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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- Income Statement
- Statement of Comprehensive Income
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Reportable Segments
- Analysis of Geographic Areas
- Price to FCFE (P/FCFE)
- Dividend Discount Model (DDM)
- Operating Profit Margin since 2005
- Return on Equity (ROE) since 2005
- Return on Assets (ROA) 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 economic performance. Net operating profit after taxes (NOPAT) initially increased significantly before declining, while invested capital consistently rose. Consequently, economic profit, a key measure of value creation, exhibited a corresponding pattern of growth followed by contraction.
- NOPAT Trend
- NOPAT experienced substantial growth from 2020 to 2022, increasing from US$5,637 million to US$8,736 million. However, a notable decline occurred in 2023 and continued into 2024, with NOPAT falling to US$6,512 million and subsequently to US$5,023 million. This suggests potential challenges in maintaining profitability despite increased investment.
- Cost of Capital
- The cost of capital remained relatively stable throughout the period, fluctuating within a narrow range between 16.03% and 16.36%. This indicates consistent financing costs, minimizing the impact of external financial factors on economic profit variations.
- Invested Capital Trend
- Invested capital consistently increased over the five-year period, rising from US$12,963 million in 2020 to US$26,167 million in 2024. This continuous expansion suggests ongoing investment in operations and growth initiatives.
- Economic Profit Trend
- Economic profit mirrored the NOPAT trend. It increased from US$3,519 million in 2020 to a peak of US$5,862 million in 2022. Subsequently, economic profit decreased significantly to US$2,889 million in 2023 and further to US$828 million in 2024. This decline, despite rising invested capital, indicates diminishing returns on investment and a weakening ability to generate value exceeding the cost of capital.
The observed pattern suggests that while the company has been actively investing in its operations, its ability to translate those investments into economic profit has diminished in recent years. The decline in NOPAT appears to be the primary driver of this trend, despite a stable cost of capital. Further investigation into the factors affecting NOPAT is warranted.
Net Operating Profit after Taxes (NOPAT)
Texas Instruments Inc., NOPAT calculation
US$ 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 economic spread ratio demonstrates a declining trend over the observed five-year period. Initially strong, the ratio decreased significantly from 2021 to 2024, indicating a diminishing competitive advantage or efficiency in capital allocation.
- Economic Spread Ratio Trend
- The economic spread ratio began at 27.15% in 2020, increasing to a peak of 33.38% in 2022. This suggests improving profitability relative to the cost of capital during those years. However, a substantial decline commenced in 2023, with the ratio falling to 12.79%, and continued into 2024, reaching a low of 3.16%. This represents a considerable erosion of the spread between return on invested capital and the cost of that capital.
The decrease in the economic spread ratio coincides with increases in invested capital. While economic profit initially increased alongside invested capital, the rate of increase in economic profit slowed and eventually turned negative, as evidenced by the declining ratio. This suggests that the returns generated from additional capital investments are not keeping pace with the cost of acquiring that capital.
- Relationship to Economic Profit
- Economic profit increased from US$3,519 million in 2020 to US$5,862 million in 2022, supporting the higher economic spread ratios observed during that period. However, economic profit decreased significantly to US$2,889 million in 2023 and further to US$828 million in 2024. This decline in absolute economic profit directly contributes to the observed reduction in the economic spread ratio.
- Invested Capital Growth
- Invested capital grew consistently throughout the period, increasing from US$12,963 million in 2020 to US$26,167 million in 2024. The accelerating growth in invested capital, coupled with the declining economic profit, explains the substantial decrease in the economic spread ratio. The company is deploying more capital, but generating proportionally less economic profit from it.
The substantial drop in the economic spread ratio in recent years warrants further investigation. Potential factors contributing to this trend could include increased competition, rising input costs, less efficient capital allocation, or a change in the company’s risk profile affecting its cost of capital.
Economic Profit Margin
Texas Instruments Inc., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ 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 trajectory from 2020 to 2022, followed by a significant decline in subsequent years. Economic profit itself demonstrated initial growth, peaking in 2022, before experiencing substantial reductions in 2023 and 2024.
- Economic Profit Margin
- The economic profit margin increased from 24.34% in 2020 to 28.63% in 2021, indicating improved profitability relative to revenue. This positive trend continued into 2022, reaching a high of 29.27%. However, a marked decrease was observed in 2023, with the margin falling to 16.49%. This decline accelerated in 2024, with the economic profit margin dropping to 5.29%, representing a substantial reduction from prior years.
- Economic Profit
- Economic profit increased from US$3,519 million in 2020 to US$5,252 million in 2021, and further to US$5,862 million in 2022. This growth suggests increasing value creation during this period. However, economic profit decreased significantly to US$2,889 million in 2023, and continued to decline to US$828 million in 2024. This represents a considerable contraction in the absolute economic profit generated.
- Revenue
- Revenue increased from US$14,461 million in 2020 to US$18,344 million in 2021 and reached US$20,028 million in 2022. A decrease in revenue was then observed in 2023, falling to US$17,519 million, and continued to decline in 2024 to US$15,641 million. The decline in revenue from 2022 onwards appears to coincide with the reduction in economic profit margin and absolute economic profit.
The combined trends suggest that while the company initially demonstrated increasing profitability and value creation, recent performance indicates a weakening of both revenue generation and the ability to translate revenue into economic profit. The substantial decline in economic profit margin in 2023 and 2024 warrants further investigation to determine the underlying causes and potential mitigating strategies.