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.
Economic Profit
Stryker Corp., economic profit calculation
US$ in millions
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2021 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 2,015 – 15.51% × 26,516 = -2,098
An analysis of economic profit from 2017 to 2021 reveals a consistent failure to generate value in excess of the cost of capital. Economic profit remained negative throughout the entire five-year period, indicating that net operating profit after taxes (NOPAT) was insufficient to cover the capital charges associated with the invested capital.
- Net Operating Profit After Taxes (NOPAT)
- A period of growth is observed between 2017 and 2019, with NOPAT increasing from US$ 1,187 million to a peak of US$ 2,347 million. This upward trend was interrupted in 2020, where profit fell to US$ 1,867 million, followed by a partial recovery to US$ 2,015 million in 2021.
- Invested Capital and Cost of Capital
- Invested capital exhibited a steady upward trajectory from 2017 through 2020, rising from US$ 17,502 million to US$ 27,132 million, before experiencing a slight contraction to US$ 26,516 million in 2021. Meanwhile, the cost of capital remained remarkably stable, fluctuating minimally between a high of 15.59% in 2017 and a low of 15.20% in 2020.
- Economic Profit Performance
- Economic profit remained in negative territory for all reported years. Although the deficit narrowed slightly in 2018 to US$ -1,126 million, it widened significantly in 2020 to US$ -2,258 million. This sharp decline in 2020 is attributable to the convergence of declining NOPAT and the highest level of invested capital in the period, which maximized the capital charge. A marginal improvement was noted in 2021, with economic profit moving to US$ -2,098 million.
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Net Operating Profit after Taxes (NOPAT)
Stryker Corp., NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowance for doubtful accounts.
3 Addition of increase (decrease) in equity equivalents to net earnings.
4 2021 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 422 × 2.86% = 12
5 2021 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 349 × 21.00% = 73
6 Addition of after taxes interest expense to net earnings.
7 2021 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 68 × 21.00% = 14
8 Elimination of after taxes investment income.
The financial performance between 2017 and 2021 exhibits a divergence between core operating profitability and final net income. While operating profit demonstrated relative stability with a specific cyclical dip, net earnings experienced significant volatility driven by non-operating factors.
- Net Operating Profit After Taxes (NOPAT) Trends
- NOPAT grew consistently from 2017 to 2019, rising from US$ 1,187 million to a peak of US$ 2,347 million. A contraction occurred in 2020, where the value decreased to US$ 1,867 million, followed by a recovery to US$ 2,015 million in 2021. This pattern indicates a resilient operating core that experienced a temporary setback before returning toward previous levels.
- Net Earnings Volatility
- Net earnings displayed substantial fluctuations, most notably a sharp increase to US$ 3,553 million in 2018 from US$ 1,020 million in 2017. This peak was not sustained, as earnings fell to US$ 2,083 million in 2019 and further to US$ 1,599 million in 2020, before rising again to US$ 1,994 million in 2021.
- Analysis of Operating vs. Net Profit Divergence
- A notable discrepancy is observed during the 2018 and 2019 periods. In 2018, net earnings significantly exceeded NOPAT, suggesting the influence of substantial one-time non-operating gains or favorable tax adjustments. Conversely, in 2019, NOPAT continued to trend upward while net earnings declined, indicating that non-operating expenses or losses offset the growth in operational efficiency during that fiscal year.
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Cash Operating Taxes
Stryker Corp., cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
An analysis of the tax figures between 2017 and 2021 reveals a significant divergence between accounting-based income tax expenses and actual cash operating taxes. While income tax expenses exhibited extreme volatility, particularly in 2018, cash operating taxes followed a more stabilized, albeit fluctuating, trajectory. This distinction is critical for the calculation of Economic Value Added (EVA), as cash taxes reflect the actual liquidity outflow rather than accounting accruals.
- Income Tax Expense Volatility
- A substantial fluctuation is observed in income tax expenses, moving from 1,043 million US$ in 2017 to a tax benefit of 1,197 million US$ in 2018. Following this anomaly, the expense returned to a positive value in 2019 and entered a consistent downward trend, decreasing from 479 million US$ in 2019 to 287 million US$ by 2021.
- Cash Operating Tax Trends
- Cash operating taxes demonstrate a different pattern, beginning at 1,076 million US$ in 2017 and declining steadily through 2020, reaching a low of 354 million US$. However, this trend reversed in 2021, with cash taxes increasing to 583 million US$, despite the continued decline in reported income tax expenses for that same period.
