Economic Value Added (EVA)
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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.
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- Balance Sheet: Liabilities and Stockholders’ Equity
- Cash Flow Statement
- Common-Size Balance Sheet: Assets
- Analysis of Liquidity Ratios
- Analysis of Solvency Ratios
- Analysis of Reportable Segments
- Price to FCFE (P/FCFE)
- Dividend Discount Model (DDM)
- Total Asset Turnover since 2008
- Price to Earnings (P/E) since 2008
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Economic Profit
Activision Blizzard Inc., economic profit calculation
US$ in millions
| 12 months ended: | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | |
|---|---|---|---|---|---|---|
| Net operating profit after taxes (NOPAT)1 | ||||||
| Cost of capital2 | ||||||
| Invested capital3 | ||||||
| Economic profit4 | ||||||
Based on: 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), 10-K (reporting date: 2018-12-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2022 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= – × =
The financial performance from 2018 to 2022 is characterized by significant volatility in value creation, with economic profit fluctuating between negative and positive territory. While the cost of capital remained remarkably stable throughout the period, the ability to generate returns exceeding this cost was inconsistent, driven primarily by fluctuations in net operating profit after taxes (NOPAT) and changes in the invested capital base.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited substantial variance, reaching a peak of US$ 2,485 million in 2020 after a decline to US$ 980 million in 2019. Following the 2020 spike, the figure stabilized, remaining above US$ 2,100 million in both 2021 and 2022. This suggests a general increase in operational efficiency and profitability in the latter half of the period compared to the 2018-2019 timeframe.
- Invested Capital and Cost of Capital
- The cost of capital remained nearly constant, fluctuating minimally between 9.81% and 10.07%. During the same period, invested capital followed a growth trajectory, increasing from US$ 16,084 million in 2018 to a peak of US$ 22,243 million in 2021, before contracting to US$ 19,837 million in 2022. The growth in capital investment through 2021 increased the threshold of NOPAT required to achieve a positive economic profit.
- Economic Profit and Value Creation
- Economic profit was negative in 2018 and 2019, indicating that the company was not generating sufficient operating profit to cover its cost of capital. A reversal occurred in 2020, where economic profit turned positive at US$ 444 million. However, this trend was not sustained in 2021, as economic profit dipped back into negative territory (US$ -62 million), likely due to the continued increase in invested capital outweighing NOPAT growth. By 2022, a positive economic profit of US$ 210 million was restored, coinciding with a reduction in the total invested capital base.
Net Operating Profit after Taxes (NOPAT)
Activision Blizzard Inc., NOPAT calculation
US$ in millions
Based on: 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), 10-K (reporting date: 2018-12-31).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowances for sales returns and price protection and other 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 2022 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= × =
7 2022 Calculation
Tax benefit of interest expense from debt = Adjusted interest expense from debt × Statutory income tax rate
= × 21.00% =
8 Addition of after taxes interest expense to net income.
9 2022 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= × 21.00% =
10 Elimination of after taxes investment income.
- Net Income
- The net income exhibited volatility over the five-year period. Starting at 1,813 million US dollars in 2018, it declined to 1,503 million in 2019. This was followed by a substantial increase in 2020, reaching 2,197 million. The upward trend continued in 2021, culminating in a peak of 2,699 million. However, in 2022, net income dropped sharply to 1,513 million, almost reverting to the 2019 level.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT demonstrated an inconsistent trend throughout the timeline. It started at 1,379 million US dollars in 2018, decreased substantially to 980 million in 2019, then sharply increased to 2,485 million in 2020. Unlike net income, NOPAT decreased in 2021, reaching 2,162 million, but showed a slight rebound in 2022 to 2,208 million. Despite fluctuations, the overall level of NOPAT in the latter years remained higher than the initial years.
- Comparative Insights
- While both net income and NOPAT fluctuated, their trends did not move entirely in tandem, especially notable in 2021 and 2022. Net income reached its highest point in 2021, but saw a steep decline the following year, whereas NOPAT remained relatively stable in those two years. The divergence suggests variations in operational efficiency and the impact of other financial factors such as non-operating income or expenses.
