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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Arista Networks Inc. pages available for free this week:
- Balance Sheet: Liabilities and Stockholders’ Equity
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Capital Asset Pricing Model (CAPM)
- Dividend Discount Model (DDM)
- Selected Financial Data since 2014
- Return on Equity (ROE) since 2014
- Debt to Equity since 2014
- Price to Sales (P/S) since 2014
- Analysis of Revenues
- Aggregate Accruals
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Economic Profit
Arista Networks Inc., economic profit calculation
US$ in thousands
| 12 months ended: | Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | |
|---|---|---|---|---|---|---|
| Net operating profit after taxes (NOPAT)1 | ||||||
| Cost of capital2 | ||||||
| Invested capital3 | ||||||
| Economic profit4 | ||||||
Based on: 10-K (reporting date: 2025-12-31), 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).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2025 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= – × =
The financial trajectory from 2021 to 2025 indicates a substantial acceleration in the creation of economic value. While a temporary contraction in economic profit occurred in 2022, the subsequent years demonstrate exponential growth, suggesting that operational returns are significantly outpacing the cost of the capital employed.
- Net Operating Profit After Taxes (NOPAT)
- A consistent and aggressive upward trend is observed in NOPAT, which increased from approximately 1.02 billion in 2021 to 5.48 billion by 2025. The most pronounced acceleration began in 2023, reflecting a strong expansion in operational profitability.
- Invested Capital and Cost of Capital
- Invested capital expanded steadily from 1.89 billion in 2021 to 7.16 billion in 2025. This growth in the asset base was accompanied by a virtually stagnant cost of capital, which remained constant at approximately 22.67% throughout the analyzed period, providing a stable hurdle rate for value creation.
- Economic Profit Dynamics
- Economic profit experienced a decline in 2022, falling to 499.95 million, a result of invested capital growing at a faster rate than NOPAT during that specific interval. However, a sharp recovery followed, with economic profit rising to 3.85 billion by 2025. The widening gap between NOPAT and the capital charge indicates that the returns on newly invested capital are far exceeding the cost of capital, leading to an acceleration in overall economic value added.
Net Operating Profit after Taxes (NOPAT)
Arista Networks Inc., NOPAT calculation
US$ in thousands
Based on: 10-K (reporting date: 2025-12-31), 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).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in deferred revenue.
3 Addition of increase (decrease) in equity equivalents to net income.
4 2025 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= × =
5 2025 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.
7 2025 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 and net operating profit after taxes (NOPAT) both demonstrate a consistent upward trajectory over the five-year period. However, the rate of growth differs between the two metrics. NOPAT exhibits a more substantial increase, particularly in the later years of the observed period.
- Overall Trend
- Both net income and NOPAT increased year-over-year from 2021 to 2025. The growth appears to accelerate from 2022 onwards, with the most significant gains occurring between 2023 and 2025.
- Net Income Analysis
- Net income increased from US$840,854 thousand in 2021 to US$3,511,400 thousand in 2025. The growth rate, while positive each year, shows some moderation between 2021 and 2022 before resuming a higher pace of increase.
- NOPAT Analysis
- NOPAT began at US$1,017,627 thousand in 2021 and rose to US$5,477,356 thousand in 2025. The increase from 2022 to 2023 was notable, and the growth continued strongly into 2024 and 2025. The magnitude of NOPAT consistently exceeds that of net income throughout the period.
- Relationship between Net Income and NOPAT
- The difference between NOPAT and net income suggests a significant impact from financing and accounting adjustments. The widening gap between the two metrics over time indicates that these adjustments are becoming increasingly substantial relative to core operating profitability. This could be due to factors such as changes in depreciation methods, interest expense, or tax rates. Further investigation into these specific items would be necessary to understand the drivers of this divergence.
The substantial growth in NOPAT suggests strong underlying operational performance. The increasing difference between NOPAT and net income warrants further scrutiny to fully understand the company’s profitability and capital structure dynamics.
Cash Operating Taxes
Arista Networks Inc., cash operating taxes calculation
US$ in thousands
Based on: 10-K (reporting date: 2025-12-31), 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).
