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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.

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

Zoetis Inc., economic profit calculation

US$ in millions

12 months ended:	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Net operating profit after taxes (NOPAT)¹	2,410)	1,958)	2,131)	1,727)	1,570)
Cost of capital²	15.11%	15.09%	15.05%	14.83%	14.88%
Invested capital³	11,550)	12,542)	11,612)	11,557)	9,838)

Economic profit⁴	664)	66)	384)	14)	106)

Based on: 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), 10-K (reporting date: 2019-12-31).

¹ NOPAT. See details »

² Cost of capital. See details »

³ Invested capital. See details »

⁴ 2023 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 2,410 – 15.11% × 11,550 = 664

An analysis of economic profit from 2019 to 2023 reveals a general trajectory of growth in operational profitability, despite significant volatility in the value added. The most notable expansion occurred in the final year of the period, where economic profit reached its peak, reflecting an improved ability to generate returns above the cost of capital.

Net Operating Profit After Taxes (NOPAT): NOPAT exhibited a strong overall upward trend, increasing from US$ 1,570 million in 2019 to US$ 2,410 million in 2023. While a temporary contraction was observed in 2022, with profit declining to US$ 1,958 million, a sharp recovery occurred in 2023, marking the highest operational profit in the five-year period.
Cost of Capital: The cost of capital remained remarkably stable throughout the analyzed timeframe, fluctuating within a narrow range between 14.83% and 15.11%. This stability indicates a consistent weighted average cost of capital and a steady risk profile over the five years.
Invested Capital: Invested capital followed an increasing trend from 2019 to 2022, peaking at US$ 12,542 million. A reversal occurred in 2023, where invested capital decreased to US$ 11,550 million, suggesting a shift toward capital optimization or a reduction in the asset base.
Economic Profit: Economic profit demonstrated high volatility, characterized by a significant dip to US$ 14 million in 2020 and a subsequent climb to US$ 664 million by 2023. The substantial increase in 2023 is the result of a dual positive impact: a record high NOPAT combined with a reduction in the invested capital base, which widened the spread between the return on invested capital and the cost of capital.

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Zoetis Inc., NOPAT calculation

US$ in millions

12 months ended:	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Net income attributable to Zoetis Inc.	2,344)	2,114)	2,037)	1,638)	1,500)
Deferred income tax expense (benefit)¹	(61)	(285)	(80)	(62)	(80)
Increase (decrease) in allowance for doubtful accounts²	(1)	2)	(3)	(1)	(3)
Increase (decrease) in restructuring accruals³	20)	(10)	4)	(24)	—)
Increase (decrease) in equity equivalents⁴	(42)	(293)	(79)	(87)	(83)
Interest expense, net of capitalized interest	239)	221)	224)	231)	223)
Interest expense, operating lease liability⁵	8)	6)	5)	6)	7)
Adjusted interest expense, net of capitalized interest	247)	227)	229)	237)	230)
Tax benefit of interest expense, net of capitalized interest⁶	(52)	(48)	(48)	(50)	(48)
Adjusted interest expense, net of capitalized interest, after taxes⁷	195)	180)	181)	187)	182)
Interest income	(105)	(50)	(6)	(12)	(37)
Investment income, before taxes	(105)	(50)	(6)	(12)	(37)
Tax expense (benefit) of investment income⁸	22)	11)	1)	3)	8)
Investment income, after taxes⁹	(83)	(40)	(5)	(9)	(29)
Net income (loss) attributable to noncontrolling interest	(4)	(3)	(3)	(2)	—)
Net operating profit after taxes (NOPAT)	2,410)	1,958)	2,131)	1,727)	1,570)

Based on: 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), 10-K (reporting date: 2019-12-31).

¹ Elimination of deferred tax expense. See details »

² Addition of increase (decrease) in allowance for doubtful accounts.

³ Addition of increase (decrease) in restructuring accruals.

