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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

Walgreens Boots Alliance Inc., economic profit calculation

US$ in millions

12 months ended:	Aug 31, 2019	Aug 31, 2018	Aug 31, 2017	Aug 31, 2016	Aug 31, 2015	Aug 31, 2014
Net operating profit after taxes (NOPAT)¹	5,719)	5,934)	5,246)	4,855)	5,501)	3,086)
Cost of capital²	8.12%	9.00%	9.05%	9.09%	9.36%	8.98%
Invested capital³	77,429)	76,286)	76,485)	85,356)	80,730)	55,001)

Economic profit⁴	(566)	(929)	(1,679)	(2,902)	(2,053)	(1,854)

Based on: 10-K (reporting date: 2019-08-31), 10-K (reporting date: 2018-08-31), 10-K (reporting date: 2017-08-31), 10-K (reporting date: 2016-08-31), 10-K (reporting date: 2015-08-31), 10-K (reporting date: 2014-08-31).

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
= 5,719 – 8.12% × 77,429 = -566

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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.	Walgreens Boots Alliance Inc. economic profit increased from 2017 to 2018 and from 2018 to 2019.

Walgreens Boots Alliance Inc., NOPAT calculation

US$ in millions

12 months ended:	Aug 31, 2019	Aug 31, 2018	Aug 31, 2017	Aug 31, 2016	Aug 31, 2015	Aug 31, 2014
Net earnings attributable to Walgreens Boots Alliance, Inc.	3,982)	5,024)	4,078)	4,173)	4,220)	1,932)
Deferred income tax expense (benefit)¹	100)	(324)	(434)	(429)	(39)	175)
Increase (decrease) in allowance for doubtful accounts²	20)	(83)	(8)	(6)	(1)	19)
Increase (decrease) in LIFO reserve³	200)	—)	200)	300)	200)	200)
Increase (decrease) in liabilities related to the exit and disposal activities⁴	147)	150)	324)	—)	—)	—)
Increase (decrease) in equity equivalents⁵	467)	(257)	82)	(135)	160)	394)
Interest expense, net	704)	616)	693)	596)	605)	156)
Interest expense, operating lease liability⁶	929)	945)	943)	901)	1,028)	860)
Adjusted interest expense, net	1,633)	1,561)	1,636)	1,497)	1,633)	1,016)
Tax benefit of interest expense, net⁷	(343)	(401)	(573)	(524)	(572)	(356)
Adjusted interest expense, net, after taxes⁸	1,290)	1,160)	1,063)	973)	1,062)	661)
(Gain) loss on marketable securities	—)	—)	—)	(268)	—)	—)
Investment income, before taxes	—)	—)	—)	(268)	—)	—)
Tax expense (benefit) of investment income⁹	—)	—)	—)	94)	—)	—)
Investment income, after taxes¹⁰	—)	—)	—)	(174)	—)	—)
Net income (loss) attributable to noncontrolling interest	(20)	7)	23)	18)	59)	99)
Net operating profit after taxes (NOPAT)	5,719)	5,934)	5,246)	4,855)	5,501)	3,086)

Based on: 10-K (reporting date: 2019-08-31), 10-K (reporting date: 2018-08-31), 10-K (reporting date: 2017-08-31), 10-K (reporting date: 2016-08-31), 10-K (reporting date: 2015-08-31), 10-K (reporting date: 2014-08-31).

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 liabilities related to the exit and disposal activities.

⁵ Addition of increase (decrease) in equity equivalents to net earnings attributable to Walgreens Boots Alliance, Inc..

⁶ 2019 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 26,628 × 3.49% = 929

⁷ 2019 Calculation
Tax benefit of interest expense, net = Adjusted interest expense, net × Statutory income tax rate
= 1,633 × 21.00% = 343

⁸ Addition of after taxes interest expense to net earnings attributable to Walgreens Boots Alliance, Inc..

⁹ 2019 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 0 × 21.00% = 0

¹⁰ Elimination of after taxes investment income.

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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.	Walgreens Boots Alliance Inc. NOPAT increased from 2017 to 2018 but then slightly decreased from 2018 to 2019.

Walgreens Boots Alliance Inc., cash operating taxes calculation

US$ in millions

12 months ended:	Aug 31, 2019	Aug 31, 2018	Aug 31, 2017	Aug 31, 2016	Aug 31, 2015	Aug 31, 2014
Income tax provision	588)	998)	760)	997)	1,056)	1,526)
Less: Deferred income tax expense (benefit)	100)	(324)	(434)	(429)	(39)	175)
Add: Tax savings from interest expense, net	343)	401)	573)	524)	572)	356)
Less: Tax imposed on investment income	—)	—)	—)	94)	—)	—)
Cash operating taxes	831)	1,723)	1,767)	1,856)	1,667)	1,707)

Based on: 10-K (reporting date: 2019-08-31), 10-K (reporting date: 2018-08-31), 10-K (reporting date: 2017-08-31), 10-K (reporting date: 2016-08-31), 10-K (reporting date: 2015-08-31), 10-K (reporting date: 2014-08-31).

