Economic Value Added (EVA)
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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.
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Advanced Micro Devices Inc. pages available for free this week:
- Analysis of Liquidity Ratios
- Analysis of Short-term (Operating) Activity Ratios
- Analysis of Long-term (Investment) Activity Ratios
- Analysis of Geographic Areas
- Enterprise Value (EV)
- Enterprise Value to EBITDA (EV/EBITDA)
- Dividend Discount Model (DDM)
- Present Value of Free Cash Flow to Equity (FCFE)
- Current Ratio since 2005
- Price to Sales (P/S) since 2005
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Economic Profit
Advanced Micro Devices Inc., economic profit calculation
US$ in millions
| 12 months ended: | Dec 28, 2024 | Dec 30, 2023 | Dec 31, 2022 | Dec 25, 2021 | Dec 26, 2020 | |
|---|---|---|---|---|---|---|
| Net operating profit after taxes (NOPAT)1 | ||||||
| Cost of capital2 | ||||||
| Invested capital3 | ||||||
| Economic profit4 | ||||||
Based on: 10-K (reporting date: 2024-12-28), 10-K (reporting date: 2023-12-30), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-25), 10-K (reporting date: 2020-12-26).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2024 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= – × =
The financial data reveals notable fluctuations in the company's operational performance and capital efficiency over the analyzed periods.
- Net Operating Profit After Taxes (NOPAT)
- The net operating profit after taxes showed a significant increase from 1,330 million USD in 2020 to 3,517 million USD in 2021, indicating strong profitability growth during this period. However, the subsequent years displayed a sharp decline, with NOPAT turning negative in 2022 (-138 million USD) and further deteriorating in 2023 (-201 million USD), before a partial recovery to a positive 621 million USD in 2024. This trend suggests substantial operational challenges arose after 2021, impacting profit generation adversely, even though there was some improvement by the end of 2024.
- Cost of Capital
- The cost of capital remained relatively stable throughout all periods, fluctuating marginally around 21.5% to 21.7%. This consistency indicates the company’s risk profile and capital expense remained largely unchanged despite the operational and investment shifts observed.
- Invested Capital
- Invested capital increased dramatically from 4,364 million USD in 2020 to 6,195 million USD in 2021, then surged substantially to over 58,000 million USD in 2022 and maintained a similar elevated level through 2023 and 2024. This massive increase reflects either significant capital investments or changes in asset base, which might have been related to expansion, acquisitions, or revaluation of assets.
- Economic Profit
- Economic profit rose from 385 million USD in 2020 to a peak of 2,173 million USD in 2021, highlighting effective value creation during these years. In stark contrast, economic profit plummeted to severely negative levels from 2022 onwards (-12,646 million USD in 2022, -12,687 million USD in 2023, and -11,933 million USD in 2024). This negative economic profit indicates that the company’s returns on invested capital failed to cover the cost of capital during this period, implying value destruction associated with the large increase in invested capital and declining operating profitability.
Overall, the data presents a scenario where the company experienced strong profitability and economic value creation until 2021, followed by significant deterioration in financial performance and economic profitability. The large rise in invested capital combined with declining NOPAT suggests heavy investment or expansion strategies that did not yield expected returns in the short term, exerting pressure on the company’s economic profit and raising concerns about asset utilization and operational efficiency in recent years.
Net Operating Profit after Taxes (NOPAT)
Advanced Micro Devices Inc., NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2024-12-28), 10-K (reporting date: 2023-12-30), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-25), 10-K (reporting date: 2020-12-26).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in liability for product warranty.
3 Addition of increase (decrease) in liabilities related to the 2024 Restructuring Plan.
4 Addition of increase (decrease) in equity equivalents to net income.
5 2024 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= × =
6 2024 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= × 21.00% =
7 Addition of after taxes interest expense to net income.
8 2024 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= × 21.00% =
9 Elimination of after taxes investment income.
The financial data reveals fluctuating profitability and operational efficiency over the five-year period under review.
- Net Income
- Net income experienced growth from 2020 to 2021, increasing from 2,490 million US dollars to 3,162 million US dollars. However, it sharply declined in 2022 to 1,320 million US dollars, and further decreased in 2023 to 854 million US dollars. In 2024, there was a recovery with net income rising to 1,641 million US dollars, though it remained below the peak values seen in 2020 and 2021.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT displayed a volatile pattern during the same period. It increased significantly from 1,330 million US dollars in 2020 to 3,517 million US dollars in 2021, indicating strong operational performance. However, in 2022 and 2023, NOPAT turned negative, with losses of 138 million US dollars and 201 million US dollars respectively, suggesting operational inefficiencies or extraordinary expenses. In 2024, NOPAT returned to a positive figure of 621 million US dollars, though this value remained substantially lower than the earlier years.
