Economic Value Added (EVA)
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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 Solvency Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Common Stock Valuation Ratios
- Enterprise Value (EV)
- Enterprise Value to EBITDA (EV/EBITDA)
- Capital Asset Pricing Model (CAPM)
- Dividend Discount Model (DDM)
- Present Value of Free Cash Flow to Equity (FCFE)
- 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, 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 performance between 2021 and 2025 is characterized by a significant period of volatility in 2023, followed by a strong recovery and expansion in both operating profitability and invested capital. While economic profit remained positive for the majority of the period, the 2023 fiscal year represented a notable deviation where the company failed to cover its cost of capital, leading to a destruction of economic value.
- Net Operating Profit After Taxes (NOPAT)
- Operating profitability showed a steady increase from 2021 to 2022, reaching 14,154 million US$. A sharp reversal occurred in 2023, with NOPAT falling to a negative 714 million US$. However, a robust recovery followed in 2024, with profitability surging to 16,744 million US$ and continuing its upward trajectory to 17,864 million US$ by 2025.
- Invested Capital and Cost of Capital
- Invested capital grew from 70,735 million US$ in 2021 to 97,963 million US$ in 2025, with a brief contraction in 2023. The most significant expansion occurred between 2024 and 2025, indicating a substantial increase in the asset base. Throughout this period, the cost of capital remained relatively stable, fluctuating within a narrow range between 7.18% and 7.62%.
- Economic Profit Analysis
- Economic profit mirrored the volatility of NOPAT. Positive value creation was observed in 2021 and 2022, peaking slightly at 8,535 million US$. In 2023, the combination of negative NOPAT and the continued cost of maintaining invested capital resulted in a significant economic loss of 6,044 million US$. By 2024, economic profit recovered strongly to 10,842 million US$, before stabilizing at 10,560 million US$ in 2025, suggesting that the increase in invested capital is being supported by higher operating returns.
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 trajectory from 2021 to 2025 is characterized by significant volatility in value creation, punctuated by a sharp contraction in 2023 followed by a substantial recovery and subsequent stabilization.
- Economic Spread Ratio Analysis
- The economic spread ratio remained relatively stable during 2021 and 2022, maintaining values of 11.69% and 11.54%, respectively. A severe contraction is observed in 2023, where the ratio fell to -8.64%, indicating a period where the return on invested capital was insufficient to cover the cost of capital. A rapid recovery occurred in 2024, with the ratio peaking at 13.65%, before moderating to 10.78% in 2025.
- Invested Capital Trends
- Invested capital exhibited a general upward trend over the five-year period, increasing from US$ 70,735 million in 2021 to US$ 97,963 million by 2025. While a slight dip to US$ 69,966 million was recorded in 2023, the period from 2024 to 2025 shows an aggressive expansion of the capital base, reflecting a significant increase in total investment.
- Economic Profit Fluctuations
- Economic profit followed a pattern consistent with the spread ratio. Following a period of modest growth between 2021 and 2022, the company experienced a substantial deficit of US$ 6,044 million in 2023. This downturn was reversed in 2024, with economic profit surging to US$ 10,842 million, the highest level in the analyzed period. The figure remained strong in 2025, closing at US$ 10,560 million.
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 analysis of economic value added reveals a period of consistent revenue growth contrasted by significant volatility in economic profit. While sales increased steadily over the observed five-year period, economic profit experienced a severe contraction in 2023 before rebounding to its highest levels in the subsequent years.
- Sales Performance
- Revenue demonstrated a continuous upward trajectory, rising from 48,704 million US dollars in 2021 to 65,011 million US dollars by 2025. This indicates a sustained expansion of top-line growth throughout the period.
- Economic Profit Trends
- Economic profit exhibited substantial fluctuations. After maintaining positive values of 8,268 million US dollars in 2021 and 8,535 million US dollars in 2022, a sharp reversal occurred in 2023, with profit falling to -6,044 million US dollars. A strong recovery followed in 2024 and 2025, with values reaching 10,842 million and 10,560 million US dollars, respectively.
- Economic Profit Margin Analysis
- The economic profit margin mirrored the volatility of the absolute profit figures. The margin decreased from 16.98% in 2021 to 14.40% in 2022, reaching a nadir of -10.05% in 2023. A rapid recovery is observed in 2024, where the margin climbed to 16.90%, followed by a slight stabilization at 16.24% in 2025, suggesting a restoration of value creation efficiency relative to sales.