Stock Analysis on Net
Stock Analysis on Net
Microsoft Excel LibreOffice Calc

Activision Blizzard Inc. (NASDAQ:ATVI)

Economic Value Added (EVA)

Advanced level

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.


Economic Profit

Activision Blizzard Inc., economic profit calculation

US$ in millions

Microsoft Excel LibreOffice Calc
12 months ended: Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016
Net operating profit after taxes (NOPAT)1 2,491  990  1,378  511  939 
Cost of capital2 8.32% 8.27% 8.15% 8.15% 7.76%
Invested capital3 20,352  17,061  16,088  16,549  16,593 
 
Economic profit4 798  (420) 67  (838) (348)

Based on: 10-K (filing date: 2021-02-23), 10-K (filing date: 2020-02-27), 10-K (filing date: 2019-02-28), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28).

1 NOPAT. See details »

2 Cost of capital. See details »

3 Invested capital. See details »

4 2020 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 2,4918.32% × 20,352 = 798

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. Activision Blizzard Inc.’s economic profit decreased from 2018 to 2019 but then increased from 2019 to 2020 exceeding 2018 level.

Net Operating Profit after Taxes (NOPAT)

Activision Blizzard Inc., NOPAT calculation

US$ in millions

Microsoft Excel LibreOffice Calc
12 months ended: Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016
Net income 2,197  1,503  1,813  273  966 
Deferred income tax expense (benefit)1 (97) (353) 27  (179) (11)
Increase (decrease) in allowances2 (49) (58) (89) 18  (82)
Increase (decrease) in deferred revenues3 314  (118) (436) 301  (74)
Increase (decrease) in accrued restructuring and related costs4 56  35  —  —  — 
Increase (decrease) in equity equivalents5 224  (494) (498) 140  (167)
Interest expense from debt and amortization of debt discount and deferred financing costs 99  90  140  162  217 
Interest expense, operating lease liability6 10  11  10  12 
Adjusted interest expense from debt and amortization of debt discount and deferred financing costs 109  101  150  174  226 
Tax benefit of interest expense from debt and amortization of debt discount and deferred financing costs7 (23) (21) (31) (61) (79)
Adjusted interest expense from debt and amortization of debt discount and deferred financing costs, after taxes8 86  80  118  113  147 
(Gain) loss on marketable securities (46) (5) —  — 
Interest income (21) (79) (65) (24) (10)
Investment income, before taxes (20) (125) (70) (24) (10)
Tax expense (benefit) of investment income9 26  15 
Investment income, after taxes10 (16) (99) (55) (16) (7)
Net operating profit after taxes (NOPAT) 2,491  990  1,378  511  939 

Based on: 10-K (filing date: 2021-02-23), 10-K (filing date: 2020-02-27), 10-K (filing date: 2019-02-28), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28).

1 Elimination of deferred tax expense. See details »

2 Addition of increase (decrease) in allowances.

3 Addition of increase (decrease) in deferred revenues.

4 Addition of increase (decrease) in accrued restructuring and related costs.

5 Addition of increase (decrease) in equity equivalents to net income.

6 2020 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 290 × 3.40% = 10

7 2020 Calculation
Tax benefit of interest expense from debt and amortization of debt discount and deferred financing costs = Adjusted interest expense from debt and amortization of debt discount and deferred financing costs × Statutory income tax rate
= 109 × 21.00% = 23

8 Addition of after taxes interest expense to net income.

9 2020 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 20 × 21.00% = 4

10 Elimination of after taxes investment income.

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. Activision Blizzard Inc.’s NOPAT decreased from 2018 to 2019 but then increased from 2019 to 2020 exceeding 2018 level.

Cash Operating Taxes

Activision Blizzard Inc., cash operating taxes calculation

US$ in millions

Microsoft Excel LibreOffice Calc
12 months ended: Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016
Income tax expense 419  130  64  878  140 
Less: Deferred income tax expense (benefit) (97) (353) 27  (179) (11)
Add: Tax savings from interest expense from debt and amortization of debt discount and deferred financing costs 23  21  31  61  79 
Less: Tax imposed on investment income 26  15 
Cash operating taxes 535  478  54  1,110  227 

Based on: 10-K (filing date: 2021-02-23), 10-K (filing date: 2020-02-27), 10-K (filing date: 2019-02-28), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28).

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. Activision Blizzard Inc.’s cash operating taxes increased from 2018 to 2019 and from 2019 to 2020.

Invested Capital

Activision Blizzard Inc., invested capital calculation (financing approach)

US$ in millions

Microsoft Excel LibreOffice Calc
Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016
Long-term debt, net 3,605  2,675  2,671  4,390  4,887 
Operating lease liability1 290  273  313  344  308 
Total reported debt & leases 3,895  2,948  2,984  4,734  5,195 
Shareholders’ equity 15,037  12,805  11,357  9,462  9,119 
Net deferred tax (assets) liabilities2 (901) (788) (387) (438) (239)
Allowances3 83  132  190  279  261 
Deferred revenues4 1,689  1,375  1,493  1,929  1,628 
Accrued restructuring and related costs5 91  35  —  —  — 
Equity equivalents6 962  754  1,296  1,770  1,650 
Accumulated other comprehensive (income) loss, net of tax7 622  619  601  638  629 
Adjusted shareholders’ equity 16,621  14,178  13,254  11,870  11,398 
U.S. treasuries and government agency securities8 (164) (65) (150) (55) — 
Invested capital 20,352  17,061  16,088  16,549  16,593 

Based on: 10-K (filing date: 2021-02-23), 10-K (filing date: 2020-02-27), 10-K (filing date: 2019-02-28), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28).

