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
Biogen Inc., economic profit calculation
US$ in thousands
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2021 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 1,501,467 – 8.83% × 13,824,500 = 280,189
The financial performance from 2017 to 2021 is characterized by a period of significant value creation that peaked in 2019, followed by a sharp contraction in economic profitability. While the cost of capital remained relatively stable with a slight downward trajectory, the precipitous decline in operating profitability severely impacted the overall economic profit.
- Net Operating Profit After Taxes (NOPAT)
- A strong growth trend was observed between 2017 and 2019, with NOPAT increasing from 2,890,089 thousand US$ to a peak of 6,023,385 thousand US$. However, this trend reversed sharply starting in 2020, falling to 4,370,868 thousand US$, and collapsing further to 1,501,467 thousand US$ by the end of 2021. This represents a substantial reduction in the core operating earnings available to cover the cost of capital.
- Cost of Capital and Invested Capital
- The cost of capital exhibited a gradual decrease over the five-year period, moving from 9.72% in 2017 to 8.83% in 2021. Invested capital showed more volatility; it grew steadily to a peak of 14,142,400 thousand US$ in 2019, experienced a contraction to 12,625,400 thousand US$ in 2020, and subsequently rose to 13,824,500 thousand US$ in 2021. The increase in invested capital in 2021 occurred simultaneously with a decline in operating profit, contributing to a deterioration in capital efficiency.
- Economic Profit Analysis
- Economic profit followed a trajectory closely aligned with NOPAT. Value creation accelerated from 2017 to 2019, reaching a maximum of 4,662,755 thousand US$. A downward trend ensued, with economic profit falling to 3,230,125 thousand US$ in 2020 and dropping precipitously to 280,189 thousand US$ in 2021. The data indicates that by 2021, the operating profit barely exceeded the required return on invested capital, signaling a near-total erosion of the economic value added over the final two years of the period.
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Net Operating Profit after Taxes (NOPAT)
Biogen Inc., NOPAT calculation
US$ in thousands
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in reserves for allowances.
3 Addition of increase (decrease) in restructuring reserve.
4 Addition of increase (decrease) in equity equivalents to net income attributable to Biogen Inc..
5 2021 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 419,500 × 2.90% = 12,166
6 2021 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 265,766 × 21.00% = 55,811
7 Addition of after taxes interest expense to net income attributable to Biogen Inc..
8 2021 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 7,200 × 21.00% = 1,512
9 Elimination of after taxes investment income.
The financial results for the period between 2017 and 2021 exhibit a distinct bell-shaped trajectory, characterized by a period of significant expansion followed by a sharp contraction in both profitability and operating performance.
- Growth Trajectory (2017–2019)
- A period of substantial growth is observed from 2017 through 2019. Net operating profit after taxes (NOPAT) increased from 2,890,089 thousand US$ in 2017 to a peak of 6,023,385 thousand US$ in 2019. This upward trend is mirrored by net income attributable to the company, which rose from 2,539,100 thousand US$ to 5,888,500 thousand US$ over the same timeframe, indicating a strong synchronization between operational efficiency and bottom-line profitability.
- Contraction Phase (2019–2021)
- Following the 2019 peak, a marked downward trend occurred. NOPAT decreased to 4,370,868 thousand US$ in 2020 and fell further to 1,501,467 thousand US$ by December 31, 2021. Net income experienced a similar decline, dropping to 4,000,600 thousand US$ in 2020 and reaching 1,556,100 thousand US$ in 2021. This represents a significant reduction in value creation capacity toward the end of the analyzed period.
- Operational Performance and Net Income Correlation
- For the majority of the period, NOPAT remained higher than net income, suggesting that operating performance, adjusted for taxes, was a primary driver of value. However, by 2021, a divergence occurred where NOPAT (1,501,467 thousand US$) fell slightly below net income (1,556,100 thousand US$), signaling a shift in the relationship between operating profits and total net earnings.
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Cash Operating Taxes
Biogen Inc., cash operating taxes calculation
US$ in thousands
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
A consistent downward trajectory is observed in both income tax expense and cash operating taxes over the five-year period from 2017 to 2021. The overall reduction in these figures indicates a significant decrease in the tax burden associated with operations, which directly influences the calculation of net operating profit after adjusted taxes for Economic Value Added (EVA) purposes.
