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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

Activision Blizzard Inc., economic profit calculation

US$ in millions

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
= 2,491 – 8.32% × 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.

Activision Blizzard Inc., NOPAT calculation

US$ in millions

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	9
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	1	(46)	(5)	—	—
Interest income	(21)	(79)	(65)	(24)	(10)
Investment income, before taxes	(20)	(125)	(70)	(24)	(10)
Tax expense (benefit) of investment income⁹	4	26	15	8	4
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.

Activision Blizzard Inc., cash operating taxes calculation

US$ in millions

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	4	26	15	8	4
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.

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

US$ in millions

	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.

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 »

Activision Blizzard Inc., economic spread ratio calculation

	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.

Activision Blizzard Inc., economic profit margin calculation

	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.

Activision Blizzard Inc. (NASDAQ:ATVI)

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