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
Allergan PLC, economic profit calculation
US$ in thousands
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2019 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= -5,356,995 – 19.53% × 80,268,300 = -21,030,326
The financial performance from 2015 to 2019 is characterized by a persistent inability to generate positive economic value, with economic profit remaining deeply negative throughout the period. Despite a substantial reduction in the invested capital base, the combination of negative operating results and a high cost of capital resulted in sustained value destruction.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT remained negative for all five years, indicating that operating expenses consistently exceeded operating revenues after tax. The most significant deficit occurred in 2017, reaching approximately $10.55 billion. While the deficit narrowed in subsequent years, it remained substantial, ending the period at approximately $5.36 billion in 2019.
- Invested Capital
- A consistent downward trend is observed in invested capital, which declined from $127.50 billion in 2015 to $80.27 billion in 2019. This represents a steady contraction of the capital base over the five-year timeframe.
- Cost of Capital
- The cost of capital remained relatively stable but high, fluctuating within a range of 16.75% to 19.53%. The lowest cost of capital was recorded in 2017, while the highest was observed in 2019.
- Economic Profit
- Economic profit was negative across all reporting dates, peaking in loss during 2015 at approximately $28.06 billion. Although there was a general trend toward improvement, with losses narrowing to $21.03 billion by 2019, the organization failed to achieve a positive economic profit in any year analyzed.
The analysis indicates that the reduction in invested capital served to mitigate the total economic loss by reducing the capital charge. However, this was insufficient to offset the impact of consistently negative NOPAT and a high cost of capital, preventing the transition to positive value creation.
AI Ask an analyst for more
Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
How can I help you?
Net Operating Profit after Taxes (NOPAT)
Allergan PLC, NOPAT calculation
US$ in thousands
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowance for doubtful accounts.
3 Addition of increase (decrease) in deferred revenue.
4 Addition of increase (decrease) in accrued product warranties.
5 Addition of increase (decrease) in restructuring reserve.
6 Addition of increase (decrease) in equity equivalents to net income (loss) attributable to shareholders.
7 2019 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 570,500 × 2.50% = 14,263
8 2019 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 797,263 × 12.50% = 99,658
9 Addition of after taxes interest expense to net income (loss) attributable to shareholders.
10 2019 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 76,800 × 12.50% = 9,600
11 Elimination of after taxes investment income.
12 Elimination of discontinued operations.
The financial performance from 2015 to 2019 is characterized by a significant deterioration in profitability and a persistent inability to generate positive operating returns. A critical divergence is observed between bottom-line net income and core operational profitability during the early part of the period, followed by a systemic decline in both metrics.
- Net Income Trajectory
- Net income attributable to shareholders exhibited extreme volatility, peaking in 2016 at 14.97 billion USD. This was followed by a sharp reversal in 2017, where the company entered a period of sustained losses. These losses persisted through 2019, with the net deficit reaching 5.27 billion USD by the end of the analyzed period.
- Net Operating Profit After Taxes (NOPAT) Trends
- NOPAT remained negative throughout the entire five-year duration, indicating that the core business operations failed to generate a profit after tax considerations. The most severe operational deficit occurred in 2017, reaching negative 10.55 billion USD. Although there was a partial recovery in 2018 and 2019, NOPAT remained deeply negative, ending 2019 at negative 5.36 billion USD.
- Operational vs. Bottom-Line Divergence
- Between 2015 and 2016, a significant discrepancy existed where net income was positive despite negative NOPAT. This pattern suggests that the reported net profits during those years were driven by non-operating items, such as investment gains, tax credits, or one-time financial adjustments, rather than operational efficiency. From 2017 onward, the alignment of both negative net income and negative NOPAT indicates a synchronized decline in both operating performance and overall financial viability.
AI Ask an analyst for more
Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
How can I help you?
Cash Operating Taxes
Allergan PLC, cash operating taxes calculation
US$ in thousands
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
The analysis of tax-related figures reveals a significant divergence between accounting-based tax provisions and actual cash operating tax outflows over the five-year period from 2015 to 2019. While accounting provisions remained predominantly in benefit territory for the majority of the period, cash taxes exhibited extreme volatility, characterized by sharp fluctuations and a notable cash recovery in 2018.
- Provision for Income Taxes Trend
- From 2015 through 2018, the entity recognized consistent tax benefits, with values ranging from -1.56 billion to -6.67 billion US dollars. A peak benefit occurred in 2017, representing the most significant tax credit or adjustment during the analyzed timeframe. This trend shifted in 2019, when the provision transitioned to a positive expense of 146.4 million US dollars, marking a reversal from tax benefit recognition to a tax liability on the income statement.
