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.
Economic Profit
Activision Blizzard Inc., economic profit 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 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
= 2,208 – 10.31% × 19,837 = 162
The financial performance between 2018 and 2022 is characterized by significant fluctuations in economic profit, reflecting a volatile relationship between net operating profit after taxes (NOPAT) and the cost of employed capital. The period is marked by an initial phase of value destruction followed by an inconsistent transition toward value creation.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited substantial volatility, decreasing from US$ 1,379 million in 2018 to US$ 980 million in 2019. A significant surge occurred in 2020, with NOPAT peaking at US$ 2,485 million, before stabilizing between US$ 2,162 million and US$ 2,208 million during the 2021 and 2022 fiscal years.
- Capital Employment and Cost of Capital
- The cost of capital remained remarkably stable throughout the analysis period, maintaining a narrow range between 10.04% and 10.31%. Invested capital followed a growth trend from 2018 (US$ 16,084 million) through 2021, reaching a peak of US$ 22,243 million. However, a contraction was observed in 2022, with invested capital decreasing to US$ 19,837 million.
- Economic Profit Trends
- Economic profit was negative in 2018 (-US$ 236 million) and deteriorated further in 2019 (-US$ 758 million), indicating that operating returns failed to cover the cost of capital. A pivot to value creation occurred in 2020 with an economic profit of US$ 396 million. Despite stable NOPAT in 2021, the increase in invested capital pushed economic profit back into negative territory (-US$ 115 million). By 2022, the simultaneous reduction in invested capital and steady operating profits resulted in a return to a positive economic profit of US$ 162 million.
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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
= 245 × 3.34% = 8
7 2022 Calculation
Tax benefit of interest expense from debt = Adjusted interest expense from debt × Statutory income tax rate
= 116 × 21.00% = 24
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
= 186 × 21.00% = 39
10 Elimination of after taxes investment income.
The financial performance from 2018 to 2022 is characterized by significant volatility in both Net Income and Net Operating Profit After Taxes (NOPAT). While both metrics experienced a decline in 2019, their trajectories diverged significantly toward the end of the period, particularly in 2022.
- Net Operating Profit After Taxes (NOPAT) Trend
- NOPAT exhibited a sharp decrease in 2019, falling to 980 million USD. This was followed by a substantial recovery in 2020, where the metric reached a peak of 2,485 million USD. For the subsequent two years, NOPAT remained relatively stable, ending the period at 2,208 million USD in 2022, indicating a consistent level of core operational profitability after the 2020 surge.
- Net Income Performance
- Net Income demonstrated a growth trend between 2019 and 2021, ascending from 1,503 million USD to a peak of 2,699 million USD. However, a sharp contraction occurred in 2022, with Net Income falling to 1,513 million USD, representing a significant year-over-year decline.
- Operational vs. Bottom-line Divergence
- A critical divergence is observed in 2022. During this fiscal year, Net Income dropped precipitously, while NOPAT actually increased slightly from 2,162 million USD to 2,208 million USD. This disparity suggests that the decline in Net Income was not caused by a failure in core operating performance, but was instead driven by non-operating factors, such as increased interest expenses, tax adjustments, or one-time non-operating losses.
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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 analysis of tax-related outflows reveals a significant divergence between reported income tax expenses and actual cash operating taxes over the five-year period ending December 31, 2022.
- Cash Operating Tax Trends
- A substantial increase in cash operating taxes is observed between 2018 and 2020, rising from 54 million USD to a peak of 535 million USD. Following this peak, a moderate downward trend occurred, with outflows decreasing to 473 million USD in 2021 and 384 million USD in 2022.
- Income Tax Expense Trends
- Income tax expenses demonstrated a steady upward trajectory from 64 million USD in 2018 to a peak of 465 million USD in 2021. A significant reduction followed in 2022, with expenses dropping to 231 million USD.
- Comparison and Divergence Analysis
- A pronounced gap between cash tax payments and accounting tax expenses emerged in 2019, where cash operating taxes of 478 million USD far exceeded the reported income tax expense of 130 million USD. This trend of cash outflows exceeding book expenses persisted through 2022. Such a divergence typically indicates the impact of deferred tax liabilities or temporary differences between taxable income and accounting profit, which are critical factors when adjusting for Economic Value Added (EVA).