- Income Tax Expense Trends
- A steep decline in income tax expense is evident, falling from US$ 2,458,700 thousand in 2017 to US$ 52,500 thousand in 2021. The most substantial reduction occurred between 2020 and 2021, where the expense dropped by approximately 94.7%, suggesting a fundamental shift in taxable income or the realization of significant tax credits.
- Cash Operating Taxes Trends
- Cash operating taxes followed a similar downward pattern, decreasing from US$ 2,441,355 thousand in 2017 to US$ 533,599 thousand in 2021. While the decline is steady, the reduction is less aggressive than that of the accrual-based income tax expense, particularly in the final year of the sequence.
- Convergence and Divergence Analysis
- Between 2017 and 2020, income tax expense and cash operating taxes remained closely aligned, indicating that accrual-based tax reporting mirrored actual cash outflows. However, a significant divergence emerged in 2021, where cash operating taxes (US$ 533,599 thousand) substantially exceeded the reported income tax expense (US$ 52,500 thousand). This variance suggests a decoupling of accounting tax provisions from actual cash tax payments, which is a critical distinction when calculating the cash-based tax component of EVA.
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Invested Capital
Biogen Inc., invested capital calculation (financing approach)
US$ in thousands
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
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 reserve.
5 Addition of equity equivalents to total Biogen Inc. shareholders’ equity.
6 Removal of accumulated other comprehensive income.
7 Subtraction of construction in progress.
8 Subtraction of marketable securities.
The analysis of the capital base from 2017 to 2021 reveals a period of steady expansion followed by a volatile shift in the financing mix. While the total invested capital peaked in 2019, subsequent fluctuations indicate a significant reorganization of the company's capital structure, characterized by an increase in leverage and a contraction of equity.
- Invested Capital Trends
- Invested capital demonstrated a consistent upward trajectory between 2017 and 2019, increasing from 12,476,129 thousand USD to a peak of 14,142,400 thousand USD. This growth trend was interrupted in 2020, when invested capital declined to 12,625,400 thousand USD, before rebounding to 13,824,500 thousand USD by the end of 2021.
- Debt and Lease Obligations
- Total reported debt and leases remained nearly stagnant from 2017 through 2019, maintaining a level of approximately 6.44 billion USD. A sharp increase occurred in 2020, with obligations rising to 7,911,400 thousand USD. A slight correction followed in 2021, bringing the balance to 7,692,600 thousand USD, indicating a permanently higher level of leverage compared to the 2017-2019 period.
- Shareholders' Equity Dynamics
- Shareholders' equity grew marginally from 12,612,800 thousand USD in 2017 to 13,343,200 thousand USD in 2019. However, a substantial contraction occurred in 2020, with equity dropping to 10,700,300 thousand USD. This decline represents a significant reduction in the equity cushion, which was only slightly offset by a recovery to 10,896,200 thousand USD in 2021.
- Capital Structure Interplay
- The data indicates a pivot in the capital structure during 2020. The simultaneous increase in total debt and the sharp decrease in shareholders' equity suggest a shift toward a more leveraged financial position. The decline in total invested capital in 2020 was primarily driven by the erosion of equity, as the increase in debt was insufficient to offset the equity loss. By 2021, the recovery in invested capital was supported by both a slight increase in equity and the maintenance of higher debt levels relative to the baseline period.
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Cost of Capital
Biogen Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 32,356,798) | 32,356,798) | ÷ | 40,780,998) | = | 0.79 | 0.79 | × | 10.39% | = | 8.25% | ||
| Notes payable, including current portion3 | 8,004,700) | 8,004,700) | ÷ | 40,780,998) | = | 0.20 | 0.20 | × | 3.64% × (1 – 21.00%) | = | 0.56% | ||
| Operating lease liability4 | 419,500) | 419,500) | ÷ | 40,780,998) | = | 0.01 | 0.01 | × | 2.90% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 40,780,998) | 1.00 | 8.83% | ||||||||||
Based on: 10-K (reporting date: 2021-12-31).
