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.
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Gilead Sciences Inc. pages available for free this week:
- Balance Sheet: Liabilities and Stockholders’ Equity
- Cash Flow Statement
- Common-Size Balance Sheet: Assets
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Enterprise Value (EV)
- Enterprise Value to EBITDA (EV/EBITDA)
- Capital Asset Pricing Model (CAPM)
- Selected Financial Data since 2005
- Operating Profit Margin since 2005
- Analysis of Debt
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Economic Profit
Gilead Sciences Inc., economic profit calculation
US$ in millions
| 12 months ended: | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | |
|---|---|---|---|---|---|---|
| Net operating profit after taxes (NOPAT)1 | ||||||
| Cost of capital2 | ||||||
| Invested capital3 | ||||||
| Economic profit4 | ||||||
Based on: 10-K (reporting date: 2024-12-31), 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).
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 period under review demonstrates significant fluctuations in economic profit. Initial observations reveal a substantial improvement followed by a marked decline in recent years. Net operating profit after taxes (NOPAT) and invested capital both experienced changes throughout the period, influencing the overall economic profit calculation.
- NOPAT Trend
- Net operating profit after taxes exhibited a dramatic increase from US$633 million in 2020 to US$6,897 million in 2021. This was followed by a considerable decrease to US$3,687 million in 2022 and a subsequent rise to US$5,086 million in 2023. However, 2024 witnessed a significant downturn, resulting in a net operating loss of US$796 million.
- Cost of Capital Trend
- The cost of capital generally increased over the period, moving from 5.66% in 2020 to 6.43% in 2024. The increases were incremental, with a slight dip observed between 2022 and 2023. This upward trend suggests a potentially increasing risk profile or changes in market interest rates impacting the company’s funding costs.
- Invested Capital Trend
- Invested capital decreased steadily from US$50,285 million in 2020 to US$44,333 million in 2024. The rate of decline slowed in 2023, but the overall trend indicates a reduction in the capital employed by the business. This could be due to asset sales, improved capital efficiency, or other strategic decisions.
- Economic Profit Analysis
- Economic profit began at a negative US$2,213 million in 2020. A substantial positive economic profit of US$4,132 million was recorded in 2021, driven by the significant increase in NOPAT. Positive economic profit continued in 2022 and 2023, at US$857 million and US$2,263 million respectively, although at lower levels than 2021. The trend reversed sharply in 2024, with economic profit falling to a negative US$3,645 million, mirroring the decline in NOPAT and the continued increase in the cost of capital.
The fluctuations in economic profit highlight the sensitivity of the business to changes in NOPAT and the cost of capital. The substantial loss in 2024 warrants further investigation to understand the underlying drivers and potential implications for future performance.
Net Operating Profit after Taxes (NOPAT)
Gilead Sciences Inc., NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2024-12-31), 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).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowances for credit losses.
3 Addition of increase (decrease) in equity equivalents to net income attributable to Gilead.
4 2024 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= × =
5 2024 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= × 21.00% =
6 Addition of after taxes interest expense to net income attributable to Gilead.
7 2024 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= × 21.00% =
8 Elimination of after taxes investment income.
- Net income attributable to Gilead
- The net income experienced a significant increase from 123 million US dollars in 2020 to 6,225 million in 2021, marking a substantial positive shift. This was followed by a decrease to 4,592 million in 2022. In 2023, net income showed a recovery, increasing to 5,665 million, but then declined sharply to 480 million in 2024. Overall, the data indicates volatility with a peak in 2021, fluctuations thereafter, and a downward trend by the final year.
- Net operating profit after taxes (NOPAT)
- NOPAT followed a somewhat similar pattern initially, rising from 633 million US dollars in 2020 to a peak of 6,897 million in 2021. However, unlike net income, NOPAT declined more sharply to 3,687 million in 2022. It showed an improvement in 2023, rising to 5,086 million, before turning negative in 2024 with a value of -796 million. This negative figure in the last period signals a significant operational challenge or increased expenses resulting in operating losses after taxes.
Cash Operating Taxes
Gilead Sciences Inc., cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2024-12-31), 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).
