Microsoft Excel LibreOffice Calc

Adobe Inc. (ADBE)

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

Adobe Inc., economic profit calculation

US$ in thousands

Microsoft Excel LibreOffice Calc
12 months ended Nov 30, 2018 Dec 1, 2017 Dec 2, 2016 Nov 27, 2015 Nov 28, 2014 Nov 29, 2013
Net operating profit after taxes (NOPAT)1 2,710,671  2,238,829  1,742,264  918,162  575,952  543,044 
Cost of capital2 11.69% 11.80% 11.65% 11.60% 11.58% 11.50%
Invested capital3 15,710,618  10,147,610  8,285,353  7,821,777  7,203,913  7,102,140 
 
Economic profit4 873,910  1,041,658  776,850  11,085  (258,310) (273,691)

Based on: 10-K (filing date: 2019-01-25), 10-K (filing date: 2018-01-22), 10-K (filing date: 2017-01-20), 10-K (filing date: 2016-01-19), 10-K (filing date: 2015-01-20), 10-K (filing date: 2014-01-21).

1 NOPAT. See details »

2 Cost of capital. See details »

3 Invested capital. See details »

<>4 2018 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 2,710,671 – 11.69% × 15,710,618 = 873,910

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. Adobe Inc.’s economic profit increased from 2016 to 2017 but then slightly decreased from 2017 to 2018 not reaching 2016 level.

Net Operating Profit after Taxes (NOPAT)

Adobe Inc., NOPAT calculation

US$ in thousands

Microsoft Excel LibreOffice Calc
12 months ended Nov 30, 2018 Dec 1, 2017 Dec 2, 2016 Nov 27, 2015 Nov 28, 2014 Nov 29, 2013
Net income 2,590,774  1,693,954  1,168,782  629,551  268,395  289,985 
Deferred income tax expense (benefit)1 (467,090) 50,345  21,886  (65,890) (43,461) 10,596 
Increase (decrease) in allowances for doubtful accounts2 5,830  2,937  (1,079) (574) (2,361) (2,415)
Increase (decrease) in deferred revenue3 559,062  479,792  529,456  329,970  326,512  209,247 
Increase (decrease) in equity equivalents4 97,802  533,074  550,263  263,506  280,690  217,428 
Interest expense 89,242  74,402  70,442  64,184  59,732  67,508 
Interest expense, operating lease liability5 24,261  18,324  12,944  7,115  8,040  8,194 
Adjusted interest expense 113,503  92,726  83,386  71,299  67,772  75,702 
Tax benefit of interest expense6 (25,198) (32,454) (29,185) (24,954) (23,720) (26,496)
Adjusted interest expense, after taxes7 88,305  60,272  54,201  46,344  44,052  49,206 
(Gain) loss on marketable securities 7,437  (8,501) (325) (3,916) (5,083) 1,002 
Interest income (92,540) (66,069) (47,340) (28,759) (21,355) (21,887)
Investment income, before taxes (85,103) (74,570) (47,665) (32,675) (26,438) (20,885)
Tax expense (benefit) of investment income8 18,893  26,100  16,683  11,436  9,253  7,310 
Investment income, after taxes9 (66,210) (48,471) (30,982) (21,239) (17,185) (13,575)
Net operating profit after taxes (NOPAT) 2,710,671  2,238,829  1,742,264  918,162  575,952  543,044 

Based on: 10-K (filing date: 2019-01-25), 10-K (filing date: 2018-01-22), 10-K (filing date: 2017-01-20), 10-K (filing date: 2016-01-19), 10-K (filing date: 2015-01-20), 10-K (filing date: 2014-01-21).

1 Elimination of deferred tax expense. See details »

2 Addition of increase (decrease) in allowances for doubtful accounts.

3 Addition of increase (decrease) in deferred revenue.

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

5 2018 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 569,500 × 4.26% = 24,261

6 2018 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 113,503 × 22.20% = 25,198

7 Addition of after taxes interest expense to net income.

8 2018 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 85,103 × 22.20% = 18,893

9 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. Adobe Inc.’s NOPAT increased from 2016 to 2017 and from 2017 to 2018.

Cash Operating Taxes

Adobe Inc., cash operating taxes calculation

US$ in thousands

Microsoft Excel LibreOffice Calc
12 months ended Nov 30, 2018 Dec 1, 2017 Dec 2, 2016 Nov 27, 2015 Nov 28, 2014 Nov 29, 2013
Provision for income taxes 203,102  443,687  266,356  244,230  92,981  66,156 
Less: Deferred income tax expense (benefit) (467,090) 50,345  21,886  (65,890) (43,461) 10,596 
Add: Tax savings from interest expense 25,198  32,454  29,185  24,954  23,720  26,496 
Less: Tax imposed on investment income 18,893  26,100  16,683  11,436  9,253  7,310 
Cash operating taxes 676,497  399,697  256,972  323,638  150,909  74,746 

Based on: 10-K (filing date: 2019-01-25), 10-K (filing date: 2018-01-22), 10-K (filing date: 2017-01-20), 10-K (filing date: 2016-01-19), 10-K (filing date: 2015-01-20), 10-K (filing date: 2014-01-21).