1 US$ in thousands
2 Equity. See details »
3 Notes payable, including current portion. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 40,102,381) | 40,102,381) | ÷ | 49,103,481) | = | 0.82 | 0.82 | × | 10.39% | = | 8.49% | ||
| Notes payable, including current portion3 | 8,515,900) | 8,515,900) | ÷ | 49,103,481) | = | 0.17 | 0.17 | × | 3.83% × (1 – 21.00%) | = | 0.52% | ||
| Operating lease liability4 | 485,200) | 485,200) | ÷ | 49,103,481) | = | 0.01 | 0.01 | × | 2.90% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 49,103,481) | 1.00 | 9.04% | ||||||||||
Based on: 10-K (reporting date: 2020-12-31).
1 US$ in thousands
2 Equity. See details »
3 Notes payable, including current portion. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 58,701,347) | 58,701,347) | ÷ | 65,741,247) | = | 0.89 | 0.89 | × | 10.39% | = | 9.28% | ||
| Notes payable, including current portion3 | 6,553,600) | 6,553,600) | ÷ | 65,741,247) | = | 0.10 | 0.10 | × | 4.09% × (1 – 21.00%) | = | 0.32% | ||
| Operating lease liability4 | 486,300) | 486,300) | ÷ | 65,741,247) | = | 0.01 | 0.01 | × | 3.20% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 65,741,247) | 1.00 | 9.62% | ||||||||||
Based on: 10-K (reporting date: 2019-12-31).
1 US$ in thousands
2 Equity. See details »
3 Notes payable, including current portion. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 65,551,235) | 65,551,235) | ÷ | 72,096,970) | = | 0.91 | 0.91 | × | 10.39% | = | 9.45% | ||
| Notes payable, including current portion3 | 6,037,600) | 6,037,600) | ÷ | 72,096,970) | = | 0.08 | 0.08 | × | 4.04% × (1 – 21.00%) | = | 0.27% | ||
| Operating lease liability4 | 508,135) | 508,135) | ÷ | 72,096,970) | = | 0.01 | 0.01 | × | 4.04% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 72,096,970) | 1.00 | 9.74% | ||||||||||
Based on: 10-K (reporting date: 2018-12-31).
1 US$ in thousands
2 Equity. See details »
3 Notes payable, including current portion. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 73,200,689) | 73,200,689) | ÷ | 80,192,419) | = | 0.91 | 0.91 | × | 10.39% | = | 9.49% | ||
| Notes payable, including current portion3 | 6,483,300) | 6,483,300) | ÷ | 80,192,419) | = | 0.08 | 0.08 | × | 4.08% × (1 – 35.00%) | = | 0.21% | ||
| Operating lease liability4 | 508,429) | 508,429) | ÷ | 80,192,419) | = | 0.01 | 0.01 | × | 4.08% × (1 – 35.00%) | = | 0.02% | ||
| Total: | 80,192,419) | 1.00 | 9.72% | ||||||||||
Based on: 10-K (reporting date: 2017-12-31).
1 US$ in thousands
2 Equity. See details »
3 Notes payable, including current portion. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Biogen Inc., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Economic profit1 | 280,189) | 3,230,125) | 4,662,755) | 3,380,331) | 1,677,640) | |
| Invested capital2 | 13,824,500) | 12,625,400) | 14,142,400) | 13,170,435) | 12,476,129) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | 2.03% | 25.58% | 32.97% | 25.67% | 13.45% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| AbbVie Inc. | 4.87% | — | — | — | — | |
| Amgen Inc. | 6.80% | — | — | — | — | |
| Bristol-Myers Squibb Co. | 1.09% | — | — | — | — | |
| Danaher Corp. | -5.80% | — | — | — | — | |
| Eli Lilly & Co. | 10.19% | — | — | — | — | |
| Gilead Sciences Inc. | 6.76% | — | — | — | — | |
| Johnson & Johnson | 10.35% | — | — | — | — | |
| Merck & Co. Inc. | 11.41% | — | — | — | — | |
| Pfizer Inc. | 11.14% | — | — | — | — | |
| Regeneron Pharmaceuticals Inc. | 62.56% | — | — | — | — | |
| Thermo Fisher Scientific Inc. | -4.95% | — | — | — | — | |
| Vertex Pharmaceuticals Inc. | 15.05% | — | — | — | — | |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2021 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × 280,189 ÷ 13,824,500 = 2.03%
4 Click competitor name to see calculations.
The financial performance from 2017 to 2021 reflects a cycle of significant expansion in value creation followed by a sharp contraction. A peak in economic efficiency was reached in 2019, after which a precipitous decline occurred, culminating in a substantial reduction of the economic spread by the end of 2021.