The provision for income taxes and cash operating taxes both demonstrate a consistent upward trend over the five-year period. However, the magnitude of increase differs between the two measures. Cash operating taxes consistently exceed the provision for income taxes, and the gap between them widens over time.
- Provision for Income Taxes
- The provision for income taxes increased from US$90.025 million in 2021 to US$738.300 million in 2025. This represents a substantial increase, with the largest year-over-year change occurring between 2022 and 2023 (US$105.355 million). The rate of increase appears to accelerate in later years, with a US$325.320 million increase between 2023 and 2025.
- Cash Operating Taxes
- Cash operating taxes also exhibited a significant increase, rising from US$188.364 million in 2021 to US$969.744 million in 2025. Similar to the provision for income taxes, the largest single-year increase occurred between 2022 and 2023 (US$206.278 million). The increase between 2024 and 2025 was US$129.282 million, indicating a continued, though slightly moderated, growth rate.
- Relationship between Provision and Cash Taxes
- In 2021, cash operating taxes were approximately twice the provision for income taxes. This ratio increased over the period, with cash operating taxes being more than three times the provision for income taxes in 2025. This divergence suggests a growing difference between reported taxable income and actual cash outflows for taxes. Potential reasons for this difference could include timing differences related to deferred taxes, tax credits, or changes in tax laws impacting the cash tax rate.
The consistent increases in both measures indicate growing profitability and/or a higher effective tax rate. Further investigation into the specific drivers of these increases, particularly the widening gap between the provision for income taxes and cash operating taxes, would be beneficial for a comprehensive understanding of the company’s tax position.
Invested Capital
Arista Networks Inc., invested capital calculation (financing approach)
US$ in thousands
Based on: 10-K (reporting date: 2025-12-31), 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).
1 Addition of capitalized operating leases.
2 Elimination of deferred taxes from assets and liabilities. See details »
3 Addition of deferred revenue.
4 Addition of equity equivalents to stockholders’ equity.
5 Removal of accumulated other comprehensive income.
6 Subtraction of construction-in-process.
7 Subtraction of marketable securities.
The reported invested capital demonstrates a consistent upward trend over the five-year period. Simultaneously, changes are observed in the components contributing to this invested capital, namely total reported debt & leases and stockholders’ equity.
- Invested Capital Trend
- Invested capital increased significantly from US$1,889,936 thousand in 2021 to US$7,160,800 thousand in 2025. This represents a substantial cumulative growth, indicating increasing financial resources committed to the business. The growth rate appears to accelerate between 2022 and 2023, and continues at a strong pace through 2025.
- Debt & Leases
- Total reported debt & leases decreased from US$76,825 thousand in 2021 to US$59,642 thousand in 2024, suggesting a reduction in reliance on debt financing during this period. However, a notable increase to US$90,500 thousand is observed in 2025, potentially indicating a new financing strategy or significant capital expenditure.
- Stockholders’ Equity
- Stockholders’ equity exhibited a consistent and substantial increase throughout the period, rising from US$3,978,600 thousand in 2021 to US$12,370,500 thousand in 2025. This growth suggests strong profitability and/or successful equity fundraising activities. The rate of increase in stockholders’ equity appears to be the primary driver of the overall increase in invested capital.
- Relationship between Components and Invested Capital
- While debt & leases initially decreased, the significant growth in stockholders’ equity consistently outweighed any impact from debt fluctuations, resulting in the overall upward trend in invested capital. The 2025 increase in debt, however, contributes more substantially to the invested capital increase than in prior years, though stockholders’ equity continues to be the dominant component.
The observed patterns suggest a company increasingly funded by equity, with a recent shift towards incorporating more debt into its capital structure. Further investigation into the reasons behind the 2025 debt increase would be beneficial.
Cost of Capital
Arista Networks Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Operating lease liability3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2025-12-31).
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Operating lease liability3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2024-12-31).
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Operating lease liability3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2023-12-31).
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Operating lease liability3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2022-12-31).
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Operating lease liability3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2021-12-31).