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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.	Walgreens Boots Alliance Inc. cash operating taxes decreased from 2017 to 2018 and from 2018 to 2019.

Walgreens Boots Alliance Inc., invested capital calculation (financing approach)

US$ in millions

	Aug 31, 2019	Aug 31, 2018	Aug 31, 2017	Aug 31, 2016	Aug 31, 2015	Aug 31, 2014
Short-term debt	5,738)	1,966)	251)	323)	1,068)	774)
Long-term debt	11,098)	12,431)	12,684)	18,705)	13,315)	3,736)
Operating lease liability¹	26,628)	26,624)	26,194)	27,480)	29,803)	27,399)
Total reported debt & leases	43,464)	41,021)	39,129)	46,508)	44,186)	31,909)
Total Walgreens Boots Alliance, Inc. shareholders’ equity	23,512)	26,007)	27,466)	29,880)	30,861)	20,457)
Net deferred tax (assets) liabilities²	1,724)	1,750)	2,274)	2,641)	3,541)	1,123)
Allowance for doubtful accounts³	95)	75)	158)	166)	172)	173)
LIFO reserve⁴	3,200)	3,000)	3,000)	2,800)	2,500)	2,300)
Liabilities related to the exit and disposal activities⁵	897)	750)	600)	—)	—)	—)
Equity equivalents⁶	5,916)	5,575)	6,032)	5,607)	6,213)	3,596)
Accumulated other comprehensive (income) loss, net of tax⁷	3,897)	3,002)	3,051)	2,992)	214)	(178)
Noncontrolling interests	640)	682)	808)	401)	439)	104)
Adjusted total Walgreens Boots Alliance, Inc. shareholders’ equity	33,965)	35,266)	37,357)	38,880)	37,727)	23,979)
Available-for-sale investments⁸	—)	(1)	(1)	(32)	(1,183)	(887)
Invested capital	77,429)	76,286)	76,485)	85,356)	80,730)	55,001)

Based on: 10-K (reporting date: 2019-08-31), 10-K (reporting date: 2018-08-31), 10-K (reporting date: 2017-08-31), 10-K (reporting date: 2016-08-31), 10-K (reporting date: 2015-08-31), 10-K (reporting date: 2014-08-31).

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 liabilities related to the exit and disposal activities.

⁶ Addition of equity equivalents to total Walgreens Boots Alliance, Inc. shareholders’ equity.

⁷ Removal of accumulated other comprehensive income.

⁸ Subtraction of available-for-sale investments.

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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.	Walgreens Boots Alliance Inc. invested capital decreased from 2017 to 2018 but then increased from 2018 to 2019 exceeding 2017 level.

Walgreens Boots Alliance Inc., cost of capital calculations

Aug 31, 2019

	Capital (fair value)¹	Weights					Cost of capital
Equity²	49,804)	49,804)	÷	93,844)	=	0.53	0.53	×	12.86%	=	6.82%
Borrowings³	17,413)	17,413)	÷	93,844)	=	0.19	0.19	×	3.49% × (1 – 21.00%)	=	0.51%
Operating lease liability⁴	26,628)	26,628)	÷	93,844)	=	0.28	0.28	×	3.49% × (1 – 21.00%)	=	0.78%
Total:	93,844)					1.00					8.12%

Based on: 10-K (reporting date: 2019-08-31).

¹ US$ in millions

² Equity. See details »

³ Borrowings. See details »

⁴ Operating lease liability. See details »

Aug 31, 2018

	Capital (fair value)¹	Weights					Cost of capital
Equity²	67,296)	67,296)	÷	108,160)	=	0.62	0.62	×	12.86%	=	8.00%
Borrowings³	14,240)	14,240)	÷	108,160)	=	0.13	0.13	×	3.55% × (1 – 25.70%)	=	0.35%
Operating lease liability⁴	26,624)	26,624)	÷	108,160)	=	0.25	0.25	×	3.55% × (1 – 25.70%)	=	0.65%
Total:	108,160)					1.00					9.00%

Based on: 10-K (reporting date: 2018-08-31).

¹ US$ in millions

² Equity. See details »

³ Borrowings. See details »

⁴ Operating lease liability. See details »

Aug 31, 2017

	Capital (fair value)¹	Weights					Cost of capital
Equity²	70,022)	70,022)	÷	109,692)	=	0.64	0.64	×	12.86%	=	8.21%
Borrowings³	13,475)	13,475)	÷	109,692)	=	0.12	0.12	×	3.60% × (1 – 35.00%)	=	0.29%
Operating lease liability⁴	26,194)	26,194)	÷	109,692)	=	0.24	0.24	×	3.60% × (1 – 35.00%)	=	0.56%
Total:	109,692)					1.00					9.05%

Based on: 10-K (reporting date: 2017-08-31).

