Economic Value Added (EVA)
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
American Airlines Group Inc., economic profit calculation
US$ in millions
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2023 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 2,815 – 8.84% × 30,476 = 120
The financial performance from 2019 to 2023 reflects a period of severe volatility characterized by a deep contraction followed by a progressive recovery toward value creation. After a significant collapse in profitability and a period of substantial value destruction, the trajectory indicates a return to a state where operating returns exceed the cost of capital.
- Net Operating Profit After Taxes (NOPAT)
- A sharp decline in NOPAT occurred between 2019 and 2020, moving from a profit of US$ 3,350 million to a loss of US$ 10,143 million. A consistent recovery trend followed, with NOPAT narrowing its deficit to US$ 736 million in 2021 and returning to positive territory in 2022 at US$ 2,040 million. By 2023, NOPAT reached US$ 2,815 million, showing strong recovery momentum, although it has not yet returned to the 2019 peak.
- Invested Capital and Cost of Capital
- Invested capital saw a downward trend from 2019 to 2021, decreasing from US$ 35,495 million to US$ 29,074 million, before stabilizing at US$ 30,476 million by the end of 2023. During this same period, the cost of capital remained relatively stable, fluctuating minimally between a low of 7.87% in 2021 and a high of 8.84% in 2023.
- Economic Profit
- Economic profit transitioned from a positive US$ 274 million in 2019 to a massive deficit of US$ 12,778 million in 2020, indicating severe value destruction. This deficit narrowed progressively to US$ 3,025 million in 2021 and US$ 669 million in 2022. The cycle concluded in 2023 with a return to a positive economic profit of US$ 120 million, signifying that the organization has resumed generating value above its required cost of capital.
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Net Operating Profit after Taxes (NOPAT)
American Airlines Group Inc., NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in equity equivalents to net income (loss).
3 2023 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 7,761 × 7.60% = 590
4 2023 Calculation
Tax benefit of interest expense, net = Adjusted interest expense, net × Statutory income tax rate
= 2,735 × 21.00% = 574
5 Addition of after taxes interest expense to net income (loss).
6 2023 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 591 × 21.00% = 124
7 Elimination of after taxes investment income.
The financial performance from 2019 to 2023 is characterized by a severe contraction followed by a steady multi-year recovery. Both net income and net operating profit after taxes (NOPAT) exhibit a synchronized V-shaped trajectory, reflecting a period of extreme volatility in operational profitability.
- NOPAT Trend Analysis
- A significant decline in operational profitability occurred between 2019 and 2020, with NOPAT falling from US$ 3,350 million to a deficit of US$ 10,143 million. This represents a substantial erosion of value creation. Recovery commenced in 2021, as the NOPAT deficit narrowed to US$ 736 million, eventually returning to positive territory in 2022 at US$ 2,040 million and continuing upward to US$ 2,815 million by the end of 2023. Despite this growth, the 2023 NOPAT remains below the pre-pandemic level established in 2019.
- Correlation Between NOPAT and Net Income
- A consistent divergence is observed between NOPAT and net income, particularly in profitable years. In 2019, 2022, and 2023, NOPAT exceeded net income, indicating that interest expenses and other non-operating costs reduced the final bottom-line results. The magnitude of losses in 2020 was similarly reflected in both metrics, with NOPAT showing a more pronounced negative value (US$ -10,143 million) compared to net income (US$ -8,885 million), highlighting the scale of operational losses before the impact of financial structuring or tax adjustments.
- Operational Recovery Velocity
- The rate of recovery accelerated between 2021 and 2023. The transition from a negative NOPAT of US$ 736 million in 2021 to a positive US$ 2,815 million in 2023 suggests a restoration of operational efficiency and demand. The trajectory indicates a stabilization of core business operations, although the company has not yet fully regained its 2019 operational profit peak.
