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Economic Value Added (EVA)

Difficulty: Advanced

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 Systems Inc., economic profit calculation

USD $ in thousands

 
12 months ended Dec 1, 2017 Dec 2, 2016 Nov 27, 2015 Nov 28, 2014 Nov 29, 2013 Nov 30, 2012
Net operating profit after taxes (NOPAT)1
Cost of capital2 % % % % % %
Invested capital3
Economic profit4

Source: Based on data from Adobe Systems Inc. Annual Reports

2017 Calculations

1 NOPAT. See Details »

2 Cost of capital. See Details »

3 Invested capital. See Details »

4 Economic profit = NOPAT – Cost of capital × Invested capital
= % × =

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 Systems Inc.'s economic profit increased from 2015 to 2016 and from 2016 to 2017.

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Net Operating Profit after Taxes (NOPAT)

Adobe Systems Inc., NOPAT calculation

USD $ in thousands

 
12 months ended Dec 1, 2017 Dec 2, 2016 Nov 27, 2015 Nov 28, 2014 Nov 29, 2013 Nov 30, 2012
Net income
Deferred income tax expense (benefit)1
Increase (decrease) in allowances for doubtful accounts2
Increase (decrease) in deferred revenue3
Increase (decrease) in equity equivalents4
Interest expense
Interest expense, operating lease obligations5
Adjusted interest expense
Tax benefit of interest expense6
Adjusted interest expense, after taxes7
(Gain) loss on marketable securities
Interest income
Investment income, before taxes
Tax expense (benefit) of investment income8
Investment income, after taxes9
Net operating profit after taxes (NOPAT)

Source: Based on data from Adobe Systems Inc. Annual Reports

2017 Calculations

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 Addition of interest expense on capitalized operating leases. See Details »

6 Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= × 35% =

7 Addition of after taxes interest expense to net income.

8 Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= × 35% =

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 Systems Inc.'s NOPAT increased from 2015 to 2016 and from 2016 to 2017.

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Cash Operating Taxes

Adobe Systems Inc., cash operating taxes calculation

USD $ in thousands

 
12 months ended Dec 1, 2017 Dec 2, 2016 Nov 27, 2015 Nov 28, 2014 Nov 29, 2013 Nov 30, 2012
Provision for income taxes
Less: Deferred income tax expense (benefit)
Add: Tax savings from interest expense
Less: Tax imposed on investment income
Cash operating taxes

Source: Based on data from Adobe Systems Inc. Annual Reports

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 Systems Inc.'s cash operating taxes declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level.

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Invested Capital

Adobe Systems Inc., invested capital calculation (financing approach)

USD $ in thousands

 
Dec 1, 2017 Dec 2, 2016 Nov 27, 2015 Nov 28, 2014 Nov 29, 2013 Nov 30, 2012
Debt and capital lease obligations, current portion
Debt and capital lease obligations, excluding current portion
PV of operating lease payments1
Total reported debt & leases
Stockholders' equity
Net deferred tax (assets) liabilities2
Allowances for doubtful accounts3
Deferred revenue4
Equity equivalents5
Accumulated other comprehensive (income) loss, net of tax6
Adjusted stockholders' equity
Capital projects in-progress7
Short-term investments8
Invested capital

Source: Based on data from Adobe Systems Inc. Annual Reports

1 Addition of capitalized operating leases. See Details »

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 Systems Inc.'s invested capital increased from 2015 to 2016 and from 2016 to 2017.