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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.
The analysis of the capital structure from 2018 to 2022 reveals a period of consistent equity growth contrasted by a fluctuating total invested capital base. While the company expanded its equity position throughout the five-year period, the overall invested capital reached a peak in 2021 before experiencing a contraction in 2022.
- Shareholders’ Equity Trends
- A consistent upward trajectory is observed in shareholders' equity, which grew from US$ 11,357 million in 2018 to US$ 19,243 million by 2022. This represents a steady increase in the company's book value and indicates a strong accumulation of retained earnings or additional capital contributions over the analyzed period.
- Debt and Lease Obligations
- Total reported debt and leases remained relatively stable between 2018 and 2019, followed by a significant increase in 2020, where obligations rose to US$ 3,895 million. This elevated level of leverage persisted through 2021 and 2022, maintaining a plateau near the US$ 3,850 million to US$ 3,900 million range.
- Invested Capital Dynamics
- Invested capital exhibited a growth phase from 2018 to 2021, rising from US$ 16,084 million to a peak of US$ 22,243 million. However, a notable divergence occurred in 2022, where invested capital declined to US$ 19,837 million. This decrease is particularly significant given that shareholders' equity continued to rise during the same period, suggesting a substantial reduction in other components of invested capital, such as working capital or non-interest-bearing current liabilities.
Overall, the financial data indicates a shift in the composition of the capital base. The growth in invested capital was primarily driven by equity expansion and a one-time increase in debt in 2020, while the subsequent decline in 2022 suggests a strategic optimization of assets or changes in operational liabilities that reduced the total capital required to support the business.
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Cost of Capital
Activision Blizzard Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 60,444) | 60,444) | ÷ | 63,557) | = | 0.95 | 0.95 | × | 10.72% | = | 10.20% | ||
| Long-term debt3 | 2,868) | 2,868) | ÷ | 63,557) | = | 0.05 | 0.05 | × | 2.96% × (1 – 21.00%) | = | 0.11% | ||
| Operating lease liability4 | 245) | 245) | ÷ | 63,557) | = | 0.00 | 0.00 | × | 3.34% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 63,557) | 1.00 | 10.31% | ||||||||||
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 | 63,461) | 63,461) | ÷ | 67,355) | = | 0.94 | 0.94 | × | 10.72% | = | 10.10% | ||
| Long-term debt3 | 3,605) | 3,605) | ÷ | 67,355) | = | 0.05 | 0.05 | × | 2.95% × (1 – 21.00%) | = | 0.12% | ||
| Operating lease liability4 | 289) | 289) | ÷ | 67,355) | = | 0.00 | 0.00 | × | 3.01% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 67,355) | 1.00 | 10.24% | ||||||||||
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 | 74,702) | 74,702) | ÷ | 78,893) | = | 0.95 | 0.95 | × | 10.72% | = | 10.15% | ||
| 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 | 10.28% | ||||||||||
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 | 44,869) | 44,869) | ÷ | 47,966) | = | 0.94 | 0.94 | × | 10.72% | = | 10.03% | ||
| 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 | 10.20% | ||||||||||
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 | 32,188) | 32,188) | ÷ | 35,081) | = | 0.92 | 0.92 | × | 10.72% | = | 9.84% | ||
| 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 | 10.04% | ||||||||||
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 | 162) | (115) | 396) | (758) | (236) | |
| Invested capital2 | 19,837) | 22,243) | 20,332) | 17,047) | 16,084) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | 0.82% | -0.52% | 1.95% | -4.45% | -1.47% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Alphabet Inc. | 7.39% | 26.68% | — | — | — | |
| Comcast Corp. | -7.74% | -2.74% | — | — | — | |
| Meta Platforms Inc. | 0.52% | 22.81% | — | — | — | |
| Netflix Inc. | -10.48% | -5.88% | — | — | — | |
| Walt Disney Co. | -15.13% | -18.12% | -20.38% | — | — | |
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 × 162 ÷ 19,837 = 0.82%
4 Click competitor name to see calculations.
The financial performance between 2018 and 2022 is characterized by significant volatility in value creation, as evidenced by the fluctuations in economic profit and the economic spread ratio. The company transitioned between periods of value destruction and value creation, indicating a non-linear relationship between the growth of invested capital and the returns generated relative to the cost of capital.