Overall, the data indicates that while the company demonstrated solid profitability growth through 2021, it subsequently faced challenges in maintaining operational profitability, as seen in the negative NOPAT values for two consecutive years. The partial recovery in 2024 suggests improvements but does not yet reflect a full return to previous performance levels. The divergence between net income and NOPAT in the recent years may warrant further examination to understand underlying causes such as non-operating items or tax impacts.
Cash Operating Taxes
Advanced Micro Devices Inc., cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2024-12-28), 10-K (reporting date: 2023-12-30), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-25), 10-K (reporting date: 2020-12-26).
- Income Tax Provision (Benefit)
- The income tax provision exhibited considerable volatility over the reported periods. It began with a significant tax benefit of -$1,210 million in 2020, indicating a tax gain or credit. This shifted to a tax expense of $513 million in 2021. Subsequently, the tax provision returned to a benefit state in 2022 and 2023, with figures of -$122 million and -$346 million respectively, before moving back to a tax expense of $381 million in 2024. These fluctuations suggest variability in taxable income or changes in tax strategies and regulations, impacting the company’s tax obligations year over year.
- Cash Operating Taxes
- The cash operating taxes demonstrated an overall upward trend during the period under review. Starting from a relatively low base of $24 million in 2020, the amount escalated to $214 million in 2021. This increase continued sharply to $1,392 million in 2022, followed by a decline to $658 million in 2023. However, in the final period, cash taxes rose again to $1,531 million in 2024, marking the highest value recorded in the series. This pattern indicates increased cash tax payments despite the oscillation in reported tax provisions, which could reflect timing differences between accounting tax expense and actual tax payments or changes in the company’s taxable income and cash flows.
Invested Capital
Advanced Micro Devices Inc., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2024-12-28), 10-K (reporting date: 2023-12-30), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-25), 10-K (reporting date: 2020-12-26).
1 Addition of capitalized operating leases.
2 Elimination of deferred taxes from assets and liabilities. See details »
3 Addition of liability for product warranty.
4 Addition of liabilities related to the 2024 Restructuring Plan.
5 Addition of equity equivalents to stockholders’ equity.
6 Removal of accumulated other comprehensive income.
7 Subtraction of construction in progress.
8 Subtraction of short-term investments.
- Total reported debt & leases
- The total reported debt and leases experienced a moderate increase from 572 million USD in 2020 to 732 million USD in 2021. However, there was a significant surge in 2022, reaching 2956 million USD, more than quadrupling the previous year's amount. Following this peak, the debt slightly increased to 3109 million USD in 2023 before declining to 2321 million USD in 2024. Overall, despite fluctuations, the values remain substantially elevated relative to the initial years, indicating increased financial leverage or obligations.
- Stockholders’ equity
- Stockholders' equity showed steady growth from 5837 million USD in 2020 to 7497 million USD in 2021. A substantial rise occurred in 2022, jumping dramatically to 54750 million USD, with continued growth in subsequent years reaching 55892 million USD in 2023 and 57568 million USD in 2024. This marked increase in equity suggests either significant retained earnings, capital infusions, or revaluation adjustments with an emphasis on strengthening the company's financial foundation over time.
- Invested capital
- Invested capital followed a similar trend to stockholders' equity, beginning at 4364 million USD in 2020 and increasing to 6195 million USD in 2021. A notable surge occurred in 2022, reaching 58525 million USD, which was maintained with a slight decrease to 57883 million USD in 2023 and a minor uptick to 58227 million USD in 2024. The fluctuations suggest strategic capital allocation or acquisitions that contributed to a substantial increase in the total capital invested in the business.
Cost of Capital
Advanced Micro Devices Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2024-12-28).
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 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2023-12-30).
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 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2022-12-31).
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 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2021-12-25).
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 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2020-12-26).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Advanced Micro Devices Inc., economic spread ratio calculation, comparison to benchmarks
| Dec 28, 2024 | Dec 30, 2023 | Dec 31, 2022 | Dec 25, 2021 | Dec 26, 2020 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | ||||||
| Invested capital2 | ||||||
| Performance Ratio | ||||||
| Economic spread ratio3 | ||||||
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Analog Devices Inc. | ||||||
| Applied Materials Inc. | ||||||
| Broadcom Inc. | ||||||
| Intel Corp. | ||||||
| KLA Corp. | ||||||
| Lam Research Corp. | ||||||
| Micron Technology Inc. | ||||||
| NVIDIA Corp. | ||||||
| Qualcomm Inc. | ||||||
| Texas Instruments Inc. | ||||||
Based on: 10-K (reporting date: 2024-12-28), 10-K (reporting date: 2023-12-30), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-25), 10-K (reporting date: 2020-12-26).
