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 – 15.16% × 11,550 = 659
The analysis of economic value added indicates a general trajectory of value creation, characterized by significant volatility in economic profit despite a strong overall growth trend in net operating profit after taxes (NOPAT).
- Net Operating Profit After Taxes (NOPAT)
- A consistent upward trend is observed in NOPAT, which rose from US$ 1,570 million in 2019 to US$ 2,410 million in 2023. A temporary contraction occurred in 2022, where NOPAT declined to US$ 1,958 million from a 2021 peak of US$ 2,131 million, before recovering strongly in the final year of the period.
- Invested Capital Dynamics
- Invested capital experienced steady growth between 2019 and 2022, increasing from US$ 9,838 million to a peak of US$ 12,542 million. However, a reduction in the capital base was observed in 2023, with invested capital falling to US$ 11,550 million. This strategic reduction in capital, occurring simultaneously with the highest recorded NOPAT, contributed to a significant increase in economic efficiency.
- Cost of Capital Stability
- The cost of capital remained remarkably stable throughout the five-year duration, fluctuating within a narrow range between 14.87% and 15.16%. This stability implies that the fluctuations in economic profit were driven by operational earnings and capital management rather than changes in the hurdle rate or external financing costs.
- Economic Profit Performance
- Economic profit exhibited substantial volatility, reaching low points of US$ 8 million in 2020 and US$ 60 million in 2022. Despite these periods of marginal value creation, the company achieved a peak economic profit of US$ 659 million in 2023. The correlation between the 2023 decrease in invested capital and the increase in NOPAT resulted in the most significant expansion of economic profit over the analyzed period.
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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 | × | 16.10% | = | 14.93% | ||
| 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 | 15.16% | ||||||||||
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 | × | 16.10% | = | 14.91% | ||
| 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 | 15.14% | ||||||||||
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 | × | 16.10% | = | 14.88% | ||
| 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 | 15.09% | ||||||||||
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 | × | 16.10% | = | 14.61% | ||
| 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 | 14.87% | ||||||||||
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 | × | 16.10% | = | 14.65% | ||
| 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 | 14.92% | ||||||||||
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 | 659) | 60) | 379) | 8) | 102) | |
| Invested capital2 | 11,550) | 12,542) | 11,612) | 11,557) | 9,838) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | 5.71% | 0.48% | 3.26% | 0.07% | 1.03% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| AbbVie Inc. | -4.11% | 5.32% | 4.71% | — | — | |
| Amgen Inc. | 2.15% | 6.66% | 6.66% | — | — | |
| Bristol-Myers Squibb Co. | 1.38% | -1.40% | 0.91% | — | — | |
| Danaher Corp. | -11.66% | -6.65% | -5.82% | — | — | |
| Eli Lilly & Co. | 1.21% | 8.31% | 9.99% | — | — | |
| Gilead Sciences Inc. | 2.68% | -0.45% | 6.60% | — | — | |
| Johnson & Johnson | -0.18% | 5.09% | 10.15% | — | — | |
| Merck & Co. Inc. | -9.17% | 11.01% | 11.20% | — | — | |
| Pfizer Inc. | -9.60% | 17.82% | 10.99% | — | — | |
| Regeneron Pharmaceuticals Inc. | 13.24% | 18.61% | 62.36% | — | — | |
| Thermo Fisher Scientific Inc. | -8.74% | -6.99% | -4.97% | — | — | |
| Vertex Pharmaceuticals Inc. | 10.85% | 13.60% | 14.81% | — | — | |
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 × 659 ÷ 11,550 = 5.71%
4 Click competitor name to see calculations.
The financial performance between 2019 and 2023 is characterized by significant volatility in economic value creation, despite a relatively stable capital base. While the entity maintained a consistent level of investment, the ability to generate returns above the cost of capital fluctuated considerably year-over-year.
