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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Economic Profit
Teradyne Inc., economic profit calculation
US$ in thousands
| 12 months ended: | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | |
|---|---|---|---|---|---|---|
| Net operating profit after taxes (NOPAT)1 | ||||||
| Cost of capital2 | ||||||
| Invested capital3 | ||||||
| Economic profit4 | ||||||
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
= – × =
The period under review demonstrates significant fluctuations in economic profit. Net operating profit after taxes (NOPAT) initially increased substantially before declining markedly, while the cost of capital exhibited a consistent, albeit gradual, increase. Invested capital also rose initially, peaking in 2021, then decreased in the most recent year. These movements collectively impacted the company’s economic profit.
- NOPAT Trend
- NOPAT experienced substantial growth from 2019 to 2021, increasing from US$499.351 million to US$1,034.943 million. However, a significant decline was observed in 2022, falling to US$659.470 million, and continued downward in 2023 to US$313.918 million. This suggests a weakening in operational profitability in the latter part of the period.
- Cost of Capital Trend
- The cost of capital steadily increased throughout the period, rising from 19.33% in 2019 to 20.88% in 2023. This consistent increase indicates a growing cost of financing the company’s operations and investments.
- Invested Capital Trend
- Invested capital increased from US$1,845.838 million in 2019 to a peak of US$2,587.403 million in 2022. A decrease was then observed in 2023, with invested capital falling to US$2,415.179 million. This suggests a period of expansion followed by a potential recalibration of investment levels.
- Economic Profit Trend
- Economic profit mirrored the NOPAT trend, increasing significantly from US$142.506 million in 2019 to US$513.085 million in 2021. It then decreased substantially to US$122.987 million in 2022 and turned negative in 2023, reaching -US$190.469 million. The negative economic profit in 2023 indicates that the company’s returns did not cover its cost of capital during that year.
The interplay between NOPAT, cost of capital, and invested capital resulted in a shift from positive and growing economic profit to a negative economic profit in the most recent year. The decline in NOPAT, coupled with a rising cost of capital, appears to be the primary driver of this change. The decrease in invested capital in 2023 did not offset the impact of lower profitability and higher financing costs.
Net Operating Profit after Taxes (NOPAT)
Teradyne Inc., NOPAT calculation
US$ in thousands
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 credit losses.
3 Addition of increase (decrease) in deferred revenue and customer advances.
4 Addition of increase (decrease) in product warranty liability.
5 Addition of increase (decrease) in equity equivalents to net income.
6 2023 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= × =
7 2023 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= × 21.00% =
8 Addition of after taxes interest expense to net income.
9 2023 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= × 21.00% =
10 Elimination of after taxes investment income.
- Net Income
- Net income demonstrated a strong upward trend from 2019 through 2021, rising from approximately 467 million US dollars in 2019 to over 1 billion US dollars in 2021. However, this pattern reversed in the subsequent two years, with net income declining to about 715 million in 2022 and further decreasing to approximately 449 million in 2023.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT followed a similar trajectory, increasing notably from around 499 million US dollars in 2019 to approximately 1.03 billion US dollars in 2021. After this peak, NOPAT experienced a significant decrease to roughly 659 million in 2022 and almost halved to 314 million in 2023.
- Overall Trend Analysis
- Both net income and NOPAT showed strong growth over the first three years before entering a period of marked contraction in the last two years. The declines in 2022 and 2023 suggest a reduced profitability from operations and overall earnings, potentially indicating operational challenges or external factors adversely affecting financial performance during this period.
Cash Operating Taxes
Teradyne Inc., cash operating taxes calculation
US$ in thousands
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).
- Provision for Income Taxes
- The provision for income taxes exhibited an overall increasing trend from 2019 through 2021, rising from 58,304 thousand US dollars in 2019 to a peak of 146,366 thousand US dollars in 2021. This increase suggests higher taxable income or possibly less favorable tax conditions during this period. However, from 2021 onward, there was a decline in the provision, falling to 124,884 thousand US dollars in 2022 and further to 76,820 thousand US dollars in 2023, indicating a reduction in income tax expense or changes in tax strategy or rates.