- Cash Operating Taxes Performance
- Cash tax outflows demonstrated a non-linear trajectory. Following a period of relative stability between 2015 and 2016, there was a substantial increase in 2017, with cash taxes rising to 1.237 billion US dollars. This was followed by a complete reversal in 2018, where cash operating taxes became negative at -398.9 million US dollars, indicating a net cash inflow or tax refund. By 2019, cash taxes returned to a positive outflow of 897.3 million US dollars.
- Divergence Between Accruals and Cash Flow
- A marked disconnect is observed between the provision for income taxes and cash operating taxes. In 2017, the entity recorded its largest accounting tax benefit (-6.67 billion US dollars) while simultaneously experiencing its highest cash tax outflow (1.237 billion US dollars). This discrepancy suggests the presence of significant non-cash tax adjustments or timing differences between accrual-based reporting and actual cash settlements, which directly impacts the calculation of Economic Value Added (EVA) by altering the tax shield assumptions.
AI Ask an analyst for more
Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
How can I help you?
Invested Capital
Allergan PLC, invested capital calculation (financing approach)
US$ in thousands
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
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.
5 Addition of accrued product warranties.
6 Addition of restructuring reserve.
7 Addition of equity equivalents to shareholders’ equity.
8 Removal of accumulated other comprehensive income.
9 Subtraction of construction in progress.
10 Subtraction of marketable securities and other long-term investments.
A consistent downward trajectory is observed in the capital structure of the entity between December 31, 2015, and December 31, 2019. The total invested capital decreased from approximately 127.5 billion US dollars to 80.3 billion US dollars, representing a cumulative reduction of approximately 37% over the analyzed five-year period.
- Total Reported Debt and Leases
- A steady decline in liabilities is evident, with debt and leases falling from 42,888,781 thousand US dollars in 2015 to 23,219,500 thousand US dollars in 2019. The most significant reduction occurred between 2015 and 2016, indicating a period of substantial deleveraging.
- Shareholders' Equity
- Equity remained relatively stable between 2015 and 2017, followed by a more pronounced contraction starting in 2018. By the end of 2019, shareholders' equity reached 58,173,600 thousand US dollars, down from 76,591,400 thousand US dollars at the beginning of the period.
- Invested Capital Dynamics
- The combined effect of decreasing debt and contracting equity resulted in a systematic reduction of the total capital base. This trend indicates a narrowing of the capital employed to generate returns, which decreases the capital charge associated with the calculation of economic value added (EVA).
AI Ask an analyst for more
Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
How can I help you?
Cost of Capital
Allergan PLC, cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 65,142,399) | 65,142,399) | ÷ | 89,464,599) | = | 0.73 | 0.73 | × | 25.68% | = | 18.70% | ||
| Preferred shares, $0.0001 par value per share (book value) | —) | —) | ÷ | 89,464,599) | = | 0.00 | 0.00 | × | 0.00% | = | 0.00% | ||
| Long-term debt and capital leases, including current portion3 | 23,751,700) | 23,751,700) | ÷ | 89,464,599) | = | 0.27 | 0.27 | × | 3.50% × (1 – 12.50%) | = | 0.81% | ||
| Operating lease liability4 | 570,500) | 570,500) | ÷ | 89,464,599) | = | 0.01 | 0.01 | × | 2.50% × (1 – 12.50%) | = | 0.01% | ||
| Total: | 89,464,599) | 1.00 | 19.53% | ||||||||||
Based on: 10-K (reporting date: 2019-12-31).
1 US$ in thousands
2 Equity. See details »
3 Long-term debt and capital leases, including current portion. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 46,256,695) | 46,256,695) | ÷ | 69,993,768) | = | 0.66 | 0.66 | × | 25.68% | = | 16.97% | ||
| Preferred shares, $0.0001 par value per share (book value) | —) | —) | ÷ | 69,993,768) | = | 0.00 | 0.00 | × | 0.00% | = | 0.00% | ||
| Long-term debt and capital leases, including current portion3 | 23,380,200) | 23,380,200) | ÷ | 69,993,768) | = | 0.33 | 0.33 | × | 3.47% × (1 – 12.50%) | = | 1.01% | ||
| Operating lease liability4 | 356,873) | 356,873) | ÷ | 69,993,768) | = | 0.01 | 0.01 | × | 3.47% × (1 – 12.50%) | = | 0.02% | ||
| Total: | 69,993,768) | 1.00 | 18.00% | ||||||||||
Based on: 10-K (reporting date: 2018-12-31).
