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
Net Operating Profit after Taxes (NOPAT)
Cash Operating Taxes
Invested Capital
Cost of Capital
Economic Spread Ratio
Economic Profit Margin

Alphabet Inc., economic profit calculation

US$ in millions

12 months ended:	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015
Net operating profit after taxes (NOPAT)¹	32,894	29,841	12,948	19,452	15,883
Cost of capital²	12.79%	12.79%	12.79%	12.75%	12.67%
Invested capital³	100,427	86,977	65,705	72,287	71,467

Economic profit⁴	20,047	18,713	4,542	10,234	6,827

Based on: 10-K (filing date: 2020-02-04), 10-K (filing date: 2019-02-05), 10-K (filing date: 2018-02-06), 10-K (filing date: 2017-02-03), 10-K (filing date: 2016-02-11).

¹ NOPAT. See details »

² Cost of capital. See details »

³ Invested capital. See details »

⁴ 2019 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 32,894 – 12.79% × 100,427 = 20,047

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.	Alphabet Inc.’s economic profit increased from 2017 to 2018 and from 2018 to 2019.

Alphabet Inc., NOPAT calculation

US$ in millions

12 months ended:	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015
Net income	34,343	30,736	12,662	19,478	16,348
Deferred income tax expense (benefit)¹	145	773	177	(120)	(258)
Increase (decrease) in allowance for doubtful accounts and sales credits²	24	55	207	171	71
Increase (decrease) in deferred revenue³	86	408	471	362	83
Increase (decrease) in equity equivalents⁴	255	1,236	855	413	(104)
Interest expense	100	114	109	124	104
Interest expense, operating lease liability⁵	320	256	222	199	131
Adjusted interest expense	420	370	331	323	235
Tax benefit of interest expense⁶	(88)	(78)	(116)	(113)	(82)
Adjusted interest expense, after taxes⁷	331	293	215	210	153
(Gain) loss on marketable securities	(149)	(1,190)	105	221	208
Interest income	(2,427)	(1,878)	(1,312)	(1,220)	(999)
Investment income, before taxes	(2,576)	(3,068)	(1,207)	(999)	(791)
Tax expense (benefit) of investment income⁸	541	644	422	350	277
Investment income, after taxes⁹	(2,035)	(2,424)	(785)	(649)	(514)
Net operating profit after taxes (NOPAT)	32,894	29,841	12,948	19,452	15,883

Based on: 10-K (filing date: 2020-02-04), 10-K (filing date: 2019-02-05), 10-K (filing date: 2018-02-06), 10-K (filing date: 2017-02-03), 10-K (filing date: 2016-02-11).

¹ Elimination of deferred tax expense. See details »

² Addition of increase (decrease) in allowance for doubtful accounts and sales credits.

³ Addition of increase (decrease) in deferred revenue.

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

⁵ 2019 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 11,413 × 2.80% = 320

⁶ 2019 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 420 × 21.00% = 88

⁷ Addition of after taxes interest expense to net income.

⁸ 2019 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 2,576 × 21.00% = 541

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.	Alphabet Inc.’s NOPAT increased from 2017 to 2018 and from 2018 to 2019.

Alphabet Inc., cash operating taxes calculation

US$ in millions

12 months ended:	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015
Provision for income taxes	5,282	4,177	14,531	4,672	3,303
Less: Deferred income tax expense (benefit)	145	773	177	(120)	(258)
Add: Tax savings from interest expense	88	78	116	113	82
Less: Tax imposed on investment income	541	644	422	350	277
Cash operating taxes	4,684	2,838	14,048	4,555	3,366

Based on: 10-K (filing date: 2020-02-04), 10-K (filing date: 2019-02-05), 10-K (filing date: 2018-02-06), 10-K (filing date: 2017-02-03), 10-K (filing date: 2016-02-11).

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.	Alphabet Inc.’s cash operating taxes decreased from 2017 to 2018 but then slightly increased from 2018 to 2019.