1 Economic profit. See details »
2 Invested capital. See details »
3 2024 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × ÷ =
4 Click competitor name to see calculations.
The financial data reveals several notable trends over the five-year period. There is a significant fluctuation in the company's economic profit, which initially increased from 385 million US dollars in 2020 to a peak of 2,173 million US dollars in 2021. However, this positive profit trajectory reversed sharply in the subsequent years, culminating in substantial negative figures of -12,646 million and -12,687 million US dollars in 2022 and 2023 respectively, followed by a slight improvement to -11,933 million US dollars in 2024. This indicates a challenging period marked by notable losses after a strong performance.
The invested capital exhibits a persistent growth trend, rising steadily from 4,364 million US dollars in 2020 to a peak of 61,525 million US dollars in 2022. While there is a marginal decline in 2023 to 57,883 million US dollars, the invested capital again rises slightly to 58,227 million US dollars by 2024. This growth in invested capital suggests an increasing commitment of resources, despite the observed decline in economic profit.
The economic spread ratio mirrors the pattern seen in economic profit. It started positively at 8.83% in 2020, increased significantly to 35.08% in 2021, and then sharply declined into negative territory, with ratios of -21.61%, -21.92%, and -20.49% over the subsequent three years. The sustained negative economic spread ratios from 2022 onwards further emphasize the company's challenges in generating returns above its cost of capital during this period.
- Summary of Key Trends:
- The company demonstrated strong economic profitability and return efficiency up to 2021, followed by pronounced losses and negative returns despite increased capital investment.
- The continued rise in invested capital, even during periods of negative economic profit and spread, may indicate efforts towards expansion or restructuring, though these have yet to translate into positive economic outcomes.
- The negative economic spread ratios over the latter years signal a persistent inability to create value beyond the cost of capital, underscoring the importance of addressing profitability challenges.
Economic Profit Margin
Advanced Micro Devices Inc., economic profit margin calculation, comparison to benchmarks
| Dec 28, 2024 | Dec 30, 2023 | Dec 31, 2022 | Dec 25, 2021 | Dec 26, 2020 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | ||||||
| Net revenue | ||||||
| Performance Ratio | ||||||
| Economic profit margin2 | ||||||
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Analog Devices Inc. | ||||||
| Applied Materials Inc. | ||||||
| Broadcom Inc. | ||||||
| Intel Corp. | ||||||
| KLA Corp. | ||||||
| Lam Research Corp. | ||||||
| Micron Technology Inc. | ||||||
| NVIDIA Corp. | ||||||
| Qualcomm Inc. | ||||||
| Texas Instruments Inc. | ||||||
Based on: 10-K (reporting date: 2024-12-28), 10-K (reporting date: 2023-12-30), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-25), 10-K (reporting date: 2020-12-26).
1 Economic profit. See details »
2 2024 Calculation
Economic profit margin = 100 × Economic profit ÷ Net revenue
= 100 × ÷ =
3 Click competitor name to see calculations.
The financial data reveals significant fluctuations in the company's economic profitability over the five-year period under review. Initially, there was a positive economic profit of $385 million in 2020, which markedly increased to $2,173 million in 2021, indicating strong financial performance and value creation during this phase. However, the subsequent years show a dramatic decline, with economic profit turning negative in 2022 at -$12,646 million and remaining substantially negative in 2023 and 2024. This shift highlights a considerable deterioration in profitability, suggesting challenges that may have impacted cost management, pricing, or other operational efficiencies.
Net revenue exhibited a consistent upward trend throughout the entire period. Starting at $9,763 million in 2020, revenues increased significantly to $16,434 million in 2021 and continued to grow, reaching $25,785 million by the end of 2024. This growth in revenue demonstrates successful sales expansion or market penetration despite the adverse changes in economic profit.
The economic profit margin percentage aligns with the economic profit figures, starting at 3.95% in 2020 and rising substantially to 13.22% in 2021, reflecting enhanced profitability relative to revenue. However, there is a stark reversal from 2022 onwards, with margins plunging into negative territory (-53.58% in 2022, -55.94% in 2023, and -46.28% in 2024). This negative margin indicates that the costs or economic capital charges exceeded the net revenues, leading to value destruction despite strong revenue growth.
- Summary of key observations:
- The company experienced robust revenue growth throughout the years, reaching over $25 billion by 2024.
- Economic profit and its margin showed a peak in 2021 before collapsing into significant negative territory from 2022 onward.
- The divergence between increasing revenue and declining economic profit suggests rising costs, higher capital charges, or other financial pressures adversely affecting overall profitability and value generation.