consistent capital cost environment, despite minor fluctuations.
Invested capital shows an overall increasing trend, moving from 57,182 million US dollars in 2020 to 79,426 million US dollars in 2024. Although a slight dip occurs in 2023, decreasing to 69,966 million US dollars, the figure recovers and grows in the subsequent year, indicating ongoing investment in operational assets.
Economic profit reflects the interaction between NOPAT and the cost of invested capital, displaying an upward movement from 2,398 million US dollars in 2020 to a peak of 8,266 million US dollars in 2022. A pronounced negative economic profit emerges in 2023, amounting to -6,299 million US dollars, mirroring the negative NOPAT of the same year. In 2024, economic profit recovers markedly to 10,564 million US dollars, the highest value observed in the series.
In summary, the data reveals a robust performance with rising profitability and investment from 2020 to 2022, disrupted by a pronounced downturn in 2023 across profitability and economic profit measures. The recovery in 2024 is notable, indicating a potential turnaround in operational performance and capital efficiency. The relatively stable cost of capital throughout the period suggests that changes in profitability and economic profit are primarily influenced by internal operational factors rather than shifts in capital cost.
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 experienced a significant increase from 2,398 million USD in 2020 to 8,030 million USD in 2021, maintaining a similar level of 8,266 million USD in 2022. However, there was a sharp decline in 2023, resulting in a negative economic profit of -6,299 million USD. This negative figure was followed by a substantial rebound in 2024, reaching 10,564 million USD, the highest across the observed periods.
- Invested Capital
- The invested capital showed a general increasing trend from 57,182 million USD in 2020 to 79,426 million USD in 2024. There was a notable rise from 2020 to 2021, followed by a smaller increase in 2022. In 2023, the invested capital slightly decreased to 69,966 million USD before growing again in 2024.
- Economic Spread Ratio
- The economic spread ratio mirrored the pattern observed in economic profit. It increased from 4.19% in 2020 to 11.35% in 2021 and slightly decreased to 11.18% in 2022. In 2023, it sharply declined to -9%, indicating a loss in value creation relative to capital invested. Subsequently, the ratio recovered strongly to 13.3% in 2024, surpassing previous levels.
- Overall Trends and Insights
- The data indicates a volatile economic performance over the five-year period. After steady growth in economic profit and economic spread ratio from 2020 to 2022, there was a pronounced downturn in 2023, reflected by a negative economic profit and spread ratio, despite relatively stable invested capital. This suggests operational or market challenges impacting profitability during that year. The strong recovery in 2024, with both economic profit and spread ratio reaching new highs, implies effective corrective measures or favorable conditions that enhanced value creation. The gradual increase in invested capital over the period reflects ongoing investment in the company’s assets, with a brief reduction in 2023, possibly related to strategic realignment or asset disposals amid the economic setbacks.
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 notable fluctuations in economic profit and economic profit margin over the five-year period, with sales demonstrating a generally upward trajectory.
- Sales
- Sales steadily increased from US$47,994 million in 2020 to US$64,168 million in 2024. The growth was relatively moderate between 2020 and 2021, followed by a more significant rise in 2022, and continued incremental growth in 2023 and 2024. This upward trend indicates increasing revenue generation over the observed period.
- Economic Profit
- Economic profit displayed considerable volatility. Starting at US$2,398 million in 2020, it surged sharply to US$8,030 million in 2021 and slightly increased further to US$8,266 million in 2022. However, 2023 showed a significant downturn, with economic profit falling to a negative US$6,299 million, indicating a loss in economic value. The following year, 2024, experienced a strong recovery with economic profit rebounding to US$10,564 million, reaching the highest level in the dataset.
- Economic Profit Margin
- The economic profit margin trends mirrored the fluctuations observed in economic profit. It improved from 5% in 2020 to a peak of 16.49% in 2021, then slightly declined to 13.94% in 2022. A marked decline occurred in 2023, with the margin dropping to -10.48%, implying a period of economic losses relative to sales. By 2024, the margin rebounded to 16.46%, matching the previous peak from 2021, signaling improved profitability efficiency in relation to sales revenue.
Overall, while sales steadily increased, the company faced significant challenges in 2023 that adversely impacted economic profit and margin. Nevertheless, the firm demonstrated resilience with a robust recovery in 2024, achieving the highest economic profit and margin in the time series. This pattern suggests episodic operational or market difficulties in 2023 followed by effective corrective measures or favorable market conditions in 2024.