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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

EMC Corp., economic profit calculation

US$ in millions

12 months ended:	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012	Dec 31, 2011
Net operating profit after taxes (NOPAT)¹	2,862)	3,737)	4,442)	4,279)	4,267)
Cost of capital²	15.63%	16.07%	15.68%	16.82%	16.66%
Invested capital³	33,788)	32,268)	31,439)	27,392)	24,594)

Economic profit⁴	(2,418)	(1,448)	(488)	(329)	171)

Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).

¹ NOPAT. See details »

² Cost of capital. See details »

³ Invested capital. See details »

⁴ 2015 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 2,862 – 15.63% × 33,788 = -2,418

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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.	EMC Corp. economic profit decreased from 2013 to 2014 and from 2014 to 2015.

EMC Corp., NOPAT calculation

US$ in millions

12 months ended:	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012	Dec 31, 2011
Net income attributable to EMC Corporation	1,990)	2,714)	2,889)	2,733)	2,461)
Deferred income tax expense (benefit)¹	(234)	(396)	(202)	(118)	(19)
Increase (decrease) in allowance for doubtful accounts²	18)	10)	(6)	7)	4)
Increase (decrease) in deferred revenue³	637)	1,186)	1,428)	1,377)	1,510)
Increase (decrease) in product warranty obligations⁴	(35)	(79)	11)	23)	18)
Increase (decrease) in restructuring⁵	216)	39)	(1)	11)	(2)
Increase (decrease) in equity equivalents⁶	602)	760)	1,230)	1,301)	1,512)
Interest expense	164)	147)	156)	79)	170)
Interest expense, operating lease liability⁷	42)	43)	45)	72)	64)
Adjusted interest expense	206)	190)	201)	151)	235)
Tax benefit of interest expense⁸	(72)	(67)	(70)	(53)	(82)
Adjusted interest expense, after taxes⁹	134)	124)	130)	98)	152)
(Gain) loss on marketable securities	(70)	(62)	(17)	(9)	(9)
Investment income, before taxes	(70)	(62)	(17)	(9)	(9)
Tax expense (benefit) of investment income¹⁰	25)	22)	6)	3)	3)
Investment income, after taxes¹¹	(46)	(40)	(11)	(6)	(6)
Net income (loss) attributable to noncontrolling interest	182)	180)	204)	153)	148)
Net operating profit after taxes (NOPAT)	2,862)	3,737)	4,442)	4,279)	4,267)

Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).

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 product warranty obligations.

⁵ Addition of increase (decrease) in restructuring.

⁶ Addition of increase (decrease) in equity equivalents to net income attributable to EMC Corporation.

⁷ 2015 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 1,788 × 2.34% = 42

⁸ 2015 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 206 × 35.00% = 72

⁹ Addition of after taxes interest expense to net income attributable to EMC Corporation.

¹⁰ 2015 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 70 × 35.00% = 25

¹¹ 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.	EMC Corp. NOPAT decreased from 2013 to 2014 and from 2014 to 2015.

EMC Corp., cash operating taxes calculation

US$ in millions

12 months ended:	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012	Dec 31, 2011
Provision for income taxes	710)	868)	772)	918)	640)
Less: Deferred income tax expense (benefit)	(234)	(396)	(202)	(118)	(19)
Add: Tax savings from interest expense	72)	67)	70)	53)	82)
Less: Tax imposed on investment income	25)	22)	6)	3)	3)
Cash operating taxes	992)	1,309)	1,038)	1,085)	739)

Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).

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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.	EMC Corp. cash operating taxes increased from 2013 to 2014 but then decreased significantly from 2014 to 2015.