⁴ Addition of increase (decrease) in equity equivalents to net income attributable to Zoetis Inc..

⁵ 2023 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 236 × 3.41% = 8

⁶ 2023 Calculation
Tax benefit of interest expense, net of capitalized interest = Adjusted interest expense, net of capitalized interest × Statutory income tax rate
= 247 × 21.00% = 52

⁷ Addition of after taxes interest expense to net income attributable to Zoetis Inc..

⁸ 2023 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 105 × 21.00% = 22

⁹ Elimination of after taxes investment income.

Net income attributable to Zoetis Inc.: The net income shows a consistent upward trend across the five-year period. Starting at 1,500 million USD in 2019, it increased each year, reaching 2,344 million USD by the end of 2023. The growth was steady, with notable acceleration between 2020 and 2021, and continuing to rise through 2023, indicating improving profitability over time.
Net operating profit after taxes (NOPAT): NOPAT generally trended upwards from 1,570 million USD in 2019 to 2,410 million USD in 2023. There was a significant increase between 2019 and 2021, peaking at 2,131 million USD. A decline was observed in 2022, dropping to 1,958 million USD, before rebounding strongly in 2023 to the highest level in the period. This pattern suggests strong operational performance with some volatility in 2022, followed by recovery and growth.

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Zoetis Inc., cash operating taxes calculation

US$ in millions

12 months ended:	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Provision for taxes on income	596)	545)	454)	360)	301)
Less: Deferred income tax expense (benefit)	(61)	(285)	(80)	(62)	(80)
Add: Tax savings from interest expense, net of capitalized interest	52)	48)	48)	50)	48)
Less: Tax imposed on investment income	22)	11)	1)	3)	8)
Cash operating taxes	687)	867)	581)	469)	422)

Based on: 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), 10-K (reporting date: 2019-12-31).

Provision for Taxes on Income: The provision for taxes on income exhibits a consistent upward trend over the five-year period. Starting at $301 million in 2019, the amount increased each subsequent year, reaching $596 million in 2023. The growth appears steady, with noticeable jumps especially between 2020 and 2021, and continuing through 2022 and 2023. This indicates increasing tax liabilities or higher taxable income over time.
Cash Operating Taxes: Cash operating taxes generally increased from 2019 to 2022, starting at $422 million and peaking at $867 million in 2022. However, there is a significant decline observed in 2023, dropping to $687 million. While the overall trend is upward through most years, the decrease in the last year suggests changes in tax payment timing, effective tax rates, or operational adjustments impacting cash taxes paid.
Comparative Insights: Although both provisions for taxes on income and cash operating taxes increased overall, the divergence in 2023 is noteworthy. The provision continues to rise, whereas cash taxes paid decline, which may signal temporary timing differences or more efficient tax planning. The increasing provision paired with fluctuating cash taxes suggests that the accrual for taxes is rising in anticipation of income growth despite a recent drop in cash outflows for taxes.

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Zoetis Inc., invested capital calculation (financing approach)

US$ in millions

	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Short-term borrowings	3)	2)	—)	4)	—)
Current portion of long-term debt	—)	1,350)	—)	600)	500)
Finance lease liabilities, current	1)	—)	—)	—)	—)
Long-term debt, net of discount and issuance costs, excluding current portion	6,564)	6,552)	6,592)	6,595)	5,947)
Finance lease liabilities, noncurrent	8)	—)	—)	—)	—)
Operating lease liability¹	236)	229)	192)	203)	199)
Total reported debt & leases	6,812)	8,133)	6,784)	7,402)	6,646)
Total Zoetis Inc. equity	4,997)	4,405)	4,543)	3,769)	2,708)
Net deferred tax (assets) liabilities²	(60)	(31)	220)	284)	346)
Allowance for doubtful accounts³	18)	19)	17)	20)	21)
Restructuring accruals⁴	35)	15)	25)	21)	45)
Equity equivalents⁵	(7)	3)	262)	325)	412)
Accumulated other comprehensive (income) loss, net of tax⁶	839)	817)	764)	730)	726)
Equity attributable to noncontrolling interests	(6)	(2)	1)	4)	—)
Adjusted total Zoetis Inc. equity	5,823)	5,223)	5,570)	4,828)	3,846)
Construction-in-progress⁷	(1,085)	(814)	(742)	(673)	(553)
Available-for-sale debt securities⁸	—)	—)	—)	—)	(101)
Invested capital	11,550)	12,542)	11,612)	11,557)	9,838)