- Cash Operating Taxes
- Cash operating taxes also followed a rising trajectory from 2019 to 2021, with amounts increasing from 66,842 thousand US dollars in 2019 to 166,173 thousand US dollars in 2021. This upward movement corresponded with the trend seen in the provision for income taxes, reflecting potentially higher tax payments aligned with reported taxable earnings. After 2021, cash operating taxes remained relatively stable in 2022, slightly decreasing to 165,914 thousand US dollars, before a more pronounced reduction to 108,845 thousand US dollars in 2023.
- Comparative Insights
- Both the provision for income taxes and cash operating taxes indicate growth during 2019–2021, peaking in 2021, followed by notable declines in the subsequent years. The gap between provision and cash taxes narrows slightly by 2023, implying a convergence between estimated tax liabilities and actual cash outflows. The trends suggest possible fluctuations in taxable income levels, tax planning measures, or regulatory environments affecting the company’s tax expenses and payments during the observed timeframe.
Invested Capital
Teradyne Inc., invested capital calculation (financing approach)
US$ in thousands
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 deferred revenue and customer advances.
5 Addition of product warranty liability.
6 Addition of equity equivalents to shareholders’ equity.
7 Removal of accumulated other comprehensive income.
8 Subtraction of construction in progress.
9 Subtraction of marketable securities.
- Total Reported Debt & Leases
- The total reported debt and leases demonstrate a significant downward trend throughout the analyzed period. Beginning at $460,012 thousand as of December 31, 2019, the amount slightly increased to $472,757 thousand in 2020, then sharply decreased to $184,581 thousand in 2021. This declining trajectory continued in subsequent years, reaching $132,885 thousand in 2022 and further reducing to $82,614 thousand by the end of 2023. This pattern indicates a strategic reduction in leverage over time, suggesting efforts to lower financial risk or improve debt management.
- Shareholders’ Equity
- Shareholders’ equity shows an overall increasing trend with slight fluctuations. Starting at $1,480,158 thousand in 2019, it substantially grew to $2,207,018 thousand in 2020, followed by a continued rise to $2,562,444 thousand in 2021. However, in 2022, equity slightly decreased to $2,451,294 thousand before recovering to $2,525,897 thousand in 2023. This overall growth points towards retained earnings accumulation or capital infusions, enhancing the company's net worth and financial stability.
- Invested Capital
- Invested capital displays a gradual increase in the earlier years, moving from $1,845,838 thousand in 2019 to $2,183,213 thousand in 2020, and then to $2,564,053 thousand in 2021. After peaking in 2022 at $2,587,403 thousand, it slightly contracted to $2,415,179 thousand in 2023. The steady increase through most of the periods indicates ongoing investments in operational assets and business growth, while the recent decline may reflect asset disposals, depreciation effects, or a strategic contraction.
Cost of Capital
Teradyne Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Convertible debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2023-12-31).
1 US$ in thousands
2 Equity. See details »
3 Convertible debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Convertible debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2022-12-31).
1 US$ in thousands
2 Equity. See details »
3 Convertible debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Convertible debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2021-12-31).
1 US$ in thousands
2 Equity. See details »
3 Convertible debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Convertible debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2020-12-31).
1 US$ in thousands
2 Equity. See details »
3 Convertible debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Convertible debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2019-12-31).
1 US$ in thousands
2 Equity. See details »
3 Convertible debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Teradyne 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 thousands) | ||||||
| Economic profit1 | ||||||
| Invested capital2 | ||||||
| Performance Ratio | ||||||
| Economic spread ratio3 | ||||||
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Advanced Micro Devices Inc. | ||||||
| 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: 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 × ÷ =
4 Click competitor name to see calculations.
The economic spread ratio exhibited significant fluctuations between 2019 and 2023. Initially, the ratio demonstrated substantial growth, peaking in 2021, before experiencing a marked decline culminating in a negative value in 2023. This trend is closely linked to the performance of economic profit and the changes in invested capital over the same period.