- Income Tax Expense
- The income tax expense displayed a fluctuating pattern over the examined periods. Starting at 1,580 million US dollars in 2020, the expense increased significantly to 2,077 million US dollars in 2021. This was followed by a sharp decline to 1,248 million US dollars in 2022, remaining relatively stable into 2023 with a negligible decrease to 1,247 million US dollars. Notably, in 2024, there was a pronounced drop to 211 million US dollars, marking the lowest point in the time series.
- Cash Operating Taxes
- Cash operating taxes showed a generally increasing trend from 2020 to 2022. Beginning at 2,006 million US dollars in 2020, they rose to 2,403 million US dollars in 2021 and further to a peak of 2,981 million US dollars in 2022. The trend reversed afterward, with a decrease to 2,366 million US dollars in 2023, followed by a continued decline to 2,205 million US dollars in 2024. Despite this reversal, cash operating taxes remained higher in the last two years compared to 2020 levels.
- Comparative Insights
- The data suggests a divergence between income tax expense and cash operating taxes beginning from 2022 onwards. While cash operating taxes peaked in 2022 and then declined, income tax expense sharply decreased in 2024, indicating possible changes in tax planning, accounting practices, or tax regulations impacting reporting differently from cash outflows related to operating taxes. The significant reduction in income tax expense by 2024 suggests a substantial alteration in either taxable income or effective tax rates.
Invested Capital
Gilead Sciences Inc., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2024-12-31), 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).
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 equity equivalents to total Gilead stockholders’ equity.
5 Removal of accumulated other comprehensive income.
6 Subtraction of construction in progress.
7 Subtraction of marketable debt securities.
- Total reported debt & leases
- The total reported debt and leases decreased significantly from 32,117 million US dollars in 2020 to 25,808 million US dollars in 2022. This trend indicates a reduction in debt obligations over this period. However, from 2022 to 2023, the debt level remained relatively stable, showing only a slight decrease to 25,658 million US dollars. In 2024, there was an uptick in total debt, increasing to 27,322 million US dollars, suggesting a reversal of the prior debt reduction trend.
- Total Gilead stockholders’ equity
- Stockholders’ equity saw a consistent increase from 18,202 million US dollars in 2020 to a peak of 22,833 million US dollars in 2023. This upward movement reflects a strengthening of the company's equity base during these years. However, in 2024, equity fell notably to 19,330 million US dollars, implying a decrease in net assets attributable to shareholders, which could be due to various factors such as losses, dividends, or share repurchases.
- Invested capital
- Invested capital showed a declining trend throughout the period from 50,285 million US dollars in 2020 to 44,333 million US dollars in 2024. This steady decrease suggests a contraction in the total capital employed in the business, possibly due to asset disposals, changes in financing structure, or operational adjustments.
- Summary
- Overall, the company experienced a reduction in debt from 2020 to 2022, but this trend reversed in 2024. Equity increased notably until 2023, followed by a significant decline in 2024. Invested capital consistently decreased over the five years. These patterns suggest a shifting financial structure, with potential impacts on leverage and capital deployment in the most recent year.
Cost of Capital
Gilead Sciences Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt, net3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2024-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt, net. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt, net3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2023-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt, net. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt, net3 | ÷ | = | × | × (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, net. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt, net3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2021-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt, net. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt, net3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2020-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt, net. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Gilead Sciences Inc., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | ||||||
| Invested capital2 | ||||||
| Performance Ratio | ||||||
| Economic spread ratio3 | ||||||
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| AbbVie Inc. | ||||||
| Amgen Inc. | ||||||
| Bristol-Myers Squibb Co. | ||||||
| Danaher Corp. | ||||||
| Eli Lilly & Co. | ||||||
| Johnson & Johnson | ||||||
| Merck & Co. Inc. | ||||||
| Pfizer Inc. | ||||||
| Regeneron Pharmaceuticals Inc. | ||||||
| Thermo Fisher Scientific Inc. | ||||||
| Vertex Pharmaceuticals Inc. | ||||||
Based on: 10-K (reporting date: 2024-12-31), 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).