- Overall Interpretation
- The data reflects a period of considerable financial fluctuation with some years of strong profitability followed by significant declines. The volatility might imply external market impacts, changing operational conditions, or other elements influencing profitability both at the operational and net levels. Further investigation into the underlying causes of these trends would be necessary for comprehensive understanding and strategic decision-making.
Cash Operating Taxes
Activision Blizzard Inc., cash operating taxes calculation
US$ in millions
Based on: 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), 10-K (reporting date: 2018-12-31).
The financial data reveals notable fluctuations in both income tax expenses and cash operating taxes over the five-year period from 2018 to 2022.
- Income Tax Expense
- The income tax expense demonstrates a significant upward trend from 2018 to 2021, increasing from $64 million in 2018 to a peak of $465 million in 2021. This represents a more than sevenfold increase over the four-year span. However, in 2022, income tax expense dropped sharply to $231 million, approximately half of the 2021 level, indicating a substantial reduction.
- Cash Operating Taxes
- The cash operating taxes present a different pattern, with a steep increase observed between 2018 and 2019, from $54 million to $478 million. This level remained relatively stable in 2020 and 2021, with values of $535 million and $473 million respectively. In 2022, there was a noticeable decrease to $384 million, indicating a downward adjustment following the previous high-pressure tax years.
Overall, the data suggests a period of escalating tax-related expenses through 2019 to 2021, with both income tax expense and cash operating taxes reaching their highest points during this time. The subsequent decline in 2022 could imply changes in profitability, tax planning strategies, or external tax regulations impacting the company's tax liabilities. The divergence in the scale and timing of changes between income tax expenses and cash operating taxes highlights different components that contribute to the company’s overall tax burden.
Invested Capital
Activision Blizzard Inc., invested capital calculation (financing approach)
US$ in millions
Based on: 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), 10-K (reporting date: 2018-12-31).
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 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, government agency securities, and equity securities.
- Total reported debt & leases
- The reported debt and leases remained relatively stable from 2018 to 2019, with a slight decrease from 2,984 million USD to 2,948 million USD. However, there was a notable increase in 2020, rising to 3,895 million USD. The debt level then plateaued in 2021 at 3,897 million USD and marginally decreased to 3,856 million USD in 2022. Overall, debt showed moderate growth peaking in 2020 and 2021 before slightly declining.
- Shareholders’ equity
- Shareholders’ equity demonstrated a consistent upward trend throughout the period analyzed. It increased steadily from 11,357 million USD in 2018 to 12,805 million USD in 2019, then to 15,037 million USD in 2020. This growth continued into 2021 with equity reaching 17,599 million USD and further expanded to 19,243 million USD in 2022. The rising equity suggests strengthening of the company's net asset base over time.
- Invested capital
- Invested capital showed an overall increasing trend from 16,084 million USD in 2018 to a peak of 22,243 million USD in 2021. Notably, invested capital grew each year from 2018 through 2021. However, in 2022, there was a decline to 19,837 million USD, indicating a reduction in total capital invested in the business after several years of growth.
- Summary Insights
- Between 2018 and 2021, the company exhibited growth in both shareholders’ equity and invested capital, reflecting expansion and possibly reinvestment into the business. The relatively stable but elevated debt levels from 2020 onwards may indicate increased borrowing or lease obligations supporting this expansion. The decline in invested capital in 2022 despite continued growth in equity could signal asset disposals, capital restructuring, or efficiency improvements. Meanwhile, the slight reduction in debt in 2022 suggests cautious management of financial leverage following the prior increase.
Cost of Capital
Activision Blizzard Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Long-term debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2022-12-31).
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 | ÷ | = | × | = | |||||||||
| Long-term debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2021-12-31).
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 | ÷ | = | × | = | |||||||||
| Long-term debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2020-12-31).
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 | ÷ | = | × | = | |||||||||
| Long-term debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2019-12-31).
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 | ÷ | = | × | = | |||||||||
| Long-term debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2018-12-31).