- Economic Spread Ratio Trends
- The economic spread ratio exhibited considerable instability over the five-year period. A downward trend was observed between 2018 and 2019, with the ratio declining from -1.47% to its lowest point of -4.45%. A sharp recovery occurred in 2020, where the ratio reached a peak of 1.95%, signaling a period of positive economic value added. This was followed by a contraction to -0.52% in 2021, before returning to a positive state of 0.82% by the end of 2022.
- Economic Profit Analysis
- Economic profit mirrored the movements of the spread ratio, oscillating between negative and positive values. The most significant value destruction occurred in 2019, with a loss of 758 million US dollars. The most robust value creation was recorded in 2020, with an economic profit of 396 million US dollars. Although 2021 saw a return to negative territory with a loss of 115 million US dollars, the trend reversed again in 2022, yielding a profit of 162 million US dollars.
- Invested Capital Dynamics
- Invested capital showed a consistent upward trajectory from 2018 to 2021, growing from 16,084 million US dollars to a peak of 22,243 million US dollars. This expansion of the capital base did not consistently result in higher economic spreads, as the ratio declined in 2019 and 2021 despite increased investment. In 2022, a reduction in invested capital to 19,837 million US dollars coincided with a return to positive economic profit and a positive spread ratio, suggesting an improvement in capital efficiency.
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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 | 162) | (115) | 396) | (758) | (236) | |
| Net revenues | 7,528) | 8,803) | 8,086) | 6,489) | 7,500) | |
| Add: Increase (decrease) in deferred revenues | 970) | (571) | 314) | (118) | (436) | |
| Adjusted net revenues | 8,498) | 8,232) | 8,400) | 6,371) | 7,064) | |
| Performance Ratio | ||||||
| Economic profit margin2 | 1.91% | -1.39% | 4.71% | -11.90% | -3.34% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Alphabet Inc. | 5.28% | 17.70% | — | — | — | |
| Comcast Corp. | -13.66% | -5.40% | — | — | — | |
| Meta Platforms Inc. | 0.46% | 17.92% | — | — | — | |
| Netflix Inc. | -12.50% | -6.87% | — | — | — | |
| Walt Disney Co. | -31.15% | -46.18% | -54.80% | — | — | |
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 × 162 ÷ 8,498 = 1.91%
3 Click competitor name to see calculations.
The analysis of economic value creation between 2018 and 2022 indicates a volatile trajectory characterized by alternating periods of value destruction and value creation. Despite an overall growth in adjusted net revenues, the capacity to maintain a consistent positive economic profit margin remained inconsistent, suggesting fluctuations in the ability to generate returns exceeding the cost of capital.
- Economic Profit Margin Trends
- A significant contraction in the economic profit margin occurred in 2019, reaching a five-year low of -11.90%. This downturn was followed by a sharp reversal in 2020, where the margin peaked at 4.71%, marking the most efficient period of value addition within the observed timeframe. The margin then shifted back to a negative position of -1.39% in 2021 before recovering to 1.91% by the end of 2022.
- Revenue Scale and Economic Efficiency
- Adjusted net revenues demonstrated a general upward trend, rising from US$ 7,064 million in 2018 to US$ 8,498 million in 2022. A substantial increase in revenue was observed in 2020, coinciding with the highest economic profit margin. However, the intermittent nature of the economic profit indicates that revenue growth did not consistently translate into sustained economic value, as evidenced by the negative margins in 2019 and 2021 despite varying revenue levels.
- Economic Profit Absolute Performance
- Absolute economic profit mirrored the margin volatility, moving from a deficit of US$ 236 million in 2018 to a peak deficit of US$ 758 million in 2019. A transition to positive territory was achieved in 2020 with an economic profit of US$ 396 million. After a temporary return to a deficit of US$ 115 million in 2021, the period concluded with a positive economic profit of US$ 162 million in 2022, confirming a return to value creation.
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