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 economic spread ratio exhibited considerable fluctuation between 2020 and 2024. Initially negative in 2020, it transitioned to positive territory in 2021 before declining again in 2022, increasing in 2023, and ultimately returning to a negative value in 2024. This volatility suggests a dynamic relationship between the company’s economic profit and its invested capital.
- Economic Spread Ratio Trend
- In 2020, the economic spread ratio was -4.40%, indicating that the company’s return on invested capital was less than its cost of capital. A substantial improvement occurred in 2021, with the ratio reaching 8.65%, signifying a return exceeding the cost of capital. However, this positive spread diminished to 1.88% in 2022, suggesting a narrowing margin between returns and costs. The ratio increased to 4.94% in 2023, before experiencing a significant decline to -8.22% in 2024, representing a substantial underperformance relative to the cost of capital.
The economic spread ratio’s movement mirrors the fluctuations in economic profit. The negative ratios in 2020 and 2024 correspond with periods of negative economic profit, while the positive ratios in 2021, 2022, and 2023 align with positive economic profit. This correlation highlights the direct impact of profitability on the economic spread.
- Invested Capital Trend
- Invested capital demonstrated a consistent, albeit gradual, downward trend throughout the period. Starting at US$50,285 million in 2020, it decreased to US$44,333 million by 2024. This reduction in invested capital occurred alongside the fluctuations in economic profit and the economic spread ratio, potentially influencing the overall performance metrics.
The combination of a decreasing invested capital base and fluctuating economic profit resulted in a volatile economic spread ratio. The return to a negative economic spread ratio in 2024, despite the reduction in invested capital, indicates a significant decline in profitability relative to the capital employed.
Economic Profit Margin
Gilead Sciences Inc., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | ||||||
| Product sales | ||||||
| Performance Ratio | ||||||
| Economic profit margin2 | ||||||
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| AbbVie Inc. | ||||||
| Amgen Inc. | ||||||
| Bristol-Myers Squibb Co. | ||||||
| Danaher Corp. | ||||||
| Eli Lilly & Co. | ||||||
| Johnson & Johnson | ||||||
| Merck & Co. Inc. | ||||||
| Pfizer Inc. | ||||||
| Regeneron Pharmaceuticals Inc. | ||||||
| Thermo Fisher Scientific Inc. | ||||||
| Vertex Pharmaceuticals Inc. | ||||||
Based on: 10-K (reporting date: 2024-12-31), 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).
1 Economic profit. See details »
2 2024 Calculation
Economic profit margin = 100 × Economic profit ÷ Product sales
= 100 × ÷ =
3 Click competitor name to see calculations.
The economic profit margin exhibited significant fluctuations between 2020 and 2024. Initial observations reveal a substantial swing from a negative value in 2020 to positive values in subsequent years, followed by another decline in the most recent period.
- Economic Profit Margin Trend
- In 2020, the economic profit margin stood at -9.08%. This indicates that the company’s economic profit was negative relative to its product sales. A marked improvement occurred in 2021, with the margin increasing to 15.30%, signifying a considerable increase in economic profit generation. The margin then decreased to 3.18% in 2022, suggesting a moderation in economic profit relative to sales. Further growth was observed in 2023, with the margin reaching 8.40%. However, this positive trend reversed in 2024, as the economic profit margin declined sharply to -12.74%, indicating a return to negative economic profit relative to product sales.
The economic profit margin’s volatility suggests a sensitivity to underlying economic profit drivers. While product sales generally increased over the period, the economic profit itself experienced considerable variation. The largest negative margin occurred in 2024 despite increased product sales, indicating a potential increase in the cost of capital or a decrease in operational efficiency impacting economic profit.
- Relationship to Product Sales
- Product sales increased from US$24,355 million in 2020 to US$28,610 million in 2024. However, this increase in sales did not consistently translate into improved economic profit margins. The divergence between sales growth and margin performance, particularly in 2024, warrants further investigation into the factors affecting economic profit, such as cost of goods sold, operating expenses, and the weighted average cost of capital.
The substantial decline in the economic profit margin in 2024 is a key area of concern. Further analysis is recommended to understand the specific factors contributing to this decline and to assess the sustainability of future economic profit generation.