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, comparison to benchmarks
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | ||||||
| Invested capital2 | ||||||
| Performance Ratio | ||||||
| Economic spread ratio3 | ||||||
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Alphabet Inc. | ||||||
| Comcast Corp. | ||||||
| Meta Platforms Inc. | ||||||
| Netflix Inc. | ||||||
| Walt Disney Co. | ||||||
Based on: 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), 10-K (reporting date: 2018-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2022 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × ÷ =
4 Click competitor name to see calculations.
The financial performance between 2018 and 2022 is characterized by significant volatility in value creation, with the entity alternating between periods of economic profit and economic loss. While the period began and ended with an upward trajectory in economic value added, the interim years displayed instability in the ability to generate returns exceeding the cost of capital.
- Economic Profit Trends
- A fluctuating pattern is observed in economic profit, which started at -199 million USD in 2018 and deteriorated to a peak loss of -718 million USD in 2019. A substantial recovery occurred in 2020, resulting in a positive economic profit of 444 million USD. This gain was not sustained in 2021, as the figure dipped back into negative territory at -62 million USD, before returning to a positive position of 210 million USD by the end of 2022.
- Invested Capital Dynamics
- Invested capital exhibited a consistent growth trend from 2018 through 2021, rising from 16,084 million USD to a peak of 22,243 million USD. This expansion suggests a period of increased asset accumulation or strategic investment. However, a reversal occurred in 2022, with invested capital decreasing to 19,837 million USD, indicating a contraction in the capital base or a divestment of assets.
- Economic Spread Ratio Analysis
- The economic spread ratio mirrors the volatility of economic profit, reflecting the margin by which the return on invested capital exceeds or falls short of the cost of capital. The ratio reached its lowest point in 2019 at -4.21%, signifying significant value destruction. A positive spread of 2.18% was achieved in 2020, followed by a marginal negative spread of -0.28% in 2021. The period concluded with a positive spread of 1.06% in 2022, suggesting a return to modest value creation.
Overall, the correlation between the economic spread ratio and economic profit confirms that the entity struggled to maintain a consistent positive spread over the five-year period. The increase in invested capital until 2021 did not linearly translate into sustained economic profit, although the reduction in invested capital in 2022 coincided with a return to a positive economic spread.
Economic Profit Margin
Activision Blizzard Inc., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | ||||||
| Net revenues | ||||||
| Add: Increase (decrease) in deferred revenues | ||||||
| Adjusted net revenues | ||||||
| Performance Ratio | ||||||
| Economic profit margin2 | ||||||
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Alphabet Inc. | ||||||
| Comcast Corp. | ||||||
| Meta Platforms Inc. | ||||||
| Netflix Inc. | ||||||
| Walt Disney Co. | ||||||
Based on: 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), 10-K (reporting date: 2018-12-31).
1 Economic profit. See details »
2 2022 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted net revenues
= 100 × ÷ =
3 Click competitor name to see calculations.
The financial performance regarding economic value added exhibits significant volatility between 2018 and 2022, characterized by inconsistent ability to generate returns above the cost of capital.
- Economic Profit Trends
- Economic profit demonstrated a non-linear trajectory, shifting repeatedly between value destruction and value creation. A substantial decline occurred in 2019, reaching a low of -718 million US$, which was followed by a sharp reversal to a peak of 444 million US$ in 2020. After a subsequent dip to -62 million US$ in 2021, the figure returned to a positive position of 210 million US$ by the end of 2022.
- Adjusted Net Revenue Performance
- Revenues experienced an overall upward trend over the analyzed period, despite a contraction in 2019. Adjusted net revenues grew from 7,064 million US$ in 2018 to 8,498 million US$ in 2022. The most significant expansion occurred between 2019 and 2020, where revenues increased from 6,371 million US$ to 8,400 million US$, establishing a higher revenue baseline for the subsequent years.
- Economic Profit Margin Analysis
- The economic profit margin mirrored the volatility of the absolute economic profit, reflecting fluctuations in capital efficiency. The margin reached a critical low of -11.27% in 2019, indicating a period of significant value erosion relative to revenue. A strong recovery followed in 2020, with the margin peaking at 5.29%. Despite a marginal contraction to -0.76% in 2021, the period concluded with a positive margin of 2.47% in 2022, suggesting a stabilization in the entity's ability to generate economic surplus.