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
Zoetis Inc., economic profit calculation
US$ in millions
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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Net Operating Profit after Taxes (NOPAT)
Zoetis Inc., NOPAT calculation
US$ in millions
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.
The financial trajectory from 2019 to 2023 is characterized by a general upward trend in both net income and net operating profit after taxes (NOPAT), although the two metrics exhibit different patterns of volatility.
- Net Income Progression
- Net income attributable to Zoetis Inc. experienced uninterrupted growth over the five-year period. Starting at 1,500 million US$ in 2019, the figure rose to 2,344 million US$ by 2023. The most pronounced increase occurred between 2020 and 2021, during which net income grew by approximately 24.3%.
- NOPAT Performance and Volatility
- Net operating profit after taxes followed a growth pattern similar to net income until 2021, reaching 2,131 million US$. However, a contraction was observed in 2022, with NOPAT decreasing to 1,958 million US$. This decline was followed by a substantial recovery in 2023, resulting in a period high of 2,410 million US$.
- Correlation Analysis
- A divergence between the two metrics is evident in 2022, where net income increased despite a decrease in NOPAT. This indicates that the net income growth in 2022 was likely driven by non-operating gains or a reduction in non-operating expenses rather than core operational efficiency. In all other years, the two metrics moved in tandem, with NOPAT consistently remaining higher than net income, reflecting the impact of non-operating adjustments on the final bottom line.
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Cash Operating Taxes
Zoetis Inc., cash operating taxes calculation
US$ in millions
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).
Analysis of tax expenditures between 2019 and 2023 reveals a consistent upward trajectory in tax provisions, contrasted by more volatile fluctuations in actual cash tax payments.
- Provision for Taxes on Income
- A steady and uninterrupted increase is observed in the provision for taxes on income, which rose from US$ 301 million in 2019 to US$ 596 million by the end of 2023. This represents a cumulative growth of approximately 98% over the five-year period, indicating a consistent expansion of the company's reported tax obligations.
- Cash Operating Taxes
- Cash operating taxes exhibited a strong upward trend from 2019 through 2022, increasing from US$ 422 million to a peak of US$ 867 million. However, 2023 marked a notable reversal of this trend, with cash payments decreasing to US$ 687 million. This decline occurred despite the simultaneous increase in the tax provision for the same period.
- Comparative Variance Analysis
- Cash operating taxes consistently exceeded the provision for taxes on income across all five years analyzed. The divergence peaked in 2022, where cash outflows for taxes were US$ 322 million higher than the reported provision. By 2023, this gap narrowed significantly as cash payments decreased and provisions continued to rise, suggesting potential shifts in tax timing or the utilization of deferred tax assets.
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Invested Capital
Zoetis Inc., invested capital calculation (financing approach)
US$ in millions
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.
Invested capital exhibited a general upward trajectory from 2019 to 2022, peaking at US$ 12,542 million before contracting by approximately 7.9% in 2023 to US$ 11,550 million.
- Invested Capital Trajectory
- A significant expansion occurred between 2019 and 2020, with invested capital rising from US$ 9,838 million to US$ 11,557 million. Growth remained relatively stable through 2021 and reached a five-year peak in 2022. The subsequent decline in 2023 returned the total invested capital to levels nearly identical to those recorded in 2020.
- Equity Growth Trends
- Total equity demonstrated a consistent and sustained growth pattern, increasing from US$ 2,708 million in 2019 to US$ 4,997 million in 2023. Aside from a marginal dip in 2022, the equity base expanded steadily, indicating a strengthening of the company's internal funding capacity.
- Debt and Lease Volatility
- Total reported debt and leases exhibited higher volatility compared to equity. Debt levels rose to US$ 7,402 million in 2020, dipped in 2021, and peaked at US$ 8,133 million in 2022. A substantial reduction followed in 2023, with debt falling to US$ 6,812 million, which served as the primary driver for the overall contraction of invested capital in the final year.
The composition of invested capital shifted over the observed period, moving toward a higher proportion of equity financing. While debt levels fluctuated, the steady increase in equity suggests a strategic reduction in financial leverage by the end of 2023.
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Cost of Capital
Zoetis Inc., cost of capital calculations
| 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 »
| 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 »
| 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 »
| 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 »
| 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 »
Economic Spread Ratio
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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Economic Profit Margin
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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