Based on: 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), 10-K (reporting date: 2019-12-31).

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 restructuring accruals.

⁵ Addition of equity equivalents to total Zoetis Inc. equity.

⁶ Removal of accumulated other comprehensive income.

⁷ Subtraction of construction-in-progress.

⁸ Subtraction of available-for-sale debt securities.

Total reported debt & leases: The total reported debt and lease obligations exhibited some fluctuation over the five-year period. Initially, the debt increased from $6,646 million in 2019 to $7,402 million in 2020. This was followed by a decrease to $6,784 million in 2021. Subsequently, there was a noticeable rise to the peak value of $8,133 million in 2022, before dropping again to $6,812 million in 2023. Overall, the pattern shows volatility with a tendency to revert toward levels close to those observed at the beginning of the period.
Total Zoetis Inc. equity: The equity of the company demonstrated a generally upward trend throughout the period. Starting at $2,708 million in 2019, equity increased steadily, reaching $3,769 million in 2020 and continuing to $4,543 million in 2021. There was a slight decline in 2022 to $4,405 million, but equity rebounded to its highest value of $4,997 million by 2023. This upward trajectory indicates strengthening shareholder value over time despite the minor dip in 2022.
Invested capital: Invested capital rose consistently from $9,838 million in 2019 to $11,557 million in 2020. It then experienced marginal growth to $11,612 million in 2021, followed by a more pronounced increase to $12,542 million in 2022. In 2023, invested capital decreased to $11,550 million, marking a reversal after several years of growth. Overall, the data points to an expanding investment base, with some retrenchment in the latest year.

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Zoetis Inc., cost of capital calculations

Dec 31, 2023

	Capital (fair value)¹	Weights					Cost of capital
Equity²	84,014)	84,014)	÷	90,581)	=	0.93	0.93	×	16.05%	=	14.88%
Debt and finance lease liabilities³	6,331)	6,331)	÷	90,581)	=	0.07	0.07	×	4.09% × (1 – 21.00%)	=	0.23%
Operating lease liability⁴	236)	236)	÷	90,581)	=	0.00	0.00	×	3.41% × (1 – 21.00%)	=	0.01%
Total:	90,581)					1.00					15.11%

Based on: 10-K (reporting date: 2023-12-31).

¹ US$ in millions

² Equity. See details »

³ Debt and finance lease liabilities. See details »

⁴ Operating lease liability. See details »

Dec 31, 2022

	Capital (fair value)¹	Weights					Cost of capital
Equity²	79,656)	79,656)	÷	85,995)	=	0.93	0.93	×	16.05%	=	14.86%
Debt and finance lease liabilities³	6,110)	6,110)	÷	85,995)	=	0.07	0.07	×	3.95% × (1 – 21.00%)	=	0.22%
Operating lease liability⁴	229)	229)	÷	85,995)	=	0.00	0.00	×	2.78% × (1 – 21.00%)	=	0.01%
Total:	85,995)					1.00					15.09%

Based on: 10-K (reporting date: 2022-12-31).

