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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
Net Operating Profit after Taxes (NOPAT)
Cash Operating Taxes
Invested Capital
Cost of Capital
Economic Spread Ratio
Economic Profit Margin

Merck & Co. Inc., economic profit calculation

US$ in millions

12 months ended:	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Net operating profit after taxes (NOPAT)¹	(714)	14,154)	13,349)	6,669)	9,938)
Cost of capital²	7.47%	7.45%	7.04%	7.00%	7.27%
Invested capital³	69,966)	73,942)	70,735)	57,182)	53,674)

Economic profit⁴	(5,938)	8,648)	8,367)	2,669)	6,038)

Based on: 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), 10-K (reporting date: 2019-12-31).

¹ NOPAT. See details »

² Cost of capital. See details »

³ Invested capital. See details »

⁴ 2023 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= -714 – 7.47% × 69,966 = -5,938

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Item	Description	The company
Economic profit	Economic profit is a measure of corporate performance computed by taking the spread between the return on invested capital and the cost of capital, and multiplying by the invested capital.	Merck & Co. Inc. economic profit increased from 2021 to 2022 but then decreased significantly from 2022 to 2023.

Merck & Co. Inc., NOPAT calculation

US$ in millions

12 months ended:	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Net income attributable to Merck & Co., Inc.	365)	14,519)	13,049)	7,067)	9,843)
Deferred income tax expense (benefit)¹	(1,899)	(1,568)	187)	(668)	(556)
Increase (decrease) in allowance for doubtful accounts²	16)	10)	(5)	(1)	(33)
Increase (decrease) in LIFO reserve³	269)	277)	(65)	(89)	172)
Increase (decrease) in restructuring reserves⁴	199)	(124)	51)	(156)	225)
Increase (decrease) in equity equivalents⁵	(1,415)	(1,405)	168)	(914)	(192)
Interest expense	1,146)	962)	806)	831)	893)
Interest expense, operating lease liability⁶	40)	40)	40)	47)	32)
Adjusted interest expense	1,186)	1,002)	846)	878)	925)
Tax benefit of interest expense⁷	(249)	(210)	(178)	(184)	(194)
Adjusted interest expense, after taxes⁸	937)	792)	668)	693)	731)
(Gain) loss on marketable securities	(411)	462)	232)	(184)	(204)
Interest income	(365)	(157)	(36)	(59)	(274)
Investment income, before taxes	(776)	305)	196)	(243)	(478)
Tax expense (benefit) of investment income⁹	163)	(64)	(41)	51)	100)
Investment income, after taxes¹⁰	(613)	241)	155)	(192)	(378)
(Income) loss from discontinued operations, net of tax¹¹	—)	—)	(704)	—)	—)
Net income (loss) attributable to noncontrolling interest	12)	7)	13)	15)	(66)
Net operating profit after taxes (NOPAT)	(714)	14,154)	13,349)	6,669)	9,938)

Based on: 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), 10-K (reporting date: 2019-12-31).

¹ Elimination of deferred tax expense. See details »

² Addition of increase (decrease) in allowance for doubtful accounts.

³ Addition of increase (decrease) in LIFO reserve. See details »

⁴ Addition of increase (decrease) in restructuring reserves.

⁵ Addition of increase (decrease) in equity equivalents to net income attributable to Merck & Co., Inc..

⁶ 2023 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 1,213 × 3.30% = 40

⁷ 2023 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 1,186 × 21.00% = 249

⁸ Addition of after taxes interest expense to net income attributable to Merck & Co., Inc..

⁹ 2023 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 776 × 21.00% = 163

¹⁰ Elimination of after taxes investment income.

¹¹ Elimination of discontinued operations.

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Item	Description	The company
NOPAT	Net operating profit after taxes is income from operations, but after removement of taxes calculated on cash basis that are relevant to operating income.	Merck & Co. Inc. NOPAT increased from 2021 to 2022 but then decreased significantly from 2022 to 2023.