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. Adobe Inc.’s cash operating taxes increased from 2016 to 2017 and from 2017 to 2018.

Invested Capital

Adobe Inc., invested capital calculation (financing approach)

US$ in thousands

Microsoft Excel LibreOffice Calc
Nov 30, 2018 Dec 1, 2017 Dec 2, 2016 Nov 27, 2015 Nov 28, 2014 Nov 29, 2013
Debt, current portion —  —  —  —  603,229  14,676 
Debt, excluding current portion 4,124,800  1,881,421  1,902,068  1,907,231  911,086  1,499,297 
Operating lease liability1 569,500  430,142  303,857  167,008  186,115  190,998 
Total reported debt & leases 4,694,300  2,311,563  2,205,925  2,074,239  1,700,430  1,704,971 
Stockholders’ equity 9,362,114  8,459,869  7,424,835  7,001,580  6,775,905  6,724,634 
Net deferred tax (assets) liabilities2 46,702  279,941  217,660  208,209  247,036  273,387 
Allowances for doubtful accounts3 14,981  9,151  6,214  7,293  7,867  10,228 
Deferred revenue4 3,053,604  2,494,542  2,014,750  1,485,294  1,155,324  828,812 
Equity equivalents5 3,115,287  2,783,634  2,238,624  1,700,796  1,410,227  1,112,427 
Accumulated other comprehensive (income) loss, net of tax6 148,130  111,821  173,602  169,080  8,094  (46,103)
Adjusted stockholders’ equity 12,625,531  11,355,324  9,837,061  8,871,456  8,194,226  7,790,958 
Capital projects in-progress7 (23,026) (5,575) (7,648) (12,394) (68,652) (54,593)
Short-term investments8 (1,586,187) (3,513,702) (3,749,985) (3,111,524) (2,622,091) (2,339,196)
Invested capital 15,710,618  10,147,610  8,285,353  7,821,777  7,203,913  7,102,140 

Based on: 10-K (filing date: 2019-01-25), 10-K (filing date: 2018-01-22), 10-K (filing date: 2017-01-20), 10-K (filing date: 2016-01-19), 10-K (filing date: 2015-01-20), 10-K (filing date: 2014-01-21).

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.

5 Addition of equity equivalents to stockholders’ equity.

6 Removal of accumulated other comprehensive income.

7 Subtraction of capital projects in-progress.

8 Subtraction of short-term investments.

Item Description The company
Invested capital Capital is an approximation of the economic book value of all cash invested in going-concern business activities. Adobe Inc.’s invested capital increased from 2016 to 2017 and from 2017 to 2018.

Cost of Capital

Adobe Inc., cost of capital calculations

Capital (fair value)1 Weights Cost of capital
Equity2 119,468,463  119,468,463  ÷ 124,176,390  = 0.96 0.96 × 12.02% = 11.57%
Debt and capital lease obligations, including current portion3 4,138,427  4,138,427  ÷ 124,176,390  = 0.03 0.03 × 4.26% × (1 – 22.20%) = 0.11%
Operating lease liability4 569,500  569,500  ÷ 124,176,390  = 0.00 0.00 × 4.26% × (1 – 22.20%) = 0.02%
Total: 124,176,390  1.00 11.69%

Based on: 10-K (filing date: 2019-01-25).

1 US$ in thousands

2 Equity. See details »

3 Debt and capital lease obligations, including current portion. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 97,253,896  97,253,896  ÷ 99,664,038  = 0.98 0.98 × 12.02% = 11.73%
Debt and capital lease obligations, including current portion3 1,980,000  1,980,000  ÷ 99,664,038  = 0.02 0.02 × 4.26% × (1 – 35.00%) = 0.06%
Operating lease liability4 430,142  430,142  ÷ 99,664,038  = 0.00 0.00 × 4.26% × (1 – 35.00%) = 0.01%
Total: 99,664,038  1.00 11.80%

Based on: 10-K (filing date: 2018-01-22).

1 US$ in thousands

2 Equity. See details »

3 Debt and capital lease obligations, including current portion. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 54,699,428  54,699,428  ÷ 56,973,285  = 0.96 0.96 × 12.02% = 11.54%
Debt and capital lease obligations, including current portion3 1,970,000  1,970,000  ÷ 56,973,285  = 0.03 0.03 × 4.26% × (1 – 35.00%) = 0.10%
Operating lease liability4 303,857  303,857  ÷ 56,973,285  = 0.01 0.01 × 4.26% × (1 – 35.00%) = 0.01%
Total: 56,973,285  1.00 11.65%

Based on: 10-K (filing date: 2017-01-20).