¹ US$ in millions

² Equity. See details »

³ Debt and finance lease liabilities. See details »

⁴ Operating lease liability. See details »

Dec 31, 2021

	Capital (fair value)¹	Weights					Cost of capital
Equity²	93,337)	93,337)	÷	100,972)	=	0.92	0.92	×	16.05%	=	14.83%
Debt and finance lease liabilities³	7,443)	7,443)	÷	100,972)	=	0.07	0.07	×	3.63% × (1 – 21.00%)	=	0.21%
Operating lease liability⁴	192)	192)	÷	100,972)	=	0.00	0.00	×	2.81% × (1 – 21.00%)	=	0.00%
Total:	100,972)					1.00					15.05%

Based on: 10-K (reporting date: 2021-12-31).

¹ US$ in millions

² Equity. See details »

³ Debt and finance lease liabilities. See details »

⁴ Operating lease liability. See details »

Dec 31, 2020

	Capital (fair value)¹	Weights					Cost of capital
Equity²	79,030)	79,030)	÷	87,072)	=	0.91	0.91	×	16.05%	=	14.56%
Debt and finance lease liabilities³	7,839)	7,839)	÷	87,072)	=	0.09	0.09	×	3.61% × (1 – 21.00%)	=	0.26%
Operating lease liability⁴	203)	203)	÷	87,072)	=	0.00	0.00	×	3.12% × (1 – 21.00%)	=	0.01%
Total:	87,072)					1.00					14.83%

Based on: 10-K (reporting date: 2020-12-31).

¹ US$ in millions

² Equity. See details »

³ Debt and finance lease liabilities. See details »

⁴ Operating lease liability. See details »

Dec 31, 2019

	Capital (fair value)¹	Weights					Cost of capital
Equity²	68,837)	68,837)	÷	75,623)	=	0.91	0.91	×	16.05%	=	14.61%
Debt and finance lease liabilities³	6,587)	6,587)	÷	75,623)	=	0.09	0.09	×	3.84% × (1 – 21.00%)	=	0.26%
Operating lease liability⁴	199)	199)	÷	75,623)	=	0.00	0.00	×	3.67% × (1 – 21.00%)	=	0.01%
Total:	75,623)					1.00					14.88%

Based on: 10-K (reporting date: 2019-12-31).

¹ US$ in millions

² Equity. See details »

³ Debt and finance lease liabilities. See details »

⁴ Operating lease liability. See details »

Zoetis Inc., economic spread ratio calculation, comparison to benchmarks

	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Selected Financial Data (US$ in millions)
Economic profit¹	664)	66)	384)	14)	106)
Invested capital²	11,550)	12,542)	11,612)	11,557)	9,838)
Performance Ratio
Economic spread ratio³	5.75%	0.52%	3.31%	0.12%	1.08%
Benchmarks
Economic Spread Ratio, Competitors⁴
AbbVie Inc.	-3.88%	5.54%	4.92%	—	—
Amgen Inc.	2.32%	6.84%	6.84%	—	—
Bristol-Myers Squibb Co.	1.60%	-1.15%	1.14%	—	—
Danaher Corp.	-11.64%	-6.63%	-5.80%	—	—
Eli Lilly & Co.	1.48%	8.58%	10.25%	—	—
Gilead Sciences Inc.	2.91%	-0.22%	6.80%	—	—
Johnson & Johnson	0.09%	5.35%	10.41%	—	—
Merck & Co. Inc.	-8.88%	11.31%	11.47%	—	—
Pfizer Inc.	-9.45%	18.02%	11.19%	—	—
Regeneron Pharmaceuticals Inc.	13.49%	18.86%	62.61%	—	—
Thermo Fisher Scientific Inc.	-8.72%	-6.97%	-4.95%	—	—
Vertex Pharmaceuticals Inc.	11.16%	13.91%	15.12%	—	—

Based on: 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), 10-K (reporting date: 2019-12-31).

¹ Economic profit. See details »

² Invested capital. See details »

³ 2023 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × 664 ÷ 11,550 = 5.75%

⁴ Click competitor name to see calculations.

The financial performance from 2019 to 2023 is characterized by significant volatility in value creation, ending the period with a substantial increase in both economic profit and the economic spread ratio.

