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
Net Operating Profit after Taxes (NOPAT)
Cash Operating Taxes
Invested Capital
Cost of Capital
Economic Spread Ratio
Economic Profit Margin

Thermo Fisher Scientific Inc., economic profit calculation

US$ in millions

12 months ended:	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015
Net operating profit after taxes (NOPAT)¹	3,522	2,921	925	1,743	1,616
Cost of capital²	12.26%	12.07%	11.35%	11.20%	11.42%
Invested capital³	52,731	51,938	51,727	43,884	38,845

Economic profit⁴	(2,942)	(3,347)	(4,948)	(3,172)	(2,821)

Based on: 10-K (filing date: 2020-02-26), 10-K (filing date: 2019-02-27), 10-K (filing date: 2018-02-28), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-25).

¹ NOPAT. See details »

² Cost of capital. See details »

³ Invested capital. See details »

⁴ 2019 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 3,522 – 12.26% × 52,731 = -2,942

Item	Description	The company
Economic profit	Economic profit is a measure of corporate performance computed by taking the spread between the return on invested capital and the cost of capital, and multiplying by the invested capital.	Thermo Fisher Scientific Inc.’s economic profit increased from 2017 to 2018 and from 2018 to 2019.

Thermo Fisher Scientific Inc., NOPAT calculation

US$ in millions

12 months ended:	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015
Net income	3,696	2,938	2,225	2,022	1,975
Deferred income tax expense (benefit)¹	(499)	(474)	(1,696)	(639)	(600)
Increase (decrease) in allowance for doubtful accounts²	(15)	8	32	7	(4)
Increase (decrease) in LIFO reserve³	5	3	3	1	3
Increase (decrease) in standard product warranty obligations⁴	1	5	9	22	(2)
Increase (decrease) in accrued restructuring costs⁵	(46)	4	4	41	(22)
Increase (decrease) in equity equivalents⁶	(554)	(454)	(1,648)	(568)	(624)
Interest expense	676	667	592	470	415
Interest expense, operating lease liability⁷	30	23	21	18	16
Adjusted interest expense	706	690	613	488	431
Tax benefit of interest expense⁸	(148)	(145)	(214)	(171)	(151)
Adjusted interest expense, after taxes⁹	557	545	398	317	280
(Gain) loss on marketable securities	—	—	(1)	1	—
Interest income	(224)	(137)	(81)	(48)	(31)
Investment income, before taxes	(224)	(137)	(82)	(48)	(31)
Tax expense (benefit) of investment income¹⁰	47	29	29	17	11
Investment income, after taxes¹¹	(177)	(108)	(53)	(31)	(20)
(Income) loss from discontinued operations, net of tax¹²	—	—	3	4	5
Net operating profit after taxes (NOPAT)	3,522	2,921	925	1,743	1,616

Based on: 10-K (filing date: 2020-02-26), 10-K (filing date: 2019-02-27), 10-K (filing date: 2018-02-28), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-25).

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 standard product warranty obligations.

⁵ Addition of increase (decrease) in accrued restructuring costs.

⁶ Addition of increase (decrease) in equity equivalents to net income.

⁷ 2019 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 738 × 4.00% = 30

⁸ 2019 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 706 × 21.00% = 148

⁹ Addition of after taxes interest expense to net income.

¹⁰ 2019 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 224 × 21.00% = 47

¹¹ Elimination of after taxes investment income.

¹² Elimination of discontinued operations.

Item	Description	The company
NOPAT	Net operating profit after taxes is income from operations, but after removement of taxes calculated on cash basis that are relevant to operating income.	Thermo Fisher Scientific Inc.’s NOPAT increased from 2017 to 2018 and from 2018 to 2019.

Thermo Fisher Scientific Inc., cash operating taxes calculation

US$ in millions

12 months ended:	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015
Provision for (benefit from) income taxes	374	324	201	(1)	(44)
Less: Deferred income tax expense (benefit)	(499)	(474)	(1,696)	(639)	(600)
Add: Tax savings from interest expense	148	145	214	171	151
Less: Tax imposed on investment income	47	29	29	17	11
Cash operating taxes	974	914	2,083	792	696

Based on: 10-K (filing date: 2020-02-26), 10-K (filing date: 2019-02-27), 10-K (filing date: 2018-02-28), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-25).

Item	Description	The company
Cash operating taxes	Cash operating taxes are estimated by adjusting income tax expense for changes in deferred taxes and tax benefit from the interest deduction.	Thermo Fisher Scientific Inc.’s cash operating taxes decreased from 2017 to 2018 but then slightly increased from 2018 to 2019.