- Economic Spread Ratio Trend
- In 2019, the economic spread ratio stood at 7.72%. This increased considerably to 19.26% in 2020, and further to 20.01% in 2021, indicating a growing ability to generate returns exceeding the cost of capital. However, the ratio decreased to 4.75% in 2022, suggesting a diminishing advantage. By 2023, the ratio had fallen to -7.89%, signifying that returns were insufficient to cover the cost of capital.
- Relationship with Economic Profit
- The economic spread ratio’s trajectory mirrors the changes in economic profit. The substantial increases in the ratio between 2019 and 2021 coincided with significant growth in economic profit, from US$142,506 thousand to US$513,085 thousand. The subsequent decline in the ratio in 2022 and the negative value in 2023 directly correlate with the decrease in economic profit to US$122,987 thousand and the reported loss of US$190,469 thousand, respectively.
- Impact of Invested Capital
- Invested capital consistently increased from 2019 to 2021, rising from US$1,845,838 thousand to US$2,564,053 thousand. While invested capital remained relatively stable in 2022 at US$2,587,403 thousand, it decreased to US$2,415,179 thousand in 2023. The increasing invested capital base, coupled with growing economic profit, contributed to the higher economic spread ratios in 2020 and 2021. The decline in economic profit in 2022 and 2023, combined with a slight decrease in invested capital in 2023, resulted in the observed reduction in the economic spread ratio, ultimately leading to a negative value.
The shift from positive and increasing economic spread ratios to a negative value in 2023 warrants further investigation into the factors driving the decline in economic profit and the efficiency of capital allocation.
Economic Profit Margin
Teradyne Inc., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Economic profit1 | ||||||
| Revenues | ||||||
| Add: Increase (decrease) in deferred revenue and customer advances | ||||||
| Adjusted revenues | ||||||
| Performance Ratio | ||||||
| Economic profit margin2 | ||||||
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Advanced Micro Devices Inc. | ||||||
| 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: 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 ÷ Adjusted revenues
= 100 × ÷ =
3 Click competitor name to see calculations.
The economic profit margin exhibited significant fluctuation between 2019 and 2023. Initially, the margin demonstrated substantial growth, peaking in 2021, before experiencing a marked decline culminating in a negative value in 2023. This analysis details the observed trends in economic profit, adjusted revenues, and the resulting economic profit margin.
- Economic Profit
- Economic profit increased considerably from $142.506 million in 2019 to $420.525 million in 2020, representing a substantial improvement in value creation. This positive trend continued into 2021, reaching $513.085 million. However, economic profit decreased significantly in 2022 to $122.987 million, and further declined in 2023, resulting in an economic loss of -$190.469 million.
- Adjusted Revenues
- Adjusted revenues followed an upward trajectory from $2.335 billion in 2019 to $3.711 billion in 2021. This growth suggests increasing sales or pricing power during this period. However, revenues decreased in both 2022 and 2023, falling to $3.147 billion and $2.620 billion respectively. The decline in 2023 is particularly noteworthy, coinciding with the negative economic profit.
- Economic Profit Margin
- The economic profit margin increased from 6.10% in 2019 to 13.29% in 2020, indicating improved profitability relative to capital employed. The margin continued to rise, reaching a peak of 13.83% in 2021. A substantial decrease was observed in 2022, with the margin falling to 3.91%. This downward trend accelerated in 2023, resulting in a negative economic profit margin of -7.27%, signifying that the company’s returns were insufficient to cover its cost of capital.
The divergence between revenue trends and economic profit margin in 2022 and 2023 suggests that factors beyond revenue generation, such as increased costs of capital or operational inefficiencies, significantly impacted profitability. The negative economic profit margin in 2023 warrants further investigation to understand the underlying causes and implement corrective measures.