Merck & Co. Inc., cash operating taxes calculation

US$ in millions

12 months ended:	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Taxes on income from continuing operations	1,512)	1,918)	1,521)	1,709)	1,687)
Less: Deferred income tax expense (benefit)	(1,899)	(1,568)	187)	(668)	(556)
Add: Tax savings from interest expense	249)	210)	178)	184)	194)
Less: Tax imposed on investment income	163)	(64)	(41)	51)	100)
Cash operating taxes	3,497)	3,760)	1,553)	2,510)	2,337)

Based on: 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), 10-K (reporting date: 2019-12-31).

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Item	Description	The company
Cash operating taxes	Cash operating taxes are estimated by adjusting income tax expense for changes in deferred taxes and tax benefit from the interest deduction.	Merck & Co. Inc. cash operating taxes increased from 2021 to 2022 but then slightly decreased from 2022 to 2023.

Merck & Co. Inc., invested capital calculation (financing approach)

US$ in millions

	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Loans payable and current portion of long-term debt	1,372)	1,946)	2,412)	6,431)	3,610)
Long-term debt, excluding current portion	33,683)	28,745)	30,690)	25,360)	22,736)
Operating lease liability¹	1,213)	1,294)	1,529)	1,662)	1,004)
Total reported debt & leases	36,268)	31,985)	34,631)	33,453)	27,350)
Total Merck & Co., Inc. stockholders’ equity	37,581)	45,991)	38,184)	25,317)	25,907)
Net deferred tax (assets) liabilities²	(1,097)	1,292)	2,749)	121)	750)
Allowance for doubtful accounts³	88)	72)	62)	85)	86)
LIFO reserve⁴	562)	293)	16)	82)	171)
Restructuring reserves⁵	712)	513)	637)	603)	759)
Equity equivalents⁶	265)	2,170)	3,464)	891)	1,766)
Accumulated other comprehensive (income) loss, net of tax⁷	5,161)	4,768)	4,429)	6,634)	6,193)
Noncontrolling interests	54)	67)	73)	87)	94)
Adjusted total Merck & Co., Inc. stockholders’ equity	43,061)	52,996)	46,150)	32,929)	33,960)
Construction in progress⁸	(8,262)	(9,186)	(8,313)	(7,324)	(5,013)
Investments in debt and publicly traded equity securities⁹	(1,101)	(1,853)	(1,733)	(1,876)	(2,623)
Invested capital	69,966)	73,942)	70,735)	57,182)	53,674)

Based on: 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), 10-K (reporting date: 2019-12-31).

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 LIFO reserve. See details »

⁵ Addition of restructuring reserves.

⁶ Addition of equity equivalents to total Merck & Co., Inc. stockholders’ equity.

⁷ Removal of accumulated other comprehensive income.

⁸ Subtraction of construction in progress.

⁹ Subtraction of investments in debt and publicly traded equity securities.

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Item	Description	The company
Invested capital	Capital is an approximation of the economic book value of all cash invested in going-concern business activities.	Merck & Co. Inc. invested capital increased from 2021 to 2022 but then decreased significantly from 2022 to 2023.

Merck & Co. Inc., cost of capital calculations

Dec 31, 2023

	Capital (fair value)¹	Weights					Cost of capital
Equity²	326,306)	326,306)	÷	359,519)	=	0.91	0.91	×	7.96%	=	7.22%
Loans payable and long-term debt, including current portion³	32,000)	32,000)	÷	359,519)	=	0.09	0.09	×	3.32% × (1 – 21.00%)	=	0.23%
Operating lease liability⁴	1,213)	1,213)	÷	359,519)	=	0.00	0.00	×	3.30% × (1 – 21.00%)	=	0.01%
Total:	359,519)					1.00					7.47%

Based on: 10-K (reporting date: 2023-12-31).