Thermo Fisher Scientific Inc., invested capital calculation (financing approach)

US$ in millions

	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015
Short-term obligations and current maturities of long-term obligations	676	1,271	2,135	1,256	1,053
Long-term obligations, excluding current maturities	17,076	17,719	18,873	15,372	11,474
Operating lease liability¹	738	709	734	649	571
Total reported debt & leases	18,490	19,699	21,742	17,277	13,098
Shareholders’ equity	29,675	27,586	25,413	21,539	21,350
Net deferred tax (assets) liabilities²	1,619	1,832	2,266	2,175	2,215
Allowance for doubtful accounts³	102	117	109	77	70
LIFO reserve⁴	39	34	31	29	28
Standard product warranty obligations⁵	93	92	87	78	56
Accrued restructuring costs⁶	34	80	76	72	31
Equity equivalents⁷	1,887	2,155	2,569	2,431	2,400
Accumulated other comprehensive (income) loss, net of tax⁸	2,679	2,498	2,003	2,636	1,997
Adjusted shareholders’ equity	34,241	32,239	29,985	26,607	25,747
Invested capital	52,731	51,938	51,727	43,884	38,845

Based on: 10-K (filing date: 2020-02-26), 10-K (filing date: 2019-02-27), 10-K (filing date: 2018-02-28), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-25).

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 standard product warranty obligations.

⁶ Addition of accrued restructuring costs.

⁷ Addition of equity equivalents to shareholders’ equity.

⁸ Removal of accumulated other comprehensive income.

Item	Description	The company
Invested capital	Capital is an approximation of the economic book value of all cash invested in going-concern business activities.	Thermo Fisher Scientific Inc.’s invested capital increased from 2017 to 2018 and from 2018 to 2019.

Thermo Fisher Scientific Inc., cost of capital calculations

	Capital (fair value)¹	Weights					Cost of capital
Equity²	123,302	123,302	÷	142,706	=	0.86	0.86	×	13.89%	=	12.00%
Debt obligations³	18,666	18,666	÷	142,706	=	0.13	0.13	×	2.33% × (1 – 21.00%)	=	0.24%
Operating lease liability⁴	738	738	÷	142,706	=	0.01	0.01	×	4.00% × (1 – 21.00%)	=	0.02%
Total:	142,706					1.00					12.26%

Based on: 10-K (filing date: 2020-02-26).

¹ US$ in millions

² Equity. See details »

³ Debt obligations. See details »

⁴ Operating lease liability. See details »

	Capital (fair value)¹	Weights					Cost of capital
Equity²	103,398	103,398	÷	123,143	=	0.84	0.84	×	13.89%	=	11.66%
Debt obligations³	19,036	19,036	÷	123,143	=	0.15	0.15	×	3.18% × (1 – 21.00%)	=	0.39%
Operating lease liability⁴	709	709	÷	123,143	=	0.01	0.01	×	3.18% × (1 – 21.00%)	=	0.01%
Total:	123,143					1.00					12.07%

Based on: 10-K (filing date: 2019-02-27).

¹ US$ in millions

² Equity. See details »

³ Debt obligations. See details »

⁴ Operating lease liability. See details »

	Capital (fair value)¹	Weights					Cost of capital
Equity²	83,804	83,804	÷	106,161	=	0.79	0.79	×	13.89%	=	10.97%
Debt obligations³	21,623	21,623	÷	106,161	=	0.20	0.20	×	2.83% × (1 – 35.00%)	=	0.37%
Operating lease liability⁴	734	734	÷	106,161	=	0.01	0.01	×	2.83% × (1 – 35.00%)	=	0.01%
Total:	106,161					1.00					11.35%

Based on: 10-K (filing date: 2018-02-28).

¹ US$ in millions

² Equity. See details »

³ Debt obligations. See details »

⁴ Operating lease liability. See details »

	Capital (fair value)¹	Weights					Cost of capital
Equity²	61,557	61,557	÷	79,182	=	0.78	0.78	×	13.89%	=	10.80%
Debt obligations³	16,976	16,976	÷	79,182	=	0.21	0.21	×	2.78% × (1 – 35.00%)	=	0.39%
Operating lease liability⁴	649	649	÷	79,182	=	0.01	0.01	×	2.78% × (1 – 35.00%)	=	0.01%
Total:	79,182					1.00					11.20%

Based on: 10-K (filing date: 2017-02-28).

¹ US$ in millions

² Equity. See details »

³ Debt obligations. See details »

⁴ Operating lease liability. See details »

	Capital (fair value)¹	Weights					Cost of capital
Equity²	51,740	51,740	÷	64,996	=	0.80	0.80	×	13.89%	=	11.06%
Debt obligations³	12,685	12,685	÷	64,996	=	0.20	0.20	×	2.75% × (1 – 35.00%)	=	0.35%
Operating lease liability⁴	571	571	÷	64,996	=	0.01	0.01	×	2.75% × (1 – 35.00%)	=	0.02%
Total:	64,996					1.00					11.42%

Based on: 10-K (filing date: 2016-02-25).