1 US$ in thousands

2 Equity. See details »

3 Debt and capital lease obligations, including current portion. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 44,441,106  44,441,106  ÷ 46,578,113  = 0.95 0.95 × 12.02% = 11.47%
Debt and capital lease obligations, including current portion3 1,970,000  1,970,000  ÷ 46,578,113  = 0.04 0.04 × 4.26% × (1 – 35.00%) = 0.12%
Operating lease liability4 167,008  167,008  ÷ 46,578,113  = 0.00 0.00 × 4.26% × (1 – 35.00%) = 0.01%
Total: 46,578,113  1.00 11.60%

Based on: 10-K (filing date: 2016-01-19).

1 US$ in thousands

2 Equity. See details »

3 Debt and capital lease obligations, including current portion. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 35,624,472  35,624,472  ÷ 37,413,856  = 0.95 0.95 × 12.02% = 11.45%
Debt and capital lease obligations, including current portion3 1,603,269  1,603,269  ÷ 37,413,856  = 0.04 0.04 × 4.32% × (1 – 35.00%) = 0.12%
Operating lease liability4 186,115  186,115  ÷ 37,413,856  = 0.00 0.00 × 4.32% × (1 – 35.00%) = 0.01%
Total: 37,413,856  1.00 11.58%

Based on: 10-K (filing date: 2015-01-20).

1 US$ in thousands

2 Equity. See details »

3 Debt and capital lease obligations, including current portion. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 30,218,382  30,218,382  ÷ 32,027,325  = 0.94 0.94 × 12.02% = 11.34%
Debt and capital lease obligations, including current portion3 1,617,945  1,617,945  ÷ 32,027,325  = 0.05 0.05 × 4.29% × (1 – 35.00%) = 0.14%
Operating lease liability4 190,998  190,998  ÷ 32,027,325  = 0.01 0.01 × 4.29% × (1 – 35.00%) = 0.02%
Total: 32,027,325  1.00 11.50%

Based on: 10-K (filing date: 2014-01-21).

1 US$ in thousands

2 Equity. See details »

3 Debt and capital lease obligations, including current portion. See details »

4 Operating lease liability. See details »

Economic Spread Ratio

Adobe Inc., economic spread ratio calculation

Microsoft Excel LibreOffice Calc
Nov 30, 2018 Dec 1, 2017 Dec 2, 2016 Nov 27, 2015 Nov 28, 2014 Nov 29, 2013
Selected Financial Data (US$ in thousands)
Economic profit1 873,910  1,041,658  776,850  11,085  (258,310) (273,691)
Invested capital2 15,710,618  10,147,610  8,285,353  7,821,777  7,203,913  7,102,140 
Performance Ratio
Economic spread ratio3 5.56% 10.27% 9.38% 0.14% -3.59% -3.85%

Based on: 10-K (filing date: 2019-01-25), 10-K (filing date: 2018-01-22), 10-K (filing date: 2017-01-20), 10-K (filing date: 2016-01-19), 10-K (filing date: 2015-01-20), 10-K (filing date: 2014-01-21).

1 Economic profit. See details »

2 Invested capital. See details »

3 2018 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × 873,910 ÷ 15,710,618 = 5.56%

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. Adobe Inc.’s economic spread ratio improved from 2016 to 2017 but then deteriorated significantly from 2017 to 2018.

Economic Profit Margin

Adobe Inc., economic profit margin calculation

Microsoft Excel LibreOffice Calc
Nov 30, 2018 Dec 1, 2017 Dec 2, 2016 Nov 27, 2015 Nov 28, 2014 Nov 29, 2013
Selected Financial Data (US$ in thousands)
Economic profit1 873,910  1,041,658  776,850  11,085  (258,310) (273,691)
Revenue 9,030,008  7,301,505  5,854,430  4,795,511  4,147,065  4,055,240 
Add: Increase (decrease) in deferred revenue 559,062  479,792  529,456  329,970  326,512  209,247 
Adjusted revenue 9,589,070  7,781,297  6,383,886  5,125,481  4,473,577  4,264,487 
Performance Ratio
Economic profit margin2 9.11% 13.39% 12.17% 0.22% -5.77% -6.42%

Based on: 10-K (filing date: 2019-01-25), 10-K (filing date: 2018-01-22), 10-K (filing date: 2017-01-20), 10-K (filing date: 2016-01-19), 10-K (filing date: 2015-01-20), 10-K (filing date: 2014-01-21).

1 Economic profit. See details »

2 2018 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted revenue
= 100 × 873,910 ÷ 9,589,070 = 9.11%

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. Adobe Inc.’s economic profit margin improved from 2016 to 2017 but then deteriorated significantly from 2017 to 2018.