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Cash Operating Taxes
American Airlines Group Inc., cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
An analysis of the tax expenditures from 2019 to 2023 reveals a significant divergence between accrual-based income tax provisions and actual cash operating tax outflows. While the income tax provision exhibited extreme volatility, cash operating taxes remained relatively stable and trended upward for the majority of the period.
- Income Tax Provision Trends
- The income tax provision transitioned from a positive expense of 570 million USD in 2019 to substantial tax benefits in 2020 and 2021, peaking at a benefit of 2,568 million USD in 2020. This shift indicates significant tax losses or the recognition of deferred tax assets during those years. A return to positive tax provisions began in 2022 at 59 million USD and increased to 299 million USD by 2023, signaling a recovery in taxable income.
- Cash Operating Tax Analysis
- In contrast to the accounting provisions, cash operating taxes showed a consistent upward trajectory from 2019 to 2022. Payments rose from 303 million USD in 2019 to a peak of 485 million USD in 2022. A slight contraction occurred in 2023, with cash taxes decreasing to 450 million USD. The absence of negative values in this category confirms that the company continued to make cash tax payments regardless of the tax benefits reported on the income statement.
- Comparative Divergence and EVA Implications
- The discrepancy between the tax benefit reported in 2020 and 2021 and the actual cash paid during those years suggests that the tax benefits were non-cash in nature. For the purpose of calculating Economic Value Added (EVA), the use of cash operating taxes provides a more accurate representation of the actual cash leakage from the business. The steady increase in cash taxes through 2022 indicates a persistent cash requirement for tax obligations that was not offset by the accounting tax benefits recognized during the pandemic recovery period.
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Invested Capital
American Airlines Group Inc., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
1 Addition of capitalized operating leases.
2 Elimination of deferred taxes from assets and liabilities. See details »
3 Addition of equity equivalents to stockholders’ deficit.
4 Removal of accumulated other comprehensive income.
5 Subtraction of short-term investments.
The financial structure from 2019 to 2023 is characterized by a period of significant expansion in liabilities and a simultaneous erosion of equity, followed by a gradual phase of stabilization and deleveraging starting in 2022.
- Debt and Lease Obligations
- A substantial upward trend in total reported debt and leases is observed between 2019 and 2021, with values rising from 33,444 million US dollars to a peak of 46,177 million US dollars. This peak was followed by a consistent decline, reducing the total obligations to 40,663 million US dollars by December 31, 2023, indicating a strategic effort to reduce leverage.
- Shareholders' Equity Position
- The company experienced a severe deterioration in its equity position, moving from a negligible deficit of 118 million US dollars in 2019 to a maximum deficit of 7,340 million US dollars in 2021. A recovery trend emerged after 2021, with the stockholders' deficit narrowing to 5,202 million US dollars by the end of 2023, although the position remains significantly negative.
- Invested Capital Trajectory
- Invested capital followed a U-shaped trajectory over the analyzed period. An initial contraction is evident from 2019, where invested capital stood at 35,495 million US dollars, falling to a low of 29,074 million US dollars in 2021. This was followed by a moderate increase to 30,859 million US dollars in 2022, before settling at 30,476 million US dollars in 2023.
The convergence of increasing debt and a deepening equity deficit through 2021 suggests a period of high financial stress. However, the subsequent reduction in total debt and the gradual improvement in the stockholders' deficit indicate a shift toward financial stabilization and capital restructuring in the most recent two years of the period.
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Cost of Capital
American Airlines Group Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 9,684) | 9,684) | ÷ | 50,261) | = | 0.19 | 0.19 | × | 23.76% | = | 4.58% | ||
| Long-term debt and finance lease liabilities, including current maturities3 | 32,816) | 32,816) | ÷ | 50,261) | = | 0.65 | 0.65 | × | 6.47% × (1 – 21.00%) | = | 3.34% | ||
| Operating lease liability4 | 7,761) | 7,761) | ÷ | 50,261) | = | 0.15 | 0.15 | × | 7.60% × (1 – 21.00%) | = | 0.93% | ||
| Total: | 50,261) | 1.00 | 8.84% | ||||||||||
Based on: 10-K (reporting date: 2023-12-31).