1 US$ in thousands
2 Equity. See details »
3 Long-term debt and capital leases, including current portion. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 54,185,762) | 54,185,762) | ÷ | 90,292,543) | = | 0.60 | 0.60 | × | 25.68% | = | 15.41% | ||
| Preferred shares, $0.0001 par value per share (book value) | 4,929,700) | 4,929,700) | ÷ | 90,292,543) | = | 0.05 | 0.05 | × | 5.50% | = | 0.30% | ||
| Long-term debt and capital leases, including current portion3 | 30,795,000) | 30,795,000) | ÷ | 90,292,543) | = | 0.34 | 0.34 | × | 3.45% × (1 – 12.50%) | = | 1.03% | ||
| Operating lease liability4 | 382,081) | 382,081) | ÷ | 90,292,543) | = | 0.00 | 0.00 | × | 3.45% × (1 – 12.50%) | = | 0.01% | ||
| Total: | 90,292,543) | 1.00 | 16.75% | ||||||||||
Based on: 10-K (reporting date: 2017-12-31).
1 US$ in thousands
2 Equity. See details »
3 Long-term debt and capital leases, including current portion. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 82,254,088) | 82,254,088) | ÷ | 120,534,910) | = | 0.68 | 0.68 | × | 25.68% | = | 17.52% | ||
| Preferred shares, $0.0001 par value per share (book value) | 4,929,700) | 4,929,700) | ÷ | 120,534,910) | = | 0.04 | 0.04 | × | 5.50% | = | 0.22% | ||
| Long-term debt and capital leases, including current portion3 | 33,060,900) | 33,060,900) | ÷ | 120,534,910) | = | 0.27 | 0.27 | × | 3.61% × (1 – 12.50%) | = | 0.87% | ||
| Operating lease liability4 | 290,222) | 290,222) | ÷ | 120,534,910) | = | 0.00 | 0.00 | × | 3.61% × (1 – 12.50%) | = | 0.01% | ||
| Total: | 120,534,910) | 1.00 | 18.62% | ||||||||||
Based on: 10-K (reporting date: 2016-12-31).
1 US$ in thousands
2 Equity. See details »
3 Long-term debt and capital leases, including current portion. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 117,644,469) | 117,644,469) | ÷ | 165,394,949) | = | 0.71 | 0.71 | × | 25.68% | = | 18.27% | ||
| Preferred shares, $0.0001 par value per share (book value) | 4,929,700) | 4,929,700) | ÷ | 165,394,949) | = | 0.03 | 0.03 | × | 5.50% | = | 0.16% | ||
| Long-term debt and capital leases, including current portion3 | 42,658,200) | 42,658,200) | ÷ | 165,394,949) | = | 0.26 | 0.26 | × | 3.67% × (1 – 12.50%) | = | 0.83% | ||
| Operating lease liability4 | 162,581) | 162,581) | ÷ | 165,394,949) | = | 0.00 | 0.00 | × | 3.67% × (1 – 12.50%) | = | 0.00% | ||
| Total: | 165,394,949) | 1.00 | 19.26% | ||||||||||
Based on: 10-K (reporting date: 2015-12-31).
1 US$ in thousands
2 Equity. See details »
3 Long-term debt and capital leases, including current portion. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Allergan PLC, economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Economic profit1 | (21,030,326) | (22,072,649) | (27,899,787) | (22,719,954) | (28,062,028) | |
| Invested capital2 | 80,268,300) | 91,098,773) | 103,552,681) | 111,246,522) | 127,501,981) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -26.20% | -24.23% | -26.94% | -20.42% | -22.01% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| AbbVie Inc. | — | — | — | — | — | |
| Amgen Inc. | — | — | — | — | — | |
| Bristol-Myers Squibb Co. | — | — | — | — | — | |
| Danaher Corp. | — | — | — | — | — | |
| Eli Lilly & Co. | — | — | — | — | — | |
| Gilead Sciences Inc. | — | — | — | — | — | |
| Johnson & Johnson | — | — | — | — | — | |
| Merck & Co. Inc. | — | — | — | — | — | |
| Pfizer Inc. | — | — | — | — | — | |
| Regeneron Pharmaceuticals Inc. | — | — | — | — | — | |
| Thermo Fisher Scientific Inc. | — | — | — | — | — | |
| Vertex Pharmaceuticals Inc. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2019 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -21,030,326 ÷ 80,268,300 = -26.20%
4 Click competitor name to see calculations.
The financial performance from 2015 to 2019 is characterized by a consistent destruction of economic value, as evidenced by persistently negative economic profit and an economic spread ratio that remained below zero throughout the period.