Alphabet Inc., invested capital calculation (financing approach)

US$ in millions

	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015
Short-term debt	—	—	—	—	3,225
Long-term debt, excluding short-term portion	4,554	4,012	3,969	3,935	1,995
Operating lease liability¹	11,413	8,872	7,693	6,884	6,710
Total reported debt & leases	15,967	12,884	11,662	10,819	11,930
Stockholders’ equity	201,442	177,628	152,502	139,036	120,331
Net deferred tax (assets) liabilities²	980	527	(250)	(157)	(62)
Allowance for doubtful accounts and sales credits³	753	729	674	467	296
Deferred revenue⁴	2,266	2,180	1,772	1,301	939
Equity equivalents⁵	3,999	3,436	2,196	1,611	1,173
Accumulated other comprehensive (income) loss, net of tax⁶	1,232	2,306	992	2,402	1,874
Adjusted stockholders’ equity	206,673	183,370	155,690	143,049	123,378
Construction in progress⁷	(21,036)	(16,838)	(10,491)	(8,166)	(7,324)
Marketable securities⁸	(101,177)	(92,439)	(91,156)	(73,415)	(56,517)
Invested capital	100,427	86,977	65,705	72,287	71,467

Based on: 10-K (filing date: 2020-02-04), 10-K (filing date: 2019-02-05), 10-K (filing date: 2018-02-06), 10-K (filing date: 2017-02-03), 10-K (filing date: 2016-02-11).

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 construction in progress.

⁸ Subtraction of marketable 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.	Alphabet Inc.’s invested capital increased from 2017 to 2018 and from 2018 to 2019.

Alphabet Inc., cost of capital calculations

	Capital (fair value)¹	Weights					Cost of capital
Equity²	994,551	994,551	÷	1,010,660	=	0.98	0.98	×	12.96%	=	12.76%
Debt³	4,696	4,696	÷	1,010,660	=	0.00	0.00	×	2.89% × (1 – 21.00%)	=	0.01%
Operating lease liability⁴	11,413	11,413	÷	1,010,660	=	0.01	0.01	×	2.80% × (1 – 21.00%)	=	0.02%
Total:	1,010,660					1.00					12.79%

Based on: 10-K (filing date: 2020-02-04).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

	Capital (fair value)¹	Weights					Cost of capital
Equity²	796,677	796,677	÷	809,511	=	0.98	0.98	×	12.96%	=	12.76%
Debt³	3,962	3,962	÷	809,511	=	0.00	0.00	×	2.89% × (1 – 21.00%)	=	0.01%
Operating lease liability⁴	8,872	8,872	÷	809,511	=	0.01	0.01	×	2.89% × (1 – 21.00%)	=	0.03%
Total:	809,511					1.00					12.79%

Based on: 10-K (filing date: 2019-02-05).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

	Capital (fair value)¹	Weights					Cost of capital
Equity²	751,339	751,339	÷	763,058	=	0.98	0.98	×	12.96%	=	12.76%
Debt³	4,026	4,026	÷	763,058	=	0.01	0.01	×	2.89% × (1 – 35.00%)	=	0.01%
Operating lease liability⁴	7,693	7,693	÷	763,058	=	0.01	0.01	×	2.89% × (1 – 35.00%)	=	0.02%
Total:	763,058					1.00					12.79%

Based on: 10-K (filing date: 2018-02-06).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

	Capital (fair value)¹	Weights					Cost of capital
Equity²	554,166	554,166	÷	564,950	=	0.98	0.98	×	12.96%	=	12.72%
Debt³	3,900	3,900	÷	564,950	=	0.01	0.01	×	2.89% × (1 – 35.00%)	=	0.01%
Operating lease liability⁴	6,884	6,884	÷	564,950	=	0.01	0.01	×	2.89% × (1 – 35.00%)	=	0.02%
Total:	564,950					1.00					12.75%

Based on: 10-K (filing date: 2017-02-03).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

	Capital (fair value)¹	Weights					Cost of capital
Equity²	470,198	470,198	÷	482,233	=	0.98	0.98	×	12.96%	=	12.64%
Debt³	5,325	5,325	÷	482,233	=	0.01	0.01	×	1.95% × (1 – 35.00%)	=	0.01%
Operating lease liability⁴	6,710	6,710	÷	482,233	=	0.01	0.01	×	1.95% × (1 – 35.00%)	=	0.02%
Total:	482,233					1.00					12.67%