EMC Corp., invested capital calculation (financing approach)

US$ in millions

	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012	Dec 31, 2011
Notes converted and payable	—)	—)	1,665)	—)	1,700)
Short-term debt	1,299)	—)	—)	—)	—)
Current portion of convertible debt	—)	—)	—)	1,652)	1,605)
Long-term debt	5,475)	5,495)	5,494)	—)	—)
Operating lease liability¹	1,788)	1,704)	1,371)	1,290)	1,145)
Total reported debt & leases	8,562)	7,199)	8,530)	2,942)	4,450)
Total EMC Corporation’s shareholders’ equity	21,140)	21,896)	22,301)	22,357)	18,959)
Net deferred tax (assets) liabilities²	(1,164)	(952)	(624)	(432)	(130)
Allowance for doubtful accounts³	90)	72)	62)	68)	62)
Deferred revenue⁴	10,802)	10,165)	8,979)	7,551)	6,174)
Product warranty obligations⁵	172)	210)	289)	278)	255)
Restructuring⁶	345)	129)	90)	91)	80)
Equity equivalents⁷	10,245)	9,624)	8,796)	7,557)	6,440)
Accumulated other comprehensive (income) loss, net of tax⁸	579)	366)	239)	208)	235)
Non-controlling interests	1,579)	1,629)	1,485)	1,167)	968)
Adjusted total EMC Corporation’s shareholders’ equity	33,543)	33,515)	32,821)	31,289)	26,603)
Building construction in progress⁹	(83)	(134)	(215)	(197)	(147)
Short- and long-term investments¹⁰	(8,234)	(8,312)	(9,697)	(6,642)	(6,312)
Invested capital	33,788)	32,268)	31,439)	27,392)	24,594)

Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).

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 product warranty obligations.

⁶ Addition of restructuring.

⁷ Addition of equity equivalents to total EMC Corporation’s shareholders’ equity.

⁸ Removal of accumulated other comprehensive income.

⁹ Subtraction of building construction in progress.

¹⁰ Subtraction of short- and long-term 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.	EMC Corp. invested capital increased from 2013 to 2014 and from 2014 to 2015.

EMC Corp., cost of capital calculations

Dec 31, 2015

	Capital (fair value)¹	Weights					Cost of capital
Equity²	50,487)	50,487)	÷	58,573)	=	0.86	0.86	×	17.89%	=	15.42%
Debt³	6,298)	6,298)	÷	58,573)	=	0.11	0.11	×	2.34% × (1 – 35.00%)	=	0.16%
Operating lease liability⁴	1,788)	1,788)	÷	58,573)	=	0.03	0.03	×	2.34% × (1 – 35.00%)	=	0.05%
Total:	58,573)					1.00					15.63%

Based on: 10-K (reporting date: 2015-12-31).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2014

	Capital (fair value)¹	Weights					Cost of capital
Equity²	57,535)	57,535)	÷	64,783)	=	0.89	0.89	×	17.89%	=	15.89%
Debt³	5,544)	5,544)	÷	64,783)	=	0.09	0.09	×	2.54% × (1 – 35.00%)	=	0.14%
Operating lease liability⁴	1,704)	1,704)	÷	64,783)	=	0.03	0.03	×	2.54% × (1 – 35.00%)	=	0.04%
Total:	64,783)					1.00					16.07%

Based on: 10-K (reporting date: 2014-12-31).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2013

	Capital (fair value)¹	Weights					Cost of capital
Equity²	52,018)	52,018)	÷	60,474)	=	0.86	0.86	×	17.89%	=	15.39%
Debt³	7,084)	7,084)	÷	60,474)	=	0.12	0.12	×	3.25% × (1 – 35.00%)	=	0.25%
Operating lease liability⁴	1,371)	1,371)	÷	60,474)	=	0.02	0.02	×	3.25% × (1 – 35.00%)	=	0.05%
Total:	60,474)					1.00					15.68%

Based on: 10-K (reporting date: 2013-12-31).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2012