- Economic Profit Trends
- Economic profit exhibited strong growth in the early part of the period, rising from 1,677,640 thousand US dollars in 2017 to a peak of 4,662,755 thousand US dollars in 2019. This upward trajectory reversed in 2020, with profit falling to 3,230,125 thousand US dollars, followed by a severe drop to 280,189 thousand US dollars in 2021, representing a near-total erosion of economic profit relative to the 2019 high.
- Invested Capital Stability
- Invested capital remained relatively stable throughout the five-year period, fluctuating between a minimum of 12,476,129 thousand US dollars in 2017 and a maximum of 14,142,400 thousand US dollars in 2019. A moderate contraction occurred in 2020 before capital increased to 13,824,500 thousand US dollars in 2021.
- Economic Spread Ratio Analysis
- The economic spread ratio mirrored the trajectory of economic profit, expanding from 13.45% in 2017 to a peak of 32.97% in 2019. A downward trend followed, with the ratio decreasing to 25.58% in 2020 and collapsing to 2.03% in 2021. This decline indicates that by 2021, the return on invested capital had nearly converged with the cost of capital, resulting in a significant diminution of economic value added.
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Economic Profit Margin
Biogen Inc., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Economic profit1 | 280,189) | 3,230,125) | 4,662,755) | 3,380,331) | 1,677,640) | |
| Revenue | 10,981,700) | 13,444,600) | 14,377,900) | 13,452,900) | 12,273,900) | |
| Performance Ratio | ||||||
| Economic profit margin2 | 2.55% | 24.03% | 32.43% | 25.13% | 13.67% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| AbbVie Inc. | 8.31% | — | — | — | — | |
| Amgen Inc. | 11.26% | — | — | — | — | |
| Bristol-Myers Squibb Co. | 1.88% | — | — | — | — | |
| Danaher Corp. | -14.50% | — | — | — | — | |
| Eli Lilly & Co. | 9.40% | — | — | — | — | |
| Gilead Sciences Inc. | 11.95% | — | — | — | — | |
| Johnson & Johnson | 10.83% | — | — | — | — | |
| Merck & Co. Inc. | 16.57% | — | — | — | — | |
| Pfizer Inc. | 11.89% | — | — | — | — | |
| Regeneron Pharmaceuticals Inc. | 42.30% | — | — | — | — | |
| Thermo Fisher Scientific Inc. | -10.07% | — | — | — | — | |
| Vertex Pharmaceuticals Inc. | 18.65% | — | — | — | — | |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 Economic profit. See details »
2 2021 Calculation
Economic profit margin = 100 × Economic profit ÷ Revenue
= 100 × 280,189 ÷ 10,981,700 = 2.55%
3 Click competitor name to see calculations.
The financial trajectory between 2017 and 2021 reveals a period of substantial expansion in economic value creation followed by a severe contraction in both absolute profit and efficiency.
- Economic Profit Trends
- Economic profit experienced significant growth during the first three years of the period, rising from US$ 1,677,640 thousand in 2017 to a peak of US$ 4,662,755 thousand in 2019. This upward momentum reversed sharply in 2020, with profit falling to US$ 3,230,125 thousand, and continuing a steep decline to US$ 280,189 thousand by December 31, 2021.
- Revenue Performance
- Revenue followed a similar growth-and-decline pattern, increasing from US$ 12,273,900 thousand in 2017 to a maximum of US$ 14,377,900 thousand in 2019. A downward trend emerged in 2020, with revenue decreasing to US$ 13,444,600 thousand, followed by a further contraction to US$ 10,981,700 thousand in 2021.
- Economic Profit Margin Analysis
- The economic profit margin illustrates a period of increasing capital efficiency that peaked in 2019 at 32.43%, up from 13.67% in 2017. This indicated that the company was generating significantly more economic value per dollar of revenue. However, this efficiency eroded rapidly thereafter, dropping to 24.03% in 2020 and collapsing to 2.55% in 2021, reflecting a critical deterioration in the company's ability to generate value above its cost of capital.
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