Economic Profit Trends: Economic profit exhibited an erratic trajectory, dropping sharply from 106 million USD in 2019 to 14 million USD in 2020. A recovery followed in 2021 with an increase to 384 million USD, which was subsequently offset by a decline to 66 million USD in 2022. The period concluded with a significant acceleration in 2023, reaching a five-year peak of 664 million USD.
Invested Capital Dynamics: Invested capital showed a general upward trend between 2019 and 2022, rising from 9,838 million USD to a peak of 12,542 million USD. In 2023, a contraction in invested capital to 11,550 million USD was observed, indicating a reduction in the capital base during the same year that economic profit reached its highest level.
Economic Spread Ratio Analysis: The economic spread ratio closely mirrors the fluctuations of economic profit, reflecting the company's varying ability to generate returns exceeding its cost of capital. The ratio reached a minimum of 0.12% in 2020 and experienced a secondary decline to 0.52% in 2022. However, the ratio expanded significantly to 5.75% by December 31, 2023, representing the highest level of value creation efficiency observed in the analyzed period.

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Zoetis Inc., economic profit margin calculation, comparison to benchmarks

	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Selected Financial Data (US$ in millions)
Economic profit¹	664)	66)	384)	14)	106)
Revenue	8,544)	8,080)	7,776)	6,675)	6,260)
Performance Ratio
Economic profit margin²	7.78%	0.81%	4.94%	0.20%	1.69%
Benchmarks
Economic Profit Margin, Competitors³
AbbVie Inc.	-4.87%	7.84%	8.39%	—	—
Amgen Inc.	6.03%	10.96%	11.33%	—	—
Bristol-Myers Squibb Co.	2.40%	-1.79%	1.98%	—	—
Danaher Corp.	-38.21%	-16.47%	-14.49%	—	—
Eli Lilly & Co.	1.27%	7.30%	9.45%	—	—
Gilead Sciences Inc.	4.94%	-0.37%	12.03%	—	—
Johnson & Johnson	0.10%	6.41%	10.89%	—	—
Merck & Co. Inc.	-10.33%	14.10%	16.66%	—	—
Pfizer Inc.	-24.57%	19.72%	11.94%	—	—
Regeneron Pharmaceuticals Inc.	12.31%	18.99%	42.34%	—	—
Thermo Fisher Scientific Inc.	-17.40%	-12.85%	-10.06%	—	—
Vertex Pharmaceuticals Inc.	14.97%	20.52%	18.74%	—	—

Based on: 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), 10-K (reporting date: 2019-12-31).

¹ Economic profit. See details »

² 2023 Calculation
Economic profit margin = 100 × Economic profit ÷ Revenue
= 100 × 664 ÷ 8,544 = 7.78%

³ Click competitor name to see calculations.

The financial performance of Zoetis Inc. between 2019 and 2023 is characterized by a consistent expansion in revenue contrasted with significant volatility in economic profit and the resulting economic profit margin.

Revenue Growth Trend: A steady upward trajectory in revenue is observed, with values increasing from US$ 6,260 million in 2019 to US$ 8,544 million in 2023. This represents a consistent growth pattern in the company's top-line performance over the five-year period.
Economic Profit Volatility: Economic profit exhibited substantial fluctuations, deviating from the linear growth of revenue. A sharp decline occurred in 2020, reaching a period low of US$ 14 million, followed by a recovery to US$ 384 million in 2021. Another contraction was noted in 2022 at US$ 66 million before a significant surge to US$ 664 million in 2023.
Economic Profit Margin Analysis: The economic profit margin reflected the instability of the absolute economic profit. The margin compressed to its lowest point of 0.20% in 2020, indicating that value creation was minimal relative to the cost of capital. However, the margin expanded significantly by 2023, reaching 7.78%, which marks the highest level of capital efficiency and value generation within the analyzed timeframe.

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Zoetis Inc. (NYSE:ZTS)

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