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Cost of Capital

Adobe Systems Inc., cost of capital calculations

Fair Value1 Weights Cost of Capital
Equity2 ÷ = × % = %
Debt and capital lease obligations, including current portion3 ÷ = × % × (1 – 35%) = %
PV of operating lease payments4 ÷ = × % × (1 – 35%) = %
Total: %

Source: Based on data from Adobe Systems Inc. Annual Reports

1 USD $ in thousands

2 Equity. See Details »

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

4 PV of operating lease payments. See Details »

Fair Value1 Weights Cost of Capital
Equity2 ÷ = × % = %
Debt and capital lease obligations, including current portion3 ÷ = × % × (1 – 35%) = %
PV of operating lease payments4 ÷ = × % × (1 – 35%) = %
Total: %

Source: Based on data from Adobe Systems Inc. Annual Reports

1 USD $ in thousands

2 Equity. See Details »

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

4 PV of operating lease payments. See Details »

Fair Value1 Weights Cost of Capital
Equity2 ÷ = × % = %
Debt and capital lease obligations, including current portion3 ÷ = × % × (1 – 35%) = %
PV of operating lease payments4 ÷ = × % × (1 – 35%) = %
Total: %

Source: Based on data from Adobe Systems Inc. Annual Reports

1 USD $ in thousands

2 Equity. See Details »

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

4 PV of operating lease payments. See Details »

Fair Value1 Weights Cost of Capital
Equity2 ÷ = × % = %
Debt and capital lease obligations, including current portion3 ÷ = × % × (1 – 35%) = %
PV of operating lease payments4 ÷ = × % × (1 – 35%) = %
Total: %

Source: Based on data from Adobe Systems Inc. Annual Reports

1 USD $ in thousands

2 Equity. See Details »

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

4 PV of operating lease payments. See Details »

Fair Value1 Weights Cost of Capital
Equity2 ÷ = × % = %
Debt and capital lease obligations, including current portion3 ÷ = × % × (1 – 35%) = %
PV of operating lease payments4 ÷ = × % × (1 – 35%) = %
Total: %

Source: Based on data from Adobe Systems Inc. Annual Reports

1 USD $ in thousands

2 Equity. See Details »

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

4 PV of operating lease payments. See Details »

Fair Value1 Weights Cost of Capital
Equity2 ÷ = × % = %
Debt and capital lease obligations, including current portion3 ÷ = × % × (1 – 35%) = %
PV of operating lease payments4 ÷ = × % × (1 – 35%) = %
Total: %

Source: Based on data from Adobe Systems Inc. Annual Reports

1 USD $ in thousands

2 Equity. See Details »

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

4 PV of operating lease payments. See Details »

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Economic Spread

Adobe Systems Inc., economic spread calculation

 
Dec 1, 2017 Dec 2, 2016 Nov 27, 2015 Nov 28, 2014 Nov 29, 2013 Nov 30, 2012
Selected Financial Data (USD $ in thousands)
Economic profit1
Invested capital2
Ratio
Economic spread3 % % % % % %

Source: Based on data from Adobe Systems Inc. Annual Reports

2017 Calculations

1 Economic profit. See Details »

2 Invested capital. See Details »

3 Economic spread = 100 × Economic profit ÷ Invested capital
= 100 × ÷ = %

Ratio Description The company
Economic spread The ratio of economic profit to invested capital, also equal to the difference between return on invested capital (ROIC) and cost of capital. Adobe Systems Inc.'s economic spread improved from 2015 to 2016 and from 2016 to 2017.

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Economic Profit Margin

Adobe Systems Inc., economic profit margin calculation

 
Dec 1, 2017 Dec 2, 2016 Nov 27, 2015 Nov 28, 2014 Nov 29, 2013 Nov 30, 2012
Selected Financial Data (USD $ in thousands)
Economic profit1
Revenue
Increase (decrease) in deferred revenue
Ratio
Economic profit margin2 % % % % % %

Source: Based on data from Adobe Systems Inc. Annual Reports

2017 Calculations

1 Economic profit. See Details »

2 Economic profit margin = 100 × Economic profit ÷ (Revenue + Change in deferred revenue)
= 100 × ÷ ( + ) = %

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 Systems Inc.'s economic profit margin improved from 2015 to 2016 and from 2016 to 2017.

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