Based on: 10-K (filing date: 2016-02-11).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Alphabet Inc., economic spread ratio calculation, comparison to benchmarks

	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015
Selected Financial Data (US$ in millions)
Economic profit¹	20,047	18,713	4,542	10,234	6,827
Invested capital²	100,427	86,977	65,705	72,287	71,467
Performance Ratio
Economic spread ratio³	19.96%	21.51%	6.91%	14.16%	9.55%
Benchmarks
Economic Spread Ratio, Competitors⁴
Adobe Inc.	5.55%	3.18%	7.85%	7.00%	-2.22%
Autodesk Inc.	-20.15%	-32.11%	-29.87%	-11.30%	-10.65%
Facebook Inc.	14.52%	23.63%	23.96%	11.97%	-3.89%
International Business Machines Corp.	-3.33%	-3.68%	-6.46%	-2.43%	1.37%
Intuit Inc.	21.60%	19.28%	23.90%	22.13%	15.45%
Microsoft Corp.	30.17%	9.57%	24.68%	41.82%	18.09%
Oracle Corp.	5.74%	-3.29%	3.60%	6.32%	4.98%
salesforce.com inc.	-5.78%	-5.20%	-6.62%	-5.20%	-7.77%
ServiceNow Inc.	3.32%	-0.67%	-0.11%	-27.03%	-14.99%

Based on: 10-K (filing date: 2020-02-04), 10-K (filing date: 2019-02-05), 10-K (filing date: 2018-02-06), 10-K (filing date: 2017-02-03), 10-K (filing date: 2016-02-11).

¹ Economic profit. See details »

² Invested capital. See details »

³ 2019 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × 20,047 ÷ 100,427 = 19.96%

⁴ Click competitor name to see calculations.

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.	Alphabet Inc.’s economic spread ratio improved from 2017 to 2018 but then slightly deteriorated from 2018 to 2019.

Alphabet Inc., economic profit margin calculation, comparison to benchmarks

	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015
Selected Financial Data (US$ in millions)
Economic profit¹	20,047	18,713	4,542	10,234	6,827

Revenues	161,857	136,819	110,855	90,272	74,989
Add: Increase (decrease) in deferred revenue	86	408	471	362	83
Adjusted revenues	161,943	137,227	111,326	90,634	75,072
Performance Ratio
Economic profit margin²	12.38%	13.64%	4.08%	11.29%	9.09%
Benchmarks
Economic Profit Margin, Competitors³
Adobe Inc.	8.35%	5.21%	10.24%	9.09%	-3.39%
Autodesk Inc.	-32.85%	-46.75%	-44.55%	-14.26%	-12.76%
Facebook Inc.	13.48%	25.52%	24.52%	16.75%	-6.87%
International Business Machines Corp.	-5.68%	-5.17%	-8.79%	-3.24%	1.71%
Intuit Inc.	14.38%	12.81%	13.28%	12.51%	9.79%
Microsoft Corp.	20.31%	6.30%	18.86%	21.55%	7.95%
Oracle Corp.	10.46%	-5.95%	7.38%	10.96%	8.79%
salesforce.com inc.	-11.32%	-8.21%	-11.62%	-7.47%	-11.98%
ServiceNow Inc.	2.43%	-0.57%	-0.09%	-20.30%	-13.20%

Based on: 10-K (filing date: 2020-02-04), 10-K (filing date: 2019-02-05), 10-K (filing date: 2018-02-06), 10-K (filing date: 2017-02-03), 10-K (filing date: 2016-02-11).

¹ Economic profit. See details »

² 2019 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted revenues
= 100 × 20,047 ÷ 161,943 = 12.38%

³ Click competitor name to see calculations.

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.	Alphabet Inc.’s economic profit margin improved from 2017 to 2018 but then slightly deteriorated from 2018 to 2019.

Alphabet Inc. (NASDAQ:GOOG)

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