Economic Spread Ratio
Arista Networks Inc., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Economic profit1 | ||||||
| Invested capital2 | ||||||
| Performance Ratio | ||||||
| Economic spread ratio3 | ||||||
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Apple Inc. | ||||||
| Cisco Systems Inc. | ||||||
| Dell Technologies Inc. | ||||||
| Lumentum Holdings Inc. | ||||||
| Super Micro Computer Inc. | ||||||
Based on: 10-K (reporting date: 2025-12-31), 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).
1 Economic profit. See details »
2 Invested capital. See details »
3 2025 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × ÷ =
4 Click competitor name to see calculations.
The financial trajectory from 2021 to 2025 indicates a period of significant expansion in both the scale of operations and the efficiency of value creation. While there was a temporary contraction in economic performance in 2022, the subsequent years show an accelerated growth phase in economic profit and capital efficiency.
- Invested Capital Trends
- A consistent and linear increase in invested capital is observed, growing from 1,889,936 thousand USD in 2021 to 7,160,800 thousand USD by 2025. This steady upward trajectory suggests a sustained commitment to scaling the business infrastructure and increasing the asset base to support growth.
- Economic Profit Analysis
- Economic profit experienced a slight decline in 2022, dropping to 499,953 thousand USD from 589,624 thousand USD in the previous year. However, a sharp recovery followed, with profit figures increasing nearly tenfold by 2025 to reach 3,853,940 thousand USD. The most substantial growth occurred between 2023 and 2025, indicating that the returns generated significantly outpaced the cost of the capital employed during this period.
- Economic Spread Ratio Evaluation
- The economic spread ratio exhibits a V-shaped recovery followed by aggressive expansion. After declining from 31.20% in 2021 to a low of 16.15% in 2022, the ratio climbed steadily to 53.82% by 2025. This trend demonstrates a substantial increase in the spread between the return on invested capital and the cost of capital, reflecting a heightened ability to create economic value per unit of capital invested.
Overall, the correlation between the rising invested capital and the exponentially growing economic spread ratio suggests that the expansion of the capital base has been managed with increasing efficiency. The company has transitioned from a period of margin compression in 2022 to a state of high-leverage value creation by 2025.
Economic Profit Margin
Arista Networks Inc., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Economic profit1 | ||||||
| Revenue | ||||||
| Add: Increase (decrease) in deferred revenue | ||||||
| Adjusted revenue | ||||||
| Performance Ratio | ||||||
| Economic profit margin2 | ||||||
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Apple Inc. | ||||||
| Cisco Systems Inc. | ||||||
| Dell Technologies Inc. | ||||||
| Lumentum Holdings Inc. | ||||||
| Super Micro Computer Inc. | ||||||
Based on: 10-K (reporting date: 2025-12-31), 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).
1 Economic profit. See details »
2 2025 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted revenue
= 100 × ÷ =
3 Click competitor name to see calculations.
The financial performance from 2021 through 2025 demonstrates a period of significant expansion in both absolute economic value and profit efficiency. While a temporary contraction occurred in 2022, the subsequent years show an accelerating trend in value creation relative to adjusted revenue.
- Revenue Growth Trends
- Adjusted revenue exhibits a consistent upward trajectory, increasing from 3.23 billion USD in 2021 to 11.59 billion USD by 2025. This steady growth indicates a sustained expansion of the operational scale over the five-year period.
- Economic Profit Evolution
- Economic profit experienced a decline in 2022, falling to 499.95 million USD from 589.62 million USD in 2021. However, this was followed by an aggressive growth phase, with values surging to 3.85 billion USD by 2025. The most substantial acceleration occurred between 2023 and 2025, where economic profit increased nearly fourfold.
- Economic Profit Margin Analysis
- The economic profit margin reflects a period of volatility followed by rapid optimization. After dropping from 18.27% in 2021 to 11.13% in 2022, the margin rebounded to 15.57% in 2023 and climbed sharply to 33.26% by 2025. This progression indicates that value generation is accelerating at a much faster rate than revenue growth.
- Value Creation Efficiency
- The widening margin suggests strong operating leverage and an improvement in the efficiency of capital utilization. The transition from a low of 11.13% in 2022 to a peak of 33.26% in 2025 signifies a substantial increase in the company's ability to generate returns well above its cost of capital per unit of revenue.