- Analysis of Divergence
- The most pronounced variance occurred in 2018, where a reported accounting tax benefit of 1,197 million US$ coincided with a cash tax payment of 417 million US$. This indicates that the tax benefit recognized in the income statement was non-cash in nature. A similar divergence emerged in 2021, where cash operating taxes exceeded income tax expenses by 296 million US$, suggesting that cash outflows for taxes were higher than the period's accounting charge.
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Invested Capital
Stryker Corp., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
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 equity equivalents to total Stryker shareholders’ equity.
5 Removal of accumulated other comprehensive income.
6 Subtraction of marketable securities.
Invested capital exhibited a strong upward trajectory between 2017 and 2020, increasing from 17,502 million US$ to a peak of 27,132 million US$. This growth phase represents a substantial expansion of the capital base used to generate economic value. A slight contraction occurred in 2021, with invested capital declining to 26,516 million US$, marking the first decrease within the five-year period analyzed.
- Total Reported Debt and Leases
- A consistent increase in debt and lease obligations was observed from 2017 through 2020, rising from 7,518 million US$ to 14,425 million US$. This indicates a period of aggressive leveraging to fund growth or acquisitions. However, this trend reversed in 2021, as total reported debt and leases fell to 12,901 million US$, suggesting a strategic effort to deleverage or a repayment of outstanding obligations.
- Total Shareholders' Equity
- Shareholders' equity demonstrated steady and uninterrupted growth over the entire period. Starting at 9,966 million US$ in 2017, the value rose each consecutive year to reach 14,877 million US$ by December 31, 2021. This linear increase reflects a consistent accumulation of retained earnings or additional capital contributions, strengthening the company's equity cushion.
- Capital Composition and Trends
- The expansion of invested capital through 2020 was fueled by simultaneous increases in both debt and equity, although the growth in debt was more pronounced in relative terms. By 2021, a divergence occurred: while shareholders' equity continued to rise, the total invested capital decreased due to the reduction in total reported debt and leases. This shift indicates that the 2021 reduction in the capital base was driven exclusively by debt reduction rather than a decrease in equity.
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Cost of Capital
Stryker Corp., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 95,009) | 95,009) | ÷ | 108,832) | = | 0.87 | 0.87 | × | 17.50% | = | 15.28% | ||
| Debt3 | 13,401) | 13,401) | ÷ | 108,832) | = | 0.12 | 0.12 | × | 2.33% × (1 – 21.00%) | = | 0.23% | ||
| Operating lease liability4 | 422) | 422) | ÷ | 108,832) | = | 0.00 | 0.00 | × | 2.86% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 108,832) | 1.00 | 15.51% | ||||||||||
Based on: 10-K (reporting date: 2021-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 92,297) | 92,297) | ÷ | 108,169) | = | 0.85 | 0.85 | × | 17.50% | = | 14.93% | ||
| Debt3 | 15,438) | 15,438) | ÷ | 108,169) | = | 0.14 | 0.14 | × | 2.32% × (1 – 21.00%) | = | 0.26% | ||
| Operating lease liability4 | 434) | 434) | ÷ | 108,169) | = | 0.00 | 0.00 | × | 2.57% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 108,169) | 1.00 | 15.20% | ||||||||||
Based on: 10-K (reporting date: 2020-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 81,747) | 81,747) | ÷ | 94,070) | = | 0.87 | 0.87 | × | 17.50% | = | 15.21% | ||
| Debt3 | 11,936) | 11,936) | ÷ | 94,070) | = | 0.13 | 0.13 | × | 2.63% × (1 – 21.00%) | = | 0.26% | ||
| Operating lease liability4 | 387) | 387) | ÷ | 94,070) | = | 0.00 | 0.00 | × | 3.34% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 94,070) | 1.00 | 15.48% | ||||||||||
Based on: 10-K (reporting date: 2019-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 67,359) | 67,359) | ÷ | 77,539) | = | 0.87 | 0.87 | × | 17.50% | = | 15.20% | ||
| Debt3 | 9,872) | 9,872) | ÷ | 77,539) | = | 0.13 | 0.13 | × | 3.09% × (1 – 21.00%) | = | 0.31% | ||
| Operating lease liability4 | 308) | 308) | ÷ | 77,539) | = | 0.00 | 0.00 | × | 3.09% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 77,539) | 1.00 | 15.52% | ||||||||||
Based on: 10-K (reporting date: 2018-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 55,451) | 55,451) | ÷ | 63,303) | = | 0.88 | 0.88 | × | 17.50% | = | 15.33% | ||
| Debt3 | 7,556) | 7,556) | ÷ | 63,303) | = | 0.12 | 0.12 | × | 3.22% × (1 – 35.00%) | = | 0.25% | ||
| Operating lease liability4 | 296) | 296) | ÷ | 63,303) | = | 0.00 | 0.00 | × | 3.22% × (1 – 35.00%) | = | 0.01% | ||
| Total: | 63,303) | 1.00 | 15.59% | ||||||||||
Based on: 10-K (reporting date: 2017-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Stryker Corp., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | (2,098) | (2,258) | (1,256) | (1,126) | (1,542) | |
| Invested capital2 | 26,516) | 27,132) | 23,274) | 20,767) | 17,502) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -7.91% | -8.32% | -5.40% | -5.42% | -8.81% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Abbott Laboratories | -1.95% | — | — | — | — | |
| Elevance Health Inc. | 1.46% | — | — | — | — | |
| Intuitive Surgical Inc. | 12.41% | — | — | — | — | |
| Medtronic PLC | -6.71% | — | — | — | — | |
| UnitedHealth Group Inc. | 3.91% | — | — | — | — | |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2021 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -2,098 ÷ 26,516 = -7.91%
