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 the financial performance from 2017 to 2021 reveals a consistent failure to generate positive economic profit. Despite fluctuations in operating earnings, the organization operated with negative economic value added throughout the entire five-year period, indicating that the returns generated from operations were insufficient to cover the cost of the capital employed.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited a period of growth between 2017 and 2019, rising from 1,187 million to a peak of 2,347 million. A contraction occurred in 2020, with profit dropping to 1,867 million, followed by a partial recovery to 2,015 million in 2021. This volatility suggests operational sensitivity to external market conditions during the latter half of the period.
- Invested Capital and Cost of Capital
- Invested capital demonstrated a strong upward trajectory for most of the period, increasing from 17,502 million in 2017 to a peak of 27,132 million in 2020, before a slight reduction to 26,516 million in 2021. Concurrently, the cost of capital remained remarkably stable, fluctuating within a narrow range between 15.20% and 15.59%.
- Economic Profit Trends
- Economic profit remained negative throughout the observed duration. While there was a slight improvement in 2018, where the deficit narrowed to 1,125 million, the economic loss widened significantly in 2020 to 2,257 million. This deterioration in 2020 was driven by the simultaneous occurrence of declining NOPAT and the highest level of invested capital in the series, which maximized the capital charge relative to earnings.
The overall trend indicates that capital expansion has outpaced the growth of operating profits. The persistence of negative economic profit suggests that the organization's investment strategy has not yet yielded returns exceeding the required cost of capital.
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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) | (2,257) | (1,256) | (1,125) | (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 | -2.02% | — | — | — | — | |
| Elevance Health Inc. | 1.33% | — | — | — | — | |
| Intuitive Surgical Inc. | 12.62% | — | — | — | — | |
| Medtronic PLC | -6.78% | — | — | — | — | |
| UnitedHealth Group Inc. | 3.74% | — | — | — | — | |
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.
The analysis of economic value creation from 2017 to 2021 reveals a consistent failure to generate returns exceeding the cost of capital. Throughout the five-year period, economic profit remained negative, indicating that the company did not create economic value for its shareholders during this timeframe.
- Economic Profit Trends
- Economic profit exhibited significant volatility, starting at -1,542 million USD in 2017. Although a moderate improvement was observed in 2018, with losses narrowing to -1,125 million USD, this trend reversed in 2019 and accelerated sharply in 2020, where economic profit reached a period low of -2,257 million USD. A marginal recovery occurred in 2021, ending the period at -2,098 million USD.
- Invested Capital Growth
- A sustained increase in invested capital was observed between 2017 and 2020, rising from 17,502 million USD to a peak of 27,132 million USD. This growth indicates a substantial expansion of the capital base. However, this trajectory shifted in 2021, with invested capital decreasing slightly to 26,516 million USD.
- Economic Spread Ratio Performance
- The economic spread ratio remained negative throughout the entire period, confirming a persistent gap between the return on invested capital and the cost of capital. The ratio showed initial improvement from -8.81% in 2017 to -5.40% in 2019. This positive momentum was lost in 2020, as the ratio deteriorated to -8.32%, before ending 2021 at -7.91%.
The data suggests that the expansion of the capital base from 2017 to 2020 did not result in improved economic efficiency. The sharp decline in both economic profit and the economic spread ratio in 2020, coinciding with the peak in invested capital, indicates that capital deployment during this period failed to generate sufficient returns to cover the associated cost of capital.
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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) | (2,257) | (1,256) | (1,125) | (1,542) | |
| Net sales | 17,108) | 14,351) | 14,884) | 13,601) | 12,444) | |
| Performance Ratio | ||||||
| Economic profit margin2 | -12.26% | -15.73% | -8.44% | -8.27% | -12.39% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Abbott Laboratories | -2.92% | — | — | — | — | |
| Elevance Health Inc. | 0.62% | — | — | — | — | |
| Intuitive Surgical Inc. | 9.93% | — | — | — | — | |
| Medtronic PLC | -16.28% | — | — | — | — | |
| UnitedHealth Group Inc. | 1.83% | — | — | — | — | |
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 = -12.26%
3 Click competitor name to see calculations.
The financial performance from 2017 to 2021 indicates a consistent failure to achieve positive economic value added, as economic profit remained negative throughout the entire five-year period. Despite significant growth in top-line revenue, the company did not generate returns sufficient to cover its cost of capital.
- Economic Profit Trends
- Economic profit exhibited notable volatility, beginning at -1,542 million USD in 2017 and reaching its lowest point of -2,257 million USD in 2020. Although a slight recovery to -2,098 million USD occurred in 2021, the persistent negative figures demonstrate that the company operated below its required rate of return for the duration of the analyzed period.
- Net Sales Performance
- A general upward trajectory in net sales is observed, increasing from 12,444 million USD in 2017 to 17,108 million USD in 2021. A temporary contraction occurred in 2020, with sales declining to 14,351 million USD, followed by a sharp increase in 2021, representing the highest sales volume in the period.
- Economic Profit Margin Analysis
- The economic profit margin remained consistently negative, fluctuating between a high of -8.27% in 2018 and a low of -15.73% in 2020. The significant deterioration of the margin in 2020 mirrors the decline in net sales and the peak in economic loss. While the margin improved to -12.26% in 2021, the overall pattern indicates that sales growth did not translate into positive economic value creation.
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