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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
Economic Profit Margin

Alphabet Inc., economic profit calculation

US$ in millions

	12 months ended	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Net operating profit after taxes (NOPAT)¹
	Cost of capital²
	Invested capital³

	Economic profit⁴

Based on: 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), 10-K (filing date: 2015-02-09).

2018 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
= hidden – hidden × hidden = hidden

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 declined from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level.

Alphabet Inc., NOPAT calculation

US$ in millions

	12 months ended	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Net income
	Deferred income tax expense (benefit)¹
	Increase (decrease) in allowance for doubtful accounts and sales credits²
	Increase (decrease) in deferred revenue³
	Increase (decrease) in equity equivalents⁴
	Interest expense
	Interest expense, operating lease liability⁵
	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
	(Income) loss from discontinued operations, net of tax¹⁰
	Net operating profit after taxes (NOPAT)

Based on: 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), 10-K (filing date: 2015-02-09).

2018 Calculations

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 Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= hidden × hidden = hidden

⁶ Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= hidden × 21.00% = hidden

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
= hidden × 21.00% = hidden

⁹ Elimination of after taxes investment income.

¹⁰ Elimination of discontinued operations.

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 declined from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level.

Alphabet Inc., cash operating taxes calculation

US$ in millions

	12 months ended	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	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

Based on: 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), 10-K (filing date: 2015-02-09).

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 increased from 2016 to 2017 but then declined significantly from 2017 to 2018.

Alphabet Inc., invested capital calculation (financing approach)

US$ in millions

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Short-term debt
	Long-term debt, excluding short-term portion
	Operating lease liability¹
	Total reported debt & leases
	Stockholders’ equity
	Net deferred tax (assets) liabilities²
	Allowance for doubtful accounts and sales credits³
	Deferred revenue⁴
	Equity equivalents⁵
	Accumulated other comprehensive (income) loss, net of tax⁶
	Adjusted stockholders’ equity
	Construction in progress⁷
	Marketable securities⁸
	Invested capital

Based on: 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), 10-K (filing date: 2015-02-09).

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 declined from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level.

Alphabet Inc., cost of capital calculations


Equity²	÷	=	×		=
Debt and capital lease obligation³	÷	=	×	× (1 – 21.00%)	=
Operating lease liability⁴	÷	=	×	× (1 – 21.00%)	=
Total:

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

¹ US$ in millions

² Equity. See Details »