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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

Eaton Corp. plc, 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	3,310)	2,473)	2,328)	1,541)	2,321)
Cost of capital²	12.94%	12.56%	12.18%	12.06%	11.65%
Invested capital³	31,576)	30,906)	29,709)	27,450)	29,469)

Economic profit⁴	(776)	(1,408)	(1,289)	(1,770)	(1,112)

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
= 3,310 – 12.94% × 31,576 = -776

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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.	Eaton Corp. plc economic profit decreased from 2021 to 2022 but then increased from 2022 to 2023 exceeding 2021 level.

Eaton Corp. plc, 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 Eaton ordinary shareholders	3,218)	2,462)	2,144)	1,410)	2,211)
Deferred income tax expense (benefit)¹	(182)	(128)	(30)	(125)	(58)
Increase (decrease) in allowance for credit losses²	7)	(11)	(6)	(1)	(6)
Increase (decrease) in deferred revenue liabilities³	118)	86)	165)	23)	(14)
Increase (decrease) in product warranty accruals⁴	11)	—)	(26)	(36)	11)
Increase (decrease) in liabilities related to workforce reductions, plant closing and other associated costs⁵	—)	(63)	(38)	142)	(15)
Increase (decrease) in equity equivalents⁶	(46)	(116)	65)	3)	(82)
Interest expense, net	151)	144)	144)	149)	236)
Interest expense, operating lease liability⁷	27)	19)	12)	15)	17)
Adjusted interest expense, net	178)	163)	156)	164)	253)
Tax benefit of interest expense, net⁸	(44)	(41)	(39)	(41)	(63)
Adjusted interest expense, net, after taxes⁹	133)	123)	117)	123)	190)
Net income (loss) attributable to noncontrolling interest	5)	4)	2)	5)	2)
Net operating profit after taxes (NOPAT)	3,310)	2,473)	2,328)	1,541)	2,321)

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 credit losses.

³ Addition of increase (decrease) in deferred revenue liabilities.

⁴ Addition of increase (decrease) in product warranty accruals.

⁵ Addition of increase (decrease) in liabilities related to workforce reductions, plant closing and other associated costs.

⁶ Addition of increase (decrease) in equity equivalents to net income attributable to Eaton ordinary shareholders.

⁷ 2023 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 668 × 4.00% = 27

⁸ 2023 Calculation
Tax benefit of interest expense, net = Adjusted interest expense, net × Statutory income tax rate
= 178 × 25.00% = 44

⁹ Addition of after taxes interest expense to net income attributable to Eaton ordinary shareholders.

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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.	Eaton Corp. plc NOPAT increased from 2021 to 2022 and from 2022 to 2023.

Eaton Corp. plc, 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
Income tax expense	604)	445)	750)	331)	378)
Less: Deferred income tax expense (benefit)	(182)	(128)	(30)	(125)	(58)
Add: Tax savings from interest expense, net	44)	41)	39)	41)	63)
Cash operating taxes	830)	614)	819)	497)	499)

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.	Eaton Corp. plc cash operating taxes decreased from 2021 to 2022 but then increased from 2022 to 2023 exceeding 2021 level.

Eaton Corp. plc, invested capital calculation (financing approach)

US$ in millions

	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Short-term debt	8)	324)	13)	1)	255)
Current portion of long-term debt	1,017)	10)	1,735)	1,047)	248)
Long-term debt, excluding current portion	8,244)	8,321)	6,831)	7,010)	7,819)
Operating lease liability¹	668)	586)	457)	442)	452)
Total reported debt & leases	9,937)	9,241)	9,036)	8,500)	8,774)
Total Eaton shareholders’ equity	19,036)	17,038)	16,413)	14,930)	16,082)
Net deferred tax (assets) liabilities²	(56)	200)	167)	(152)	23)
Allowance for credit losses³	38)	31)	42)	48)	49)
Deferred revenue liabilities⁴	626)	508)	422)	257)	234)
Product warranty accruals⁵	136)	125)	125)	151)	187)
Liabilities related to workforce reductions, plant closing and other associated costs⁶	41)	41)	104)	142)	—)
Equity equivalents⁷	785)	905)	860)	446)	493)
Accumulated other comprehensive (income) loss, net of tax⁸	3,906)	3,946)	3,633)	4,195)	4,290)
Noncontrolling interests	33)	37)	38)	43)	51)
Adjusted total Eaton shareholders’ equity	23,760)	21,926)	20,944)	19,614)	20,916)
Short-term investments⁹	(2,121)	(261)	(271)	(664)	(221)
Invested capital	31,576)	30,906)	29,709)	27,450)	29,469)

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 deferred revenue liabilities.

⁵ Addition of product warranty accruals.

⁶ Addition of liabilities related to workforce reductions, plant closing and other associated costs.

⁷ Addition of equity equivalents to total Eaton shareholders’ equity.

⁸ Removal of accumulated other comprehensive income.

⁹ Subtraction of short-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.	Eaton Corp. plc invested capital increased from 2021 to 2022 and from 2022 to 2023.