- Economic Profit Trends
- Economic profit remained negative across the five-year window, fluctuating between a low of approximately negative 28.1 billion US dollars in 2015 and an improvement to negative 21.0 billion US dollars in 2019. Although the magnitude of the economic loss decreased toward the end of the period, the figures indicate a sustained failure to generate returns that exceed the cost of capital.
- Invested Capital Dynamics
- A consistent downward trend in invested capital is observed, decreasing from 127.5 billion US dollars in 2015 to 80.3 billion US dollars by 2019. This represents a steady contraction of the capital base employed by the organization, suggesting a period of asset divestment or significant capital restructuring.
- Economic Spread Ratio Analysis
- The economic spread ratio remained negative throughout the analyzed timeframe, confirming that the return on invested capital was consistently lower than the cost of capital. The ratio exhibited volatility, reaching its lowest point of -26.94% in 2017. The fact that the ratio remained deeply negative despite the significant reduction in invested capital suggests that the underlying operational efficiency did not improve sufficiently to bridge the gap between the cost of funding and the generated returns.
AI Ask an analyst for more
Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
How can I help you?
Economic Profit Margin
Allergan PLC, economic profit margin calculation, comparison to benchmarks
| Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Economic profit1 | (21,030,326) | (22,072,649) | (27,899,787) | (22,719,954) | (28,062,028) | |
| Net revenues | 16,088,900) | 15,787,400) | 15,940,700) | 14,570,600) | 15,071,000) | |
| Add: Increase (decrease) in deferred revenue | (9,500) | (1,800) | 22,200) | (2,500) | (8,100) | |
| Adjusted net revenues | 16,079,400) | 15,785,600) | 15,962,900) | 14,568,100) | 15,062,900) | |
| Performance Ratio | ||||||
| Economic profit margin2 | -130.79% | -139.83% | -174.78% | -155.96% | -186.30% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| AbbVie Inc. | — | — | — | — | — | |
| Amgen Inc. | — | — | — | — | — | |
| Bristol-Myers Squibb Co. | — | — | — | — | — | |
| Danaher Corp. | — | — | — | — | — | |
| Eli Lilly & Co. | — | — | — | — | — | |
| Gilead Sciences Inc. | — | — | — | — | — | |
| Johnson & Johnson | — | — | — | — | — | |
| Merck & Co. Inc. | — | — | — | — | — | |
| Pfizer Inc. | — | — | — | — | — | |
| Regeneron Pharmaceuticals Inc. | — | — | — | — | — | |
| Thermo Fisher Scientific Inc. | — | — | — | — | — | |
| Vertex Pharmaceuticals Inc. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
1 Economic profit. See details »
2 2019 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted net revenues
= 100 × -21,030,326 ÷ 16,079,400 = -130.79%
3 Click competitor name to see calculations.
An analysis of the economic value added indicators reveals a sustained period of negative economic profit from 2015 through 2019. While the organization failed to generate returns exceeding its cost of capital during this timeframe, a general trajectory toward the reduction of economic losses is observable.
- Economic Profit Trends
- Economic profit remained consistently negative throughout the five-year period. The lowest point occurred in 2015 at -28,062,028 thousand US$, with a subsequent fluctuation in 2017 reaching -27,899,787 thousand US$. However, a recovery trend emerged in the final two years, with economic profit improving to -21,030,326 thousand US$ by December 31, 2019.
- Adjusted Net Revenue Performance
- Adjusted net revenues exhibited relative stability with a slight overall increase. After a dip to 14,568,100 thousand US$ in 2016, revenues grew to reach 16,079,400 thousand US$ by 2019. The modest growth in revenue suggests that the improvements in economic profit were driven by factors beyond simple top-line expansion.
- Economic Profit Margin Analysis
- The economic profit margin remained deeply negative, signifying that the cost of capital substantially exceeded the generated profits. The margin shifted from -186.30% in 2015 to -130.79% in 2019. A notable volatility is observed in 2017, where the margin deteriorated to -174.78%, before beginning a consistent upward trend through 2018 and 2019, indicating a gradual improvement in capital efficiency.
AI Ask an analyst for more
Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
How can I help you?