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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Texas Instruments Inc. pages available for free this week:
- Balance Sheet: Liabilities and Stockholders’ Equity
- Common-Size Balance Sheet: Assets
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Long-term (Investment) Activity Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Common Stock Valuation Ratios
- Price to FCFE (P/FCFE)
- Capital Asset Pricing Model (CAPM)
- Return on Equity (ROE) since 2005
- Price to Sales (P/S) since 2005
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Economic Profit
Texas Instruments 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 fluctuating financial performance as measured by economic profit. Net operating profit after taxes (NOPAT) initially increased significantly, followed by declines in subsequent years. Invested capital consistently rose throughout the period, while the cost of capital remained relatively stable. Consequently, economic profit exhibited a similar pattern of growth followed by contraction.
- NOPAT Trend
- Net operating profit after taxes increased from US$5,637 million in 2020 to US$7,923 million in 2021, representing a substantial gain. This was followed by a further increase to US$8,736 million in 2022. However, NOPAT then decreased to US$6,512 million in 2023 and continued to decline to US$5,023 million in 2024.
- Cost of Capital
- The cost of capital remained consistently high throughout the period, fluctuating slightly between 14.00% and 14.27%. It began at 14.25% in 2020, decreased to 14.19% in 2021, rose to 14.27% in 2022, and then settled at 14.00% for both 2023 and 2024.
- Invested Capital Trend
- Invested capital showed a consistent upward trend throughout the period. It increased from US$12,963 million in 2020 to US$16,409 million in 2021, then to US$17,563 million in 2022. Further increases were observed in 2023 (US$22,590 million) and 2024 (US$26,167 million).
- Economic Profit Trend
- Economic profit mirrored the initial growth and subsequent decline in NOPAT. It rose from US$3,790 million in 2020 to US$5,593 million in 2021, peaking at US$6,229 million in 2022. A decline was then observed in 2023 (US$3,349 million) and continued in 2024, falling to US$1,360 million. This suggests that while the company continued to generate profit, its ability to generate returns exceeding its cost of capital diminished over time.
The increasing invested capital, coupled with a relatively stable cost of capital, suggests a strategy of continued investment. However, the declining NOPAT and resulting decrease in economic profit indicate that these investments have not yet translated into proportionally higher returns, or that external factors are impacting profitability.
Net Operating Profit after Taxes (NOPAT)
Texas Instruments Inc., NOPAT calculation
US$ 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 accounts receivable allowances.
3 Addition of increase (decrease) in accrued restructuring.
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 and debt expense = Adjusted interest and debt expense × Statutory income tax rate
= × 21.00% =
7 Addition of after taxes interest expense to net income.
The financial data reveals several notable trends related to the company's profitability over the five-year period.
- Net Income
-
Net income displayed a positive trajectory from 2020 through 2022, increasing substantially from 5,595 million US dollars in 2020 to a peak of 8,749 million US dollars in 2022. However, subsequent years show a decline, with net income falling to 6,510 million US dollars in 2023 and further decreasing to 4,799 million US dollars in 2024. This suggests a period of growth followed by a contraction in profitability.
- Net Operating Profit After Taxes (NOPAT)
-
Similar to net income, NOPAT increased steadily from 5,637 million US dollars in 2020 to a high of 8,736 million US dollars in 2022. Following this peak, a decline is observed, with NOPAT dropping to 6,512 million US dollars in 2023 and further to 5,023 million US dollars in 2024. The close alignment between NOPAT and net income values over the period indicates consistent tax impact and operational profitability trends.
Overall, the data indicates that the company experienced strong profitability growth leading up to 2022, with both net income and NOPAT reaching their highest levels. The two years following 2022 show a marked decrease in profitability, reflecting potential operational challenges, market conditions, or other factors impacting earnings. The similarity in the pattern and values of net income and NOPAT further confirms that operational efficiency and tax effects have moved in tandem during this timeframe.
Cash Operating Taxes
Texas Instruments 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).
- Provision for Income Taxes
- The provision for income taxes increased significantly from 2020 to 2022, rising from 422 million US dollars to 1,283 million US dollars. This represents a substantial increase over the two-year period. However, after peaking in 2022, the provision declined notably in the subsequent years, decreasing to 908 million in 2023 and further down to 654 million in 2024. The trend indicates a strong growth phase followed by a marked reduction in tax provision amounts.
- Cash Operating Taxes
- Cash operating taxes followed a broadly similar pattern to the provision for income taxes but with consistently higher absolute values. From 601 million US dollars in 2020, cash operating taxes increased steadily to reach a peak of 1,521 million in 2022. Following this peak, there was a decrease to 1,286 million in 2023 and a further decline to 978 million in 2024. While the pattern indicates growth in cash operating tax payments until 2022, it also shows a decline in the subsequent two years, although the reduction is less pronounced compared to the provision for income taxes.
- Overall Observations
- Both provision for income taxes and cash operating taxes exhibit a strong upward trend during the first three years, suggesting increasing taxable income or changes in tax rates or regulations leading to higher tax liabilities. The subsequent decrease in both metrics after 2022 might point to improved tax planning, changes in financial results, or other strategic decisions impacting tax expenses. The consistently higher cash operating taxes compared to provisions reflect the timing differences typically observed between tax payments and tax expense accounting.
Invested Capital
Texas Instruments 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 accrued restructuring.