4 Click competitor name to see calculations.
Analysis of the financial metrics from 2017 to 2021 reveals a consistent inability to generate positive economic value. Throughout the entire five-year period, economic profit remained negative, indicating that the returns generated by the company's operations were insufficient to cover its weighted average cost of capital.
- Economic Profit Trends
- Economic profit fluctuated significantly, maintaining a negative trajectory. An initial improvement was observed between 2017 and 2018, moving from -1,542 million to -1,126 million. However, a substantial deterioration occurred in 2020, where economic profit reached its lowest point at -2,258 million. A marginal recovery was noted in 2021, ending the period at -2,098 million.
- Invested Capital Growth
- A consistent upward trend in invested capital was observed from 2017 through 2020, increasing from 17,502 million to a peak of 27,132 million. This represents a significant expansion of the capital base. In 2021, a slight contraction occurred, with invested capital decreasing to 26,516 million.
- Economic Spread Ratio Performance
- The economic spread ratio remained negative across all reporting years, confirming that the return on invested capital consistently trailed the cost of capital. The ratio improved from -8.81% in 2017 to a relative peak of -5.40% in 2019. This stability was interrupted in 2020 by a sharp decline to -8.32%, followed by a slight improvement to -7.91% in 2021.
The correlation between the rising invested capital and the deepening economic losses in 2020 suggests that the expansion of the asset base did not yield proportional increases in operating returns. The persistent negative spread ratio indicates a systemic gap between the company's capital costs and its generated returns over the analyzed timeframe.
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Economic Profit Margin
Stryker Corp., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | (2,098) | (2,258) | (1,256) | (1,126) | (1,542) | |
| Net sales | 17,108) | 14,351) | 14,884) | 13,601) | 12,444) | |
| Performance Ratio | ||||||
| Economic profit margin2 | -12.27% | -15.73% | -8.44% | -8.28% | -12.39% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Abbott Laboratories | -2.81% | — | — | — | — | |
| Elevance Health Inc. | 0.68% | — | — | — | — | |
| Intuitive Surgical Inc. | 9.76% | — | — | — | — | |
| Medtronic PLC | -16.09% | — | — | — | — | |
| UnitedHealth Group Inc. | 1.92% | — | — | — | — | |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 Economic profit. See details »
2 2021 Calculation
Economic profit margin = 100 × Economic profit ÷ Net sales
= 100 × -2,098 ÷ 17,108 = -12.27%
3 Click competitor name to see calculations.
The analysis of the economic profit margin from 2017 to 2021 reveals a persistent failure to generate value above the cost of capital, as economic profit remained negative throughout the entire five-year period. Despite fluctuations in revenue and absolute profit figures, the company did not achieve a positive economic value added state.
- Economic Profit Trends
- Economic profit exhibited significant volatility, beginning at -1,542 million USD in 2017 and improving to -1,126 million USD in 2018. A substantial decline was observed in 2020, where losses peaked at -2,258 million USD, before a slight recovery to -2,098 million USD in 2021.
- Revenue Correlation
- Net sales demonstrated a general upward trajectory, growing from 12,444 million USD in 2017 to 17,108 million USD by 2021, with the exception of a temporary contraction in 2020. The fact that economic losses widened during periods of revenue growth, particularly between 2019 and 2021, suggests that the increase in sales was not accompanied by a proportional increase in operating efficiency or a reduction in the cost of capital.
- Economic Profit Margin Volatility
- The economic profit margin mirrored the volatility of the absolute economic profit. The margin improved from -12.39% in 2017 to a peak of -8.28% in 2018 and remained relatively stable at -8.44% in 2019. A sharp deterioration occurred in 2020, with the margin falling to -15.73%, the lowest point in the period. While the margin recovered to -12.27% in 2021, it remained substantially lower than the levels seen in 2018 and 2019.
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