¹ US$ in millions

² Equity. See details »

³ Loans payable and long-term debt, including current portion. See details »

⁴ Operating lease liability. See details »

Dec 31, 2022

	Capital (fair value)¹	Weights					Cost of capital
Equity²	278,966)	278,966)	÷	306,960)	=	0.91	0.91	×	7.96%	=	7.23%
Loans payable and long-term debt, including current portion³	26,700)	26,700)	÷	306,960)	=	0.09	0.09	×	2.95% × (1 – 21.00%)	=	0.20%
Operating lease liability⁴	1,294)	1,294)	÷	306,960)	=	0.00	0.00	×	3.10% × (1 – 21.00%)	=	0.01%
Total:	306,960)					1.00					7.45%

Based on: 10-K (reporting date: 2022-12-31).

¹ US$ in millions

² Equity. See details »

³ Loans payable and long-term debt, including current portion. See details »

⁴ Operating lease liability. See details »

Dec 31, 2021

	Capital (fair value)¹	Weights					Cost of capital
Equity²	192,917)	192,917)	÷	230,146)	=	0.84	0.84	×	7.96%	=	6.67%
Loans payable and long-term debt, including current portion³	35,700)	35,700)	÷	230,146)	=	0.16	0.16	×	2.92% × (1 – 21.00%)	=	0.36%
Operating lease liability⁴	1,529)	1,529)	÷	230,146)	=	0.01	0.01	×	2.60% × (1 – 21.00%)	=	0.01%
Total:	230,146)					1.00					7.04%

Based on: 10-K (reporting date: 2021-12-31).

¹ US$ in millions

² Equity. See details »

³ Loans payable and long-term debt, including current portion. See details »

⁴ Operating lease liability. See details »

Dec 31, 2020

	Capital (fair value)¹	Weights					Cost of capital
Equity²	188,812)	188,812)	÷	226,474)	=	0.83	0.83	×	7.96%	=	6.64%
Loans payable and long-term debt, including current portion³	36,000)	36,000)	÷	226,474)	=	0.16	0.16	×	2.74% × (1 – 21.00%)	=	0.34%
Operating lease liability⁴	1,662)	1,662)	÷	226,474)	=	0.01	0.01	×	2.80% × (1 – 21.00%)	=	0.02%
Total:	226,474)					1.00					7.00%

Based on: 10-K (reporting date: 2020-12-31).

¹ US$ in millions

² Equity. See details »

³ Loans payable and long-term debt, including current portion. See details »

⁴ Operating lease liability. See details »

Dec 31, 2019

	Capital (fair value)¹	Weights					Cost of capital
Equity²	202,749)	202,749)	÷	232,553)	=	0.87	0.87	×	7.96%	=	6.94%
Loans payable and long-term debt, including current portion³	28,800)	28,800)	÷	232,553)	=	0.12	0.12	×	3.23% × (1 – 21.00%)	=	0.32%
Operating lease liability⁴	1,004)	1,004)	÷	232,553)	=	0.00	0.00	×	3.20% × (1 – 21.00%)	=	0.01%
Total:	232,553)					1.00					7.27%

Based on: 10-K (reporting date: 2019-12-31).

¹ US$ in millions

² Equity. See details »

³ Loans payable and long-term debt, including current portion. See details »

⁴ Operating lease liability. See details »