¹ US$ in millions

² Equity. See details »

³ Debt obligations. See details »

⁴ Operating lease liability. See details »

Thermo Fisher Scientific Inc., economic spread ratio calculation, comparison to benchmarks

	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015
Selected Financial Data (US$ in millions)
Economic profit¹	(2,942)	(3,347)	(4,948)	(3,172)	(2,821)
Invested capital²	52,731	51,938	51,727	43,884	38,845
Performance Ratio
Economic spread ratio³	-5.58%	-6.44%	-9.57%	-7.23%	-7.26%
Benchmarks
Economic Spread Ratio, Competitors⁴
Becton, Dickinson & Co.	-6.51%	-7.53%	-4.73%	-5.59%	-5.28%
Boston Scientific Corp.	-5.48%	0.67%	-5.75%	-8.35%	-14.58%
Danaher Corp.	-6.11%	-4.44%	-4.75%	-5.28%	-3.65%
Edwards Lifesciences Corp.	18.66%	14.53%	12.00%	11.83%	12.11%
Intuitive Surgical Inc.	28.84%	34.06%	31.70%	23.69%	21.18%
Medtronic PLC	-1.09%	-4.81%	-3.26%	-3.02%	-4.79%
Stryker Corp.	1.43%	1.40%	-1.93%	1.49%	4.18%
UnitedHealth Group Inc.	13.07%	11.58%	9.71%	6.57%	4.05%

Based on: 10-K (filing date: 2020-02-26), 10-K (filing date: 2019-02-27), 10-K (filing date: 2018-02-28), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-25).

¹ Economic profit. See details »

² Invested capital. See details »

³ 2019 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -2,942 ÷ 52,731 = -5.58%

⁴ Click competitor name to see calculations.

Performance ratio	Description	The company
Economic spread ratio	The ratio of economic profit to invested capital, also equal to the difference between return on invested capital (ROIC) and cost of capital.	Thermo Fisher Scientific Inc.’s economic spread ratio improved from 2017 to 2018 and from 2018 to 2019.

Thermo Fisher Scientific Inc., economic profit margin calculation, comparison to benchmarks

	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015
Selected Financial Data (US$ in millions)
Economic profit¹	(2,942)	(3,347)	(4,948)	(3,172)	(2,821)
Revenues	25,542	24,358	20,918	18,274	16,965
Performance Ratio
Economic profit margin²	-11.52%	-13.74%	-23.65%	-17.36%	-16.63%
Benchmarks
Economic Profit Margin, Competitors³
Becton, Dickinson & Co.	-17.02%	-22.28%	-13.54%	-9.96%	-12.05%
Boston Scientific Corp.	-10.38%	1.09%	-8.20%	-12.09%	-23.88%
Danaher Corp.	-19.84%	-9.98%	-11.03%	-13.22%	-7.70%
Edwards Lifesciences Corp.	15.87%	11.33%	9.98%	10.38%	10.95%
Intuitive Surgical Inc.	21.37%	23.17%	17.02%	18.06%	15.44%
Medtronic PLC	-2.55%	-11.27%	-8.70%	-8.07%	-18.60%
Stryker Corp.	2.24%	2.15%	-2.71%	2.24%	5.15%
UnitedHealth Group Inc.	4.18%	3.62%	3.04%	2.03%	1.48%

Based on: 10-K (filing date: 2020-02-26), 10-K (filing date: 2019-02-27), 10-K (filing date: 2018-02-28), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-25).

¹ Economic profit. See details »

² 2019 Calculation
Economic profit margin = 100 × Economic profit ÷ Revenues
= 100 × -2,942 ÷ 25,542 = -11.52%

³ Click competitor name to see calculations.

Performance ratio	Description	The company
Economic profit margin	The ratio of economic profit to sales. It is the company’s profit margin covering income efficiency and asset management. Economic profit margin is not biased in favor of capital-intensive business models, because any added capital is a cost to the economic profit margin.	Thermo Fisher Scientific Inc.’s economic profit margin improved from 2017 to 2018 and from 2018 to 2019.

Thermo Fisher Scientific Inc. (NYSE:TMO)

Economic Value Added (EVA)

Economic Profit

Net Operating Profit after Taxes (NOPAT)

Cash Operating Taxes

Invested Capital

Cost of Capital

Economic Spread Ratio

Economic Profit Margin