Eaton Corp. plc, cost of capital calculations

Dec 31, 2023

	Capital (fair value)¹	Weights					Cost of capital
Equity²	115,456)	115,456)	÷	125,056)	=	0.92	0.92	×	13.82%	=	12.76%
Debt³	8,932)	8,932)	÷	125,056)	=	0.07	0.07	×	3.19% × (1 – 25.00%)	=	0.17%
Operating lease liability⁴	668)	668)	÷	125,056)	=	0.01	0.01	×	4.00% × (1 – 25.00%)	=	0.02%
Total:	125,056)					1.00					12.94%

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

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2022

	Capital (fair value)¹	Weights					Cost of capital
Equity²	68,766)	68,766)	÷	77,301)	=	0.89	0.89	×	13.82%	=	12.29%
Debt³	7,949)	7,949)	÷	77,301)	=	0.10	0.10	×	3.21% × (1 – 25.00%)	=	0.25%
Operating lease liability⁴	586)	586)	÷	77,301)	=	0.01	0.01	×	3.30% × (1 – 25.00%)	=	0.02%
Total:	77,301)					1.00					12.56%

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

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2021

	Capital (fair value)¹	Weights					Cost of capital
Equity²	59,545)	59,545)	÷	69,247)	=	0.86	0.86	×	13.82%	=	11.88%
Debt³	9,245)	9,245)	÷	69,247)	=	0.13	0.13	×	2.82% × (1 – 25.00%)	=	0.28%
Operating lease liability⁴	457)	457)	÷	69,247)	=	0.01	0.01	×	2.60% × (1 – 25.00%)	=	0.01%
Total:	69,247)					1.00					12.18%

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

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2020

	Capital (fair value)¹	Weights					Cost of capital
Equity²	52,820)	52,820)	÷	62,338)	=	0.85	0.85	×	13.82%	=	11.71%
Debt³	9,076)	9,076)	÷	62,338)	=	0.15	0.15	×	3.10% × (1 – 25.00%)	=	0.34%
Operating lease liability⁴	442)	442)	÷	62,338)	=	0.01	0.01	×	3.30% × (1 – 25.00%)	=	0.02%
Total:	62,338)					1.00					12.06%

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

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2019

	Capital (fair value)¹	Weights					Cost of capital
Equity²	39,926)	39,926)	÷	49,271)	=	0.81	0.81	×	13.82%	=	11.20%
Debt³	8,893)	8,893)	÷	49,271)	=	0.18	0.18	×	3.15% × (1 – 25.00%)	=	0.43%
Operating lease liability⁴	452)	452)	÷	49,271)	=	0.01	0.01	×	3.70% × (1 – 25.00%)	=	0.03%
Total:	49,271)					1.00					11.65%

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

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Eaton Corp. plc, 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	(776)	(1,408)	(1,289)	(1,770)	(1,112)
Invested capital²	31,576)	30,906)	29,709)	27,450)	29,469)
Performance Ratio
Economic spread ratio³	-2.46%	-4.56%	-4.34%	-6.45%	-3.77%
Benchmarks
Economic Spread Ratio, Competitors⁴
Boeing Co.	-14.35%	-19.75%	-18.42%	-29.99%	-19.84%
Caterpillar Inc.	4.72%	1.07%	1.00%	-5.12%	1.20%
Cummins Inc.	-7.04%	-1.28%	2.66%	-0.67%	4.72%
General Electric Co.	7.41%	-8.81%	-13.79%	-3.94%	-6.49%
Honeywell International Inc.	0.14%	-0.80%	0.24%	-1.19%	3.08%
Lockheed Martin Corp.	17.26%	13.24%	14.24%	17.54%	18.16%
RTX Corp.	-3.30%	-3.17%	-2.70%	-8.23%	0.27%

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 × -776 ÷ 31,576 = -2.46%

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.	Eaton Corp. plc economic spread ratio deteriorated from 2021 to 2022 but then improved from 2022 to 2023 exceeding 2021 level.

Eaton Corp. plc, 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	(776)	(1,408)	(1,289)	(1,770)	(1,112)

Net sales	23,196)	20,752)	19,628)	17,858)	21,390)
Add: Increase (decrease) in deferred revenue liabilities	118)	86)	165)	23)	(14)
Adjusted net sales	23,314)	20,838)	19,793)	17,881)	21,376)
Performance Ratio
Economic profit margin²	-3.33%	-6.76%	-6.51%	-9.90%	-5.20%
Benchmarks
Economic Profit Margin, Competitors³
Boeing Co.	-8.28%	-15.08%	-14.62%	-24.56%	-9.21%
Caterpillar Inc.	4.24%	1.04%	1.16%	-7.11%	1.30%
Cummins Inc.	-4.25%	-1.03%	1.92%	-0.58%	3.02%
General Electric Co.	5.77%	-7.98%	-13.92%	-6.29%	-9.65%
Honeywell International Inc.	0.19%	-1.06%	0.34%	-1.77%	3.58%
Lockheed Martin Corp.	7.00%	5.34%	6.08%	7.53%	7.80%
RTX Corp.	-5.37%	-5.36%	-4.81%	-16.80%	0.36%

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 ÷ Adjusted net sales
= 100 × -776 ÷ 23,314 = -3.33%

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.	Eaton Corp. plc economic profit margin deteriorated from 2021 to 2022 but then improved from 2022 to 2023 exceeding 2021 level.

Eaton Corp. plc (NYSE:ETN)

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