Merck & Co. Inc., economic spread ratio calculation, comparison to benchmarks

	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Selected Financial Data (US$ in millions)
Economic profit¹	(5,938)	8,648)	8,367)	2,669)	6,038)
Invested capital²	69,966)	73,942)	70,735)	57,182)	53,674)
Performance Ratio
Economic spread ratio³	-8.49%	11.70%	11.83%	4.67%	11.25%
Benchmarks
Economic Spread Ratio, Competitors⁴
AbbVie Inc.	-4.02%	5.41%	4.79%	-3.05%	7.22%
Amgen Inc.	2.73%	7.40%	7.38%	11.71%	13.91%
Bristol-Myers Squibb Co.	2.02%	-0.68%	1.57%	-14.00%	-3.67%
Danaher Corp.	-7.76%	-2.81%	-2.15%	-3.54%	-6.94%
Eli Lilly & Co.	3.28%	10.61%	12.30%	18.96%	15.79%
Gilead Sciences Inc.	6.00%	2.49%	9.02%	-4.04%	7.27%
Johnson & Johnson	-0.01%	5.22%	10.28%	5.06%	3.97%
Moderna Inc.	-122.48%	29.65%	117.96%	53.81%	-145.84%
Pfizer Inc.	-8.95%	18.62%	11.78%	-2.93%	5.68%
Regeneron Pharmaceuticals Inc.	21.20%	24.31%	67.31%	39.18%	28.44%
Thermo Fisher Scientific Inc.	-4.66%	-2.88%	-1.05%	-0.05%	-3.94%

Based on: 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), 10-K (reporting date: 2019-12-31).

¹ Economic profit. See details »

² Invested capital. See details »

³ 2023 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -5,938 ÷ 69,966 = -8.49%

⁴ Click competitor name to see calculations.

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Performance ratio	Description	The company
Economic spread ratio	The ratio of economic profit to invested capital, also equal to the difference between return on invested capital (ROIC) and cost of capital.	Merck & Co. Inc. economic spread ratio deteriorated from 2021 to 2022 and from 2022 to 2023.

Merck & Co. Inc., economic profit margin calculation, comparison to benchmarks

	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Selected Financial Data (US$ in millions)
Economic profit¹	(5,938)	8,648)	8,367)	2,669)	6,038)
Sales	60,115)	59,283)	48,704)	47,994)	46,840)
Performance Ratio
Economic profit margin²	-9.88%	14.59%	17.18%	5.56%	12.89%
Benchmarks
Economic Profit Margin, Competitors³
AbbVie Inc.	-5.04%	7.65%	8.18%	-6.92%	13.62%
Amgen Inc.	7.11%	11.85%	12.23%	18.72%	23.42%
Bristol-Myers Squibb Co.	3.03%	-1.06%	2.72%	-29.68%	-14.08%
Danaher Corp.	-25.47%	-6.97%	-5.37%	-10.39%	-22.52%
Eli Lilly & Co.	2.82%	9.03%	11.36%	18.98%	15.21%
Gilead Sciences Inc.	10.21%	4.21%	15.96%	-8.34%	10.34%
Johnson & Johnson	-0.01%	6.26%	10.77%	6.03%	4.69%
Moderna Inc.	-139.80%	14.80%	61.53%	55.69%	—
Pfizer Inc.	-23.69%	20.56%	12.70%	-7.26%	13.28%
Regeneron Pharmaceuticals Inc.	19.33%	24.48%	45.52%	38.18%	23.61%
Thermo Fisher Scientific Inc.	-9.30%	-5.31%	-2.14%	-0.10%	-8.11%

Based on: 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), 10-K (reporting date: 2019-12-31).

¹ Economic profit. See details »

² 2023 Calculation
Economic profit margin = 100 × Economic profit ÷ Sales
= 100 × -5,938 ÷ 60,115 = -9.88%

³ Click competitor name to see calculations.

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Performance ratio	Description	The company
Economic profit margin	The ratio of economic profit to sales. It is the company profit margin covering income efficiency and asset management. Economic profit margin is not biased in favor of capital-intensive business models, because any added capital is a cost to the economic profit margin.	Merck & Co. Inc. economic profit margin deteriorated from 2021 to 2022 and from 2022 to 2023.

Merck & Co. Inc. (NYSE:MRK)

Economic Value Added (EVA)

Economic Profit

Net Operating Profit after Taxes (NOPAT)

Cash Operating Taxes

Invested Capital

Cost of Capital

Economic Spread Ratio

Economic Profit Margin