5 Addition of equity equivalents to stockholders’ equity.
6 Removal of accumulated other comprehensive income.
7 Subtraction of investments measured at fair value.
The financial data reveals several key trends in the company's capital structure over the five-year period from 2020 to 2024.
- Total Reported Debt & Leases
- The total reported debt and leases increased steadily each year, rising from $7,119 million in 2020 to $14,377 million in 2024. This represents a doubling in the debt level over the observed timeframe, with a particularly notable jump between 2022 and 2023. The increasing leverage indicates a growing reliance on borrowed capital.
- Stockholders’ Equity
- Stockholders’ equity also increased annually, moving from $9,187 million in 2020 to $16,903 million in 2024. The growth was most significant from 2020 to 2021 and remained relatively steady thereafter. The rise in equity suggests the company retained earnings or issued new equity, strengthening the net asset base.
- Invested Capital
- Invested capital grew from $12,963 million in 2020 to $26,167 million in 2024, essentially doubling in size. The increase accelerated notably in 2023 and 2024, aligning with the rise in both debt and equity. This combined growth reflects an expansion in the company’s overall capital employed in the business, indicating potential asset growth or investments in operations.
Overall, the trends illustrate a strategy of expanding investment supported by both increasing equity and notably growing debt levels. The balance between debt and equity growth suggests active capital management aimed at scaling the business, though the rise in leverage may warrant monitoring for financial risk considerations.
Cost of Capital
Texas Instruments Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Long-term debt, including current portion3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2024-12-31).
1 US$ in millions
2 Equity. See details »
3 Long-term debt, including current portion. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Long-term debt, including current portion3 | ÷ | = | × | × (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 Long-term debt, including current portion. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Long-term debt, including current portion3 | ÷ | = | × | × (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 Long-term debt, including current portion. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Long-term debt, including current portion3 | ÷ | = | × | × (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 Long-term debt, including current portion. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Long-term debt, including current portion3 | ÷ | = | × | × (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 Long-term debt, including current portion. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Texas Instruments 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 | ||||||
| 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. | ||||||
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 period under review demonstrates a fluctuating performance in economic value creation. Economic profit initially increased before experiencing a substantial decline, while invested capital consistently rose throughout the observed timeframe. The economic spread ratio, a key indicator of profitability relative to capital employed, reflects these dynamics.
- Economic Profit
- Economic profit exhibited an upward trajectory from 2020 to 2022, increasing from US$3,790 million to US$6,229 million. However, a significant decrease was observed in 2023, falling to US$3,349 million, and continued to decline in 2024 to US$1,360 million. This suggests diminishing returns on invested capital in the latter years of the period.
- Invested Capital
- Invested capital consistently increased each year. Starting at US$12,963 million in 2020, it rose to US$26,167 million by 2024. This continuous growth in capital employed did not translate into a corresponding increase in economic profit, particularly in the later years, indicating potential inefficiencies in capital allocation or declining profitability of new investments.
- Economic Spread Ratio
- The economic spread ratio mirrored the trend in economic profit. It increased from 29.23% in 2020 to a peak of 35.47% in 2022, indicating improving profitability relative to invested capital. However, a sharp decline commenced in 2023, with the ratio falling to 14.82%, and continued to decrease to 5.20% in 2024. This substantial reduction suggests a weakening ability to generate returns exceeding the cost of capital. The decreasing ratio, coupled with rising invested capital, warrants further investigation into the underlying causes of diminished profitability.
In summary, while initial years showed positive trends in both economic profit and the economic spread ratio, the latter half of the period is characterized by declining economic profit and a significantly decreasing economic spread ratio despite continued growth in invested capital. This suggests a potential erosion of competitive advantage or increasing capital intensity without commensurate returns.
Economic Profit Margin
Texas Instruments Inc., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | ||||||
| Revenue | ||||||
| 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. | ||||||
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 ÷ Revenue
= 100 × ÷ =
3 Click competitor name to see calculations.
The economic profit margin exhibited a generally positive trend from 2020 to 2022, followed by a significant decline in subsequent years. Economic profit itself peaked in 2022 before decreasing substantially in 2023 and 2024. Revenue also followed a similar pattern, increasing through 2022 and then declining in the following two years.
- Economic Profit Margin
- The economic profit margin increased from 26.21% in 2020 to a high of 31.10% in 2022, indicating improving profitability relative to revenue during this period. However, a marked decrease was observed in 2023, with the margin falling to 19.11%. This downward trend continued into 2024, with the margin reaching 8.69%, representing a substantial reduction from the peak. This suggests a diminishing ability to generate economic profit from each dollar of revenue.
- Economic Profit
- Economic profit increased steadily from US$3,790 million in 2020 to US$6,229 million in 2022. The subsequent years saw a considerable decline, with economic profit decreasing to US$3,349 million in 2023 and further to US$1,360 million in 2024. This decline aligns with the observed decrease in the economic profit margin and indicates a reduction in the absolute amount of wealth created beyond the cost of capital.
- Revenue
- Revenue increased from US$14,461 million in 2020 to US$20,028 million in 2022. A decline in revenue was then observed, falling to US$17,519 million in 2023 and continuing to US$15,641 million in 2024. The revenue decrease in the latter two years likely contributed to the reduction in both economic profit and the economic profit margin.
The concurrent declines in economic profit, economic profit margin, and revenue from 2022 to 2024 suggest a potential shift in the company’s operational efficiency or market conditions. Further investigation would be required to determine the underlying causes of these trends.