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 revenues.

5 Addition of accrued restructuring and related costs.

6 Addition of equity equivalents to shareholders’ equity.

7 Removal of accumulated other comprehensive income.

8 Subtraction of u.S. treasuries and government agency securities.

Item Description The company
Invested capital Capital is an approximation of the economic book value of all cash invested in going-concern business activities. Activision Blizzard Inc.’s invested capital increased from 2018 to 2019 and from 2019 to 2020.

Cost of Capital

Activision Blizzard Inc., cost of capital calculations

Capital (fair value)1 Weights Cost of capital
Equity2 74,702  74,702  ÷ 78,893  = 0.95 0.95 × 8.66% = 8.20%
Long-term debt3 3,901  3,901  ÷ 78,893  = 0.05 0.05 × 2.95% × (1 – 21.00%) = 0.12%
Operating lease liability4 290  290  ÷ 78,893  = 0.00 0.00 × 3.40% × (1 – 21.00%) = 0.01%
Total: 78,893  1.00 8.32%

Based on: 10-K (filing date: 2021-02-23).

1 US$ in millions

2 Equity. See details »

3 Long-term debt. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 44,869  44,869  ÷ 47,966  = 0.94 0.94 × 8.66% = 8.10%
Long-term debt3 2,824  2,824  ÷ 47,966  = 0.06 0.06 × 3.21% × (1 – 21.00%) = 0.15%
Operating lease liability4 273  273  ÷ 47,966  = 0.01 0.01 × 4.02% × (1 – 21.00%) = 0.02%
Total: 47,966  1.00 8.27%

Based on: 10-K (filing date: 2020-02-27).

1 US$ in millions

2 Equity. See details »

3 Long-term debt. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 32,188  32,188  ÷ 35,081  = 0.92 0.92 × 8.66% = 7.94%
Long-term debt3 2,580  2,580  ÷ 35,081  = 0.07 0.07 × 3.15% × (1 – 21.00%) = 0.18%
Operating lease liability4 313  313  ÷ 35,081  = 0.01 0.01 × 3.15% × (1 – 21.00%) = 0.02%
Total: 35,081  1.00 8.15%

Based on: 10-K (filing date: 2019-02-28).

1 US$ in millions

2 Equity. See details »

3 Long-term debt. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 55,084  55,084  ÷ 59,903  = 0.92 0.92 × 8.66% = 7.96%
Long-term debt3 4,475  4,475  ÷ 59,903  = 0.07 0.07 × 3.61% × (1 – 35.00%) = 0.18%
Operating lease liability4 344  344  ÷ 59,903  = 0.01 0.01 × 3.61% × (1 – 35.00%) = 0.01%
Total: 59,903  1.00 8.15%

Based on: 10-K (filing date: 2018-02-27).

1 US$ in millions

2 Equity. See details »

3 Long-term debt. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 33,931  33,931  ÷ 39,163  = 0.87 0.87 × 8.66% = 7.50%
Long-term debt3 4,924  4,924  ÷ 39,163  = 0.13 0.13 × 2.96% × (1 – 35.00%) = 0.24%
Operating lease liability4 308  308  ÷ 39,163  = 0.01 0.01 × 2.96% × (1 – 35.00%) = 0.02%
Total: 39,163  1.00 7.76%

Based on: 10-K (filing date: 2017-02-28).

1 US$ in millions

2 Equity. See details »

3 Long-term debt. See details »

4 Operating lease liability. See details »


Economic Spread Ratio

Activision Blizzard Inc., economic spread ratio calculation

Microsoft Excel LibreOffice Calc
Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016
Selected Financial Data (US$ in millions)
Economic profit1 798  (420) 67  (838) (348)
Invested capital2 20,352  17,061  16,088  16,549  16,593 
Performance Ratio
Economic spread ratio3 3.92% -2.46% 0.42% -5.06% -2.10%

Based on: 10-K (filing date: 2021-02-23), 10-K (filing date: 2020-02-27), 10-K (filing date: 2019-02-28), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28).

1 Economic profit. See details »

2 Invested capital. See details »

3 2020 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × 798 ÷ 20,352 = 3.92%

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. Activision Blizzard Inc.’s economic spread ratio deteriorated from 2018 to 2019 but then improved from 2019 to 2020 exceeding 2018 level.

Economic Profit Margin

Activision Blizzard Inc., economic profit margin calculation

Microsoft Excel LibreOffice Calc
Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016
Selected Financial Data (US$ in millions)
Economic profit1 798  (420) 67  (838) (348)
 
Net revenues 8,086  6,489  7,500  7,017  6,608 
Add: Increase (decrease) in deferred revenues 314  (118) (436) 301  (74)
Adjusted net revenues 8,400  6,371  7,064  7,318  6,534 
Performance Ratio
Economic profit margin2 9.49% -6.59% 0.95% -11.45% -5.32%

Based on: 10-K (filing date: 2021-02-23), 10-K (filing date: 2020-02-27), 10-K (filing date: 2019-02-28), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28).

1 Economic profit. See details »

2 2020 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted net revenues
= 100 × 798 ÷ 8,400 = 9.49%

Performance ratio Description The company
Economic profit margin The ratio of economic profit to sales. It is the company’s 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. Activision Blizzard Inc.’s economic profit margin deteriorated from 2018 to 2019 but then improved from 2019 to 2020 exceeding 2018 level.