¹ US$ in millions

² Equity. See details »

³ Borrowings. See details »

⁴ Operating lease liability. See details »

Aug 31, 2016

	Capital (fair value)¹	Weights					Cost of capital
Equity²	87,768)	87,768)	÷	135,335)	=	0.65	0.65	×	12.86%	=	8.34%
Borrowings³	20,088)	20,088)	÷	135,335)	=	0.15	0.15	×	3.28% × (1 – 35.00%)	=	0.32%
Operating lease liability⁴	27,480)	27,480)	÷	135,335)	=	0.20	0.20	×	3.28% × (1 – 35.00%)	=	0.43%
Total:	135,335)					1.00					9.09%

Based on: 10-K (reporting date: 2016-08-31).

¹ US$ in millions

² Equity. See details »

³ Borrowings. See details »

⁴ Operating lease liability. See details »

Aug 31, 2015

	Capital (fair value)¹	Weights					Cost of capital
Equity²	92,493)	92,493)	÷	138,008)	=	0.67	0.67	×	12.86%	=	8.62%
Borrowings³	15,712)	15,712)	÷	138,008)	=	0.11	0.11	×	3.45% × (1 – 35.00%)	=	0.26%
Operating lease liability⁴	29,803)	29,803)	÷	138,008)	=	0.22	0.22	×	3.45% × (1 – 35.00%)	=	0.48%
Total:	138,008)					1.00					9.36%

Based on: 10-K (reporting date: 2015-08-31).

¹ US$ in millions

² Equity. See details »

³ Borrowings. See details »

⁴ Operating lease liability. See details »

Aug 31, 2014

	Capital (fair value)¹	Weights					Cost of capital
Equity²	57,213)	57,213)	÷	89,168)	=	0.64	0.64	×	12.86%	=	8.25%
Borrowings³	4,556)	4,556)	÷	89,168)	=	0.05	0.05	×	3.14% × (1 – 35.00%)	=	0.10%
Operating lease liability⁴	27,399)	27,399)	÷	89,168)	=	0.31	0.31	×	3.14% × (1 – 35.00%)	=	0.63%
Total:	89,168)					1.00					8.98%

Based on: 10-K (reporting date: 2014-08-31).

¹ US$ in millions

² Equity. See details »

³ Borrowings. See details »

⁴ Operating lease liability. See details »

Walgreens Boots Alliance Inc., economic spread ratio calculation, comparison to benchmarks

	Aug 31, 2019	Aug 31, 2018	Aug 31, 2017	Aug 31, 2016	Aug 31, 2015	Aug 31, 2014
Selected Financial Data (US$ in millions)
Economic profit¹	(566)	(929)	(1,679)	(2,902)	(2,053)	(1,854)
Invested capital²	77,429)	76,286)	76,485)	85,356)	80,730)	55,001)
Performance Ratio
Economic spread ratio³	-0.73%	-1.22%	-2.19%	-3.40%	-2.54%	-3.37%
Benchmarks
Economic Spread Ratio, Competitors⁴
Costco Wholesale Corp.	5.40%	5.11%	—	—	—	—
Target Corp.	2.60%	—	—	—	—	—
Walmart Inc.	-2.06%	—	—	—	—	—

Based on: 10-K (reporting date: 2019-08-31), 10-K (reporting date: 2018-08-31), 10-K (reporting date: 2017-08-31), 10-K (reporting date: 2016-08-31), 10-K (reporting date: 2015-08-31), 10-K (reporting date: 2014-08-31).

¹ Economic profit. See details »

² Invested capital. See details »

³ 2019 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -566 ÷ 77,429 = -0.73%

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.	Walgreens Boots Alliance Inc. economic spread ratio improved from 2017 to 2018 and from 2018 to 2019.

Walgreens Boots Alliance Inc., economic profit margin calculation, comparison to benchmarks

	Aug 31, 2019	Aug 31, 2018	Aug 31, 2017	Aug 31, 2016	Aug 31, 2015	Aug 31, 2014
Selected Financial Data (US$ in millions)
Economic profit¹	(566)	(929)	(1,679)	(2,902)	(2,053)	(1,854)
Sales	136,866)	131,537)	118,214)	117,351)	103,444)	76,392)
Performance Ratio
Economic profit margin²	-0.41%	-0.71%	-1.42%	-2.47%	-1.98%	-2.43%
Benchmarks
Economic Profit Margin, Competitors³
Costco Wholesale Corp.	0.87%	0.77%	—	—	—	—
Target Corp.	0.91%	—	—	—	—	—
Walmart Inc.	-0.64%	—	—	—	—	—

Based on: 10-K (reporting date: 2019-08-31), 10-K (reporting date: 2018-08-31), 10-K (reporting date: 2017-08-31), 10-K (reporting date: 2016-08-31), 10-K (reporting date: 2015-08-31), 10-K (reporting date: 2014-08-31).

¹ Economic profit. See details »

² 2019 Calculation
Economic profit margin = 100 × Economic profit ÷ Sales
= 100 × -566 ÷ 136,866 = -0.41%

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.	Walgreens Boots Alliance Inc. economic profit margin improved from 2017 to 2018 and from 2018 to 2019.

Walgreens Boots Alliance Inc. (NASDAQ:WBA)

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