1 US$ in millions
2 Equity. See details »
3 Long-term debt and finance lease liabilities, including current maturities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 10,136) | 10,136) | ÷ | 51,490) | = | 0.20 | 0.20 | × | 23.76% | = | 4.68% | ||
| Long-term debt and finance lease liabilities, including current maturities3 | 33,330) | 33,330) | ÷ | 51,490) | = | 0.65 | 0.65 | × | 6.24% × (1 – 21.00%) | = | 3.19% | ||
| Operating lease liability4 | 8,024) | 8,024) | ÷ | 51,490) | = | 0.16 | 0.16 | × | 7.40% × (1 – 21.00%) | = | 0.91% | ||
| Total: | 51,490) | 1.00 | 8.78% | ||||||||||
Based on: 10-K (reporting date: 2022-12-31).
1 US$ in millions
2 Equity. See details »
3 Long-term debt and finance lease liabilities, including current maturities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 11,315) | 11,315) | ÷ | 58,736) | = | 0.19 | 0.19 | × | 23.76% | = | 4.58% | ||
| Long-term debt and finance lease liabilities, including current maturities3 | 39,304) | 39,304) | ÷ | 58,736) | = | 0.67 | 0.67 | × | 4.93% × (1 – 21.00%) | = | 2.61% | ||
| Operating lease liability4 | 8,117) | 8,117) | ÷ | 58,736) | = | 0.14 | 0.14 | × | 6.30% × (1 – 21.00%) | = | 0.69% | ||
| Total: | 58,736) | 1.00 | 7.87% | ||||||||||
Based on: 10-K (reporting date: 2021-12-31).
1 US$ in millions
2 Equity. See details »
3 Long-term debt and finance lease liabilities, including current maturities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 11,508) | 11,508) | ÷ | 50,962) | = | 0.23 | 0.23 | × | 23.76% | = | 5.36% | ||
| Long-term debt and finance lease liabilities, including current maturities3 | 31,026) | 31,026) | ÷ | 50,962) | = | 0.61 | 0.61 | × | 4.77% × (1 – 21.00%) | = | 2.29% | ||
| Operating lease liability4 | 8,428) | 8,428) | ÷ | 50,962) | = | 0.17 | 0.17 | × | 5.60% × (1 – 21.00%) | = | 0.73% | ||
| Total: | 50,962) | 1.00 | 8.39% | ||||||||||
Based on: 10-K (reporting date: 2020-12-31).
1 US$ in millions
2 Equity. See details »
3 Long-term debt and finance lease liabilities, including current maturities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 12,070) | 12,070) | ÷ | 46,377) | = | 0.26 | 0.26 | × | 23.76% | = | 6.18% | ||
| Long-term debt and finance lease liabilities, including current maturities3 | 25,178) | 25,178) | ÷ | 46,377) | = | 0.54 | 0.54 | × | 4.08% × (1 – 21.00%) | = | 1.75% | ||
| Operating lease liability4 | 9,129) | 9,129) | ÷ | 46,377) | = | 0.20 | 0.20 | × | 4.70% × (1 – 21.00%) | = | 0.73% | ||
| Total: | 46,377) | 1.00 | 8.66% | ||||||||||
Based on: 10-K (reporting date: 2019-12-31).
1 US$ in millions
2 Equity. See details »
3 Long-term debt and finance lease liabilities, including current maturities. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
American Airlines Group Inc., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | 120) | (669) | (3,025) | (12,778) | 274) | |
| Invested capital2 | 30,476) | 30,859) | 29,074) | 31,408) | 35,495) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | 0.39% | -2.17% | -10.40% | -40.69% | 0.77% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| FedEx Corