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: Assets
- Analysis of Liquidity Ratios
- Enterprise Value to FCFF (EV/FCFF)
- Capital Asset Pricing Model (CAPM)
- Selected Financial Data since 2014
- Current Ratio since 2014
- Debt to Equity since 2014
- Price to Operating Profit (P/OP) since 2014
- Price to Sales (P/S) since 2014
- Analysis of Revenues
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Economic Profit
Arista Networks Inc., economic profit calculation
US$ in thousands
| 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 financial performance, as measured by economic profit, demonstrates a consistent upward trend over the five-year period. Net operating profit after taxes, cost of capital, and invested capital all exhibit growth, contributing to the increasing economic profit.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT increased substantially from US$676.204 million in 2020 to US$3,398.738 million in 2024. This represents a significant and accelerating growth rate, indicating improved operational efficiency and profitability. The largest year-over-year increase occurred between 2022 and 2023.
- Cost of Capital
- The cost of capital remained relatively stable throughout the period, fluctuating minimally between 16.05% and 16.09%. This consistency suggests a stable risk profile and financing structure for the company. The minimal variation indicates that changes in market conditions or the company’s financial leverage did not significantly impact the cost of funding.
- Invested Capital
- Invested capital experienced considerable growth, rising from US$1,866.365 million in 2020 to US$5,869.309 million in 2024. This expansion suggests increased investment in operations and assets to support the growing NOPAT. The most substantial increase in invested capital occurred between 2021 and 2022.
- Economic Profit
- Economic profit increased steadily from US$376.699 million in 2020 to US$2,454.594 million in 2024. This positive trend indicates that the company is generating returns exceeding its cost of capital. The growth in economic profit mirrors the growth in NOPAT, although the impact of invested capital is also a contributing factor. The largest absolute increase in economic profit was observed between 2023 and 2024.
Overall, the analysis reveals a positive financial trajectory. The consistent growth in NOPAT, coupled with a stable cost of capital and increasing invested capital, has resulted in a substantial and sustained increase in economic profit. This suggests effective capital allocation and strong financial performance.
Net Operating Profit after Taxes (NOPAT)
Arista Networks Inc., NOPAT calculation
US$ in thousands
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 deferred revenue.
3 Addition of increase (decrease) in equity equivalents to net income.
4 2024 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= × =
5 2024 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 2024 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 Trend
- The net income of the company has demonstrated a consistent upward trajectory over the five-year period. Starting at $634.6 million in 2020, it increased by approximately 32.5% to $840.9 million in 2021. The growth accelerated further in 2022 with net income reaching $1.35 billion, representing a notable increase of around 60.7% year over year. This positive momentum sustained into 2023 and 2024, with net income rising to $2.09 billion and $2.85 billion respectively, indicating continued strong profitability expansion.
- Net Operating Profit After Taxes (NOPAT) Trend
- NOPAT exhibited a similarly positive trend, reflecting improving operational efficiency and profitability. The initial value of approximately $676.2 million in 2020 increased to $1.02 billion in 2021, a growth rate of about 50.6%. Although the growth rate slightly moderated in 2022 with NOPAT at $1.20 billion, the figure surged significantly to $2.07 billion in 2023 and further to $3.40 billion in 2024. These figures indicate a robust enhancement in the company's operational profit generation after tax consideration.
- Comparative Analysis Between Net Income and NOPAT
- Both net income and NOPAT demonstrate strong and consistent growth patterns, with NOPAT generally exceeding net income in absolute terms throughout the period, which may suggest an increasingly efficient core business operation after taxes. The gap between NOPAT and net income widened notably towards the end of the period, highlighting enhanced operational earnings relative to net income, potentially due to improvements in non-operating factors or tax effects over time.
- Overall Financial Performance Insights
- The data reflects significant and accelerating growth in profitability metrics, indicating a successful expansion and improved operational performance. The company’s ability to nearly triple its net income within four years, alongside a more than fivefold increase in NOPAT, points to strong financial health and effective management strategies. This upward trend suggests solid prospects for continued business success if the current growth drivers are sustained.
Cash Operating Taxes
Arista Networks Inc., cash operating taxes calculation
US$ in thousands
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
- Over the five-year period, the provision for income taxes demonstrates a substantial upward trend. Starting at $104,306 thousand in 2020, it slightly decreased to $90,025 thousand in 2021, marking a minor decline in the second year. However, from 2021 onward, there is a notable acceleration in growth, with the provision increasing significantly to $229,350 thousand in 2022, then further rising to $334,705 thousand in 2023, and reaching $412,980 thousand by 2024. This pattern suggests a rising tax expense potentially linked to increased profitability or changes in tax legislation or accounting practices.
- Cash Operating Taxes
- Cash operating taxes exhibit a strong and consistent upward trajectory throughout the observed period. Starting at $106,136 thousand in 2020, cash operating taxes almost doubled by 2021, reaching $188,364 thousand. This growth momentum continued sharply in subsequent years, with values increasing to $468,759 thousand in 2022, $675,037 thousand in 2023, and ultimately $840,462 thousand in 2024. The sharp escalation in cash operating taxes compared to the provision for income taxes may reflect timing differences in tax payments or increased effective tax rates, or a combination of operational scale expansion and higher taxable income.