	Capital (fair value)¹	Weights					Cost of capital
Equity²	48,991)	48,991)	÷	52,947)	=	0.93	0.93	×	17.89%	=	16.55%
Debt³	2,666)	2,666)	÷	52,947)	=	0.05	0.05	×	5.60% × (1 – 35.00%)	=	0.18%
Operating lease liability⁴	1,290)	1,290)	÷	52,947)	=	0.02	0.02	×	5.60% × (1 – 35.00%)	=	0.09%
Total:	52,947)					1.00					16.82%

Based on: 10-K (reporting date: 2012-12-31).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2011

	Capital (fair value)¹	Weights					Cost of capital
Equity²	56,501)	56,501)	÷	61,846)	=	0.91	0.91	×	17.89%	=	16.34%
Debt³	4,200)	4,200)	÷	61,846)	=	0.07	0.07	×	5.60% × (1 – 35.00%)	=	0.25%
Operating lease liability⁴	1,145)	1,145)	÷	61,846)	=	0.02	0.02	×	5.60% × (1 – 35.00%)	=	0.07%
Total:	61,846)					1.00					16.66%

Based on: 10-K (reporting date: 2011-12-31).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

EMC Corp., economic spread ratio calculation, comparison to benchmarks

	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012	Dec 31, 2011
Selected Financial Data (US$ in millions)
Economic profit¹	(2,418)	(1,448)	(488)	(329)	171)
Invested capital²	33,788)	32,268)	31,439)	27,392)	24,594)
Performance Ratio
Economic spread ratio³	-7.16%	-4.49%	-1.55%	-1.20%	0.69%
Benchmarks
Economic Spread Ratio, Competitors⁴
Advanced Micro Devices Inc.	—	—	—	—	—
Analog Devices Inc.	—	—	—	—	—
Applied Materials Inc.	—	—	—	—	—
Broadcom Inc.	—	—	—	—	—
Intel Corp.	—	—	—	—	—
KLA Corp.	—	—	—	—	—
Lam Research Corp.	—	—	—	—	—
Micron Technology Inc.	—	—	—	—	—
NVIDIA Corp.	—	—	—	—	—
ON Semiconductor Corp.	—	—	—	—	—
Qualcomm Inc.	—	—	—	—	—
Texas Instruments Inc.	—	—	—	—	—

Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).

¹ Economic profit. See details »

² Invested capital. See details »

³ 2015 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -2,418 ÷ 33,788 = -7.16%

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.	EMC Corp. economic spread ratio deteriorated from 2013 to 2014 and from 2014 to 2015.

EMC Corp., economic profit margin calculation, comparison to benchmarks

	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012	Dec 31, 2011
Selected Financial Data (US$ in millions)
Economic profit¹	(2,418)	(1,448)	(488)	(329)	171)

Revenues	24,704)	24,440)	23,222)	21,714)	20,008)
Add: Increase (decrease) in deferred revenue	637)	1,186)	1,428)	1,377)	1,510)
Adjusted revenues	25,341)	25,626)	24,650)	23,091)	21,518)
Performance Ratio
Economic profit margin²	-9.54%	-5.65%	-1.98%	-1.43%	0.79%
Benchmarks
Economic Profit Margin, Competitors³
Advanced Micro Devices Inc.	—	—	—	—	—
Analog Devices Inc.	—	—	—	—	—
Applied Materials Inc.	—	—	—	—	—
Broadcom Inc.	—	—	—	—	—
Intel Corp.	—	—	—	—	—
KLA Corp.	—	—	—	—	—
Lam Research Corp.	—	—	—	—	—
Micron Technology Inc.	—	—	—	—	—
NVIDIA Corp.	—	—	—	—	—
ON Semiconductor Corp.	—	—	—	—	—
Qualcomm Inc.	—	—	—	—	—
Texas Instruments Inc.	—	—	—	—	—

Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).

¹ Economic profit. See details »

² 2015 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted revenues
= 100 × -2,418 ÷ 25,341 = -9.54%

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.	EMC Corp. economic profit margin deteriorated from 2013 to 2014 and from 2014 to 2015.

EMC Corp. (NYSE:EMC)

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