- Economic Profit Trends
- Economic profit exhibited a highly irregular pattern, experiencing sharp contractions and subsequent recoveries. A notable decline occurred in 2020, where profit fell to 8 million US$, followed by a substantial increase to 379 million US$ in 2021. This volatility continued into 2022 with a drop to 60 million US$, before reaching a five-year peak of 659 million US$ in 2023. This indicates an inconsistent ability to generate surplus value over the required return on capital.
- Invested Capital Evolution
- Invested capital showed a general upward trajectory from 2019 through 2022, increasing from 9,838 million US$ to a peak of 12,542 million US$. This growth suggests a period of expansion or increased asset accumulation. However, a reversal occurred in 2023, with invested capital decreasing to 11,550 million US$, reflecting a reduction in the total capital employed in the business.
- Economic Spread Ratio Analysis
- The economic spread ratio mirrored the volatility of economic profit, fluctuating between a low of 0.07% in 2020 and a high of 5.71% in 2023. The ratio remained below 1% in 2020 and 2022, indicating periods where the return on invested capital was only marginally higher than the cost of capital. Conversely, the expansion to 3.26% in 2021 and 5.71% in 2023 demonstrates periods of significantly enhanced value creation efficiency.
The correlation between the reduction in invested capital and the peak in the economic spread ratio in 2023 suggests an improvement in capital efficiency, as the highest level of economic profit was achieved with a smaller capital base than in the preceding year.
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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 | 659) | 60) | 379) | 8) | 102) | |
| Revenue | 8,544) | 8,080) | 7,776) | 6,675) | 6,260) | |
| Performance Ratio | ||||||
| Economic profit margin2 | 7.71% | 0.74% | 4.87% | 0.12% | 1.62% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| AbbVie Inc. | -5.16% | 7.52% | 8.04% | — | — | |
| Amgen Inc. | 5.60% | 10.67% | 11.04% | — | — | |
| Bristol-Myers Squibb Co. | 2.07% | -2.18% | 1.57% | — | — | |
| Danaher Corp. | -38.27% | -16.51% | -14.53% | — | — | |
| Eli Lilly & Co. | 1.04% | 7.07% | 9.22% | — | — | |
| Gilead Sciences Inc. | 4.56% | -0.76% | 11.67% | — | — | |
| Johnson & Johnson | -0.21% | 6.10% | 10.61% | — | — | |
| Merck & Co. Inc. | -10.67% | 13.73% | 16.26% | — | — | |
| Pfizer Inc. | -24.97% | 19.50% | 11.73% | — | — | |
| Regeneron Pharmaceuticals Inc. | 12.08% | 18.73% | 42.17% | — | — | |
| Thermo Fisher Scientific Inc. | -17.45% | -12.89% | -10.11% | — | — | |
| Vertex Pharmaceuticals Inc. | 14.56% | 20.07% | 18.36% | — | — | |
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 × 659 ÷ 8,544 = 7.71%
3 Click competitor name to see calculations.
Analysis of the financial performance between 2019 and 2023 reveals a contrast between consistent top-line growth and significant volatility in economic value creation.
- Revenue Trajectory
- A steady upward trend is observed in total revenue, which grew from US$ 6,260 million in 2019 to US$ 8,544 million by December 31, 2023. This represents a continuous expansion of the company's scale of operations over the five-year period.
- Economic Profit Fluctuations
- Economic profit exhibited high volatility, characterized by irregular peaks and troughs. A notable contraction occurred in 2020, where profit fell to US$ 8 million, followed by a recovery to US$ 379 million in 2021. A subsequent decline to US$ 60 million was recorded in 2022, before a substantial increase to a period high of US$ 659 million in 2023.
- Economic Profit Margin Analysis
- The economic profit margin closely tracks the volatility of absolute economic profit. The margin reached critical lows in 2020 (0.12%) and 2022 (0.74%), suggesting periods where the return on capital barely exceeded the cost of capital. However, significant margin expansion was achieved in 2021 (4.87%) and 2023 (7.71%), indicating a substantial increase in the efficiency of value creation relative to revenue in the most recent fiscal year.
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