- Comparative Insights
- Both provision for income taxes and cash operating taxes have risen notably over the five years, with cash operating taxes growing at an even faster rate than the provision. The disparity between these two tax-related figures suggests potential differences in deferred tax accounting or changes in the company’s tax payment schedule. The steady increase across both metrics implies growing taxable income levels or evolving tax obligations. This consistent increase in tax-related expenses may impact the company’s net earnings and cash flows, indicating the necessity for careful tax planning going forward.
Invested Capital
Arista Networks Inc., invested capital calculation (financing approach)
US$ in thousands
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 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.
- Total Reported Debt & Leases
- The total reported debt and leases demonstrate a declining trend over the five-year period. Starting at $90,170 thousand in 2020, the figure decreases each year, reaching $59,642 thousand by 2024. This consistent reduction indicates a deliberate effort to lower debt levels and manage lease obligations effectively, improving the company’s leverage position.
- Stockholders’ Equity
- Stockholders’ equity shows a strong upward trend, more than tripling from $3,320,291 thousand in 2020 to $9,994,807 thousand in 2024. This significant increase suggests robust retained earnings, possibly combined with equity financing activities, contributing to a solid expansion of the company’s net asset base over the period.
- Invested Capital
- Invested capital rises steadily from $1,866,365 thousand in 2020 to $5,869,309 thousand in 2024. The growth accelerates particularly after 2021, indicating increased investment in operating assets or growth initiatives. The expansion of invested capital alongside rising equity suggests an aggressive strategy focused on scaling operations or asset acquisition.
- Overall Financial Trends
- The combined trends reflect a company that is strengthening its financial foundation by reducing debt, significantly increasing equity, and expanding invested capital. The reduction in total debt coupled with substantial equity growth suggests an improved capital structure and financial stability. The growth in invested capital points to reinvestment and expansion efforts, which may support future growth and operational capacity.
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: 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).
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Operating lease liability3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2020-12-31).
Economic Spread Ratio
Arista Networks 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 thousands) | ||||||
| Economic profit1 | ||||||
| Invested capital2 | ||||||
| Performance Ratio | ||||||
| Economic spread ratio3 | ||||||
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Apple Inc. | ||||||
| Cisco Systems Inc. | ||||||
| Dell Technologies Inc. | ||||||
| Super Micro Computer 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 generally positive trend over the observed period. Economic profit increased substantially from 2020 to 2024, while invested capital also rose, though at a varying rate. The economic spread ratio, reflecting the efficiency with which capital is being utilized to generate returns, shows considerable fluctuation but ultimately exhibits significant improvement.
- Economic Spread Ratio Trend
- In 2020, the economic spread ratio was 20.18%. This value more than doubled in 2021, reaching 37.77%, indicating a substantial improvement in the return generated per unit of invested capital. A decrease was then observed in 2022, with the ratio falling to 22.73%. The ratio recovered in 2023, increasing to 27.20%, and continued this upward trajectory, reaching 41.82% in 2024. This represents the highest value within the observed timeframe.
- Relationship between Economic Profit and Invested Capital
- Economic profit experienced consistent growth throughout the period, increasing from US$376,699 thousand in 2020 to US$2,454,594 thousand in 2024. Invested capital also increased, but the rate of increase was not constant. From 2020 to 2021, the increase in invested capital was relatively modest. However, a significant jump occurred between 2021 and 2022, and again between 2022 and 2023. The increase from 2023 to 2024 was more moderate. Despite the varying growth rates of invested capital, economic profit consistently outpaced these increases, contributing to the overall positive trend in the economic spread ratio.
The increasing economic spread ratio suggests that the company is becoming more effective at generating profits from its invested capital. The fluctuations observed, particularly the dip in 2022, warrant further investigation to understand the underlying drivers. However, the overall trend indicates improving financial performance and efficient capital allocation.
Economic Profit Margin
Arista Networks Inc., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in 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. | ||||||
| Super Micro Computer 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 ÷ Adjusted revenue
= 100 × ÷ =
3 Click competitor name to see calculations.
The economic profit and adjusted revenue exhibited consistent growth between 2020 and 2024. However, the economic profit margin demonstrated fluctuations over the same period, despite an overall positive trend. A detailed examination of these metrics reveals key insights into the company’s profitability.
- Economic Profit
- Economic profit increased substantially from US$376.699 million in 2020 to US$2.454.594 million in 2024. Growth was particularly strong between 2022 and 2024, indicating accelerating profitability. A slight decrease was observed between 2021 and 2022, but this was followed by significant gains in subsequent years.
- Adjusted Revenue
- Adjusted revenue mirrored the trend in economic profit, increasing from US$2.393.051 million in 2020 to US$8.288.357 million in 2024. The rate of revenue growth accelerated in later years, aligning with the increased economic profit. This suggests a strong correlation between revenue generation and profitability.
- Economic Profit Margin
- The economic profit margin began at 15.74% in 2020, rose to a peak of 22.13% in 2021, then decreased to 15.66% in 2022. It subsequently increased to 20.54% in 2023 and reached a high of 29.61% in 2024. This indicates that while revenue and profit both grew, the proportion of profit generated from each dollar of revenue was not constant. The substantial increase in the margin in 2024 suggests improved operational efficiency or pricing power. The dip in 2022 warrants further investigation to understand the underlying causes.
Overall, the company demonstrated strong financial performance between 2020 and 2024, with significant growth in both economic profit and adjusted revenue. The economic profit margin, while fluctuating, ultimately showed a positive trend, culminating in a substantial increase in the most recent year. Continued monitoring of the economic profit margin is recommended to assess the sustainability of this improvement.