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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- Statement of Comprehensive Income
- Balance Sheet: Liabilities and Stockholders’ Equity
- Common-Size Income Statement
- Analysis of Profitability Ratios
- Analysis of Long-term (Investment) Activity Ratios
- Analysis of Geographic Areas
- Present Value of Free Cash Flow to Equity (FCFE)
- Current Ratio since 2005
- Debt to Equity since 2005
- 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
= – × =
- Net Operating Profit After Taxes (NOPAT)
- The net operating profit after taxes exhibits a generally increasing trend from 2020 to 2024, with values rising from 6,669 million US dollars in 2020 to 16,744 million US dollars in 2024. However, there is a notable anomaly in 2023, where NOPAT turns negative to -714 million US dollars, indicating a significant operational challenge or extraordinary loss during that year. This negative value interrupts the otherwise steady growth observed in previous years.
- Cost of Capital
- The cost of capital remains relatively stable over the five-year period, fluctuating slightly around the 7.4% to 7.9% range. It increases modestly from 7.43% in 2020 to a peak of 7.93% in 2023 before slightly decreasing to 7.74% in 2024. These marginal changes suggest a stable cost of financing without considerable volatility.
- Invested Capital
- Invested capital shows a steady upward movement overall, expanding from 57,182 million US dollars in 2020 to 79,426 million US dollars in 2024. There is a small decline observed in 2023, decreasing to 69,966 million US dollars from 73,942 million in 2022, which may be associated with operational or investment adjustments during the year aligning with the dip seen in NOPAT and economic profit.
- Economic Profit
- Economic profit presents a strong growth trajectory from 2,423 million US dollars in 2020 to 10,600 million in 2024, reflecting increasing value creation over the period. Despite this positive overall trend, a significant disruption occurs in 2023 when economic profit drops sharply to -6,266 million US dollars, a negative value that highlights a substantial decline in the company's ability to generate returns above its cost of capital during that year. This coincides with the negative NOPAT and the dip in invested capital observed in the same year.
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 shows a fluctuating pattern over the five-year period. It started at $2,423 million in 2020, then significantly increased to $8,061 million in 2021 and slightly rose to $8,301 million in 2022. However, there was a notable decline in 2023, with economic profit turning negative to -$6,266 million. This downturn was followed by a strong recovery in 2024, reaching $10,600 million, the highest value in the period analyzed.
- Invested Capital
- Invested capital displayed an overall increasing trend from 2020 through 2024. Beginning at $57,182 million in 2020, it rose steadily to $70,735 million in 2021 and $73,942 million in 2022. A slight decrease was observed in 2023 to $69,966 million, but invested capital rebounded and grew to $79,426 million in 2024, indicating continued investment and expansion activities.
- Economic Spread Ratio
- The economic spread ratio closely mirrors the fluctuations seen in economic profit. It increased considerably from 4.24% in 2020 to 11.4% in 2021 and remained stable at 11.23% in 2022. In 2023, the ratio turned negative to -8.96%, reflecting the decline in profitability and possibly indicating costs or returns below the cost of capital. By 2024, the ratio improved markedly to 13.35%, surpassing all previous years and suggesting enhanced value creation relative to the capital invested.
Economic Profit Margin
Merck & Co. Inc., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ 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 presents notable fluctuations and trends across the five-year period. Sales have shown a consistent upward trajectory, increasing from approximately 47,994 million US dollars in 2020 to 64,168 million US dollars in 2024. This represents a steady growth in revenue over the years.
In contrast, economic profit figures exhibit more variability. After a rise from 2,423 million US dollars in 2020 to a peak of 8,301 million in 2022, economic profit sharply declined to a negative value of −6,266 million in 2023 before rebounding to 10,600 million in 2024. This pronounced dip in 2023 suggests a period of diminished profitability or increased costs that negatively impacted value creation.
The economic profit margin follows a similar pattern, corroborating the trends in economic profit. It increased from 5.05% in 2020 to 16.55% in 2021, slightly decreased to 14% in 2022, then fell significantly to −10.42% in 2023, indicating a loss relative to sales in that year. The margin recovered to 16.52% in 2024, returning to its earlier positive and relatively strong performance levels.
- Sales
- Consistent growth across all years, increasing by approximately 33.7% from 2020 to 2024, reflecting steady revenue expansion.
- Economic Profit
- Marked volatility with a significant decline into negative territory in 2023, suggesting an adverse impact on economic profitability during that year, followed by a strong recovery in 2024.
- Economic Profit Margin
- Mirrors the economic profit trajectory, with positive margins in four of the five years, a sharp dip in 2023 representing a loss relative to sales, and a return to healthy margins in 2024.
Overall, the data indicate robust sales growth, but with significant fluctuations in economic profitability, notably a difficult year in 2023 followed by a recovery in 2024. This pattern suggests possible challenges impacting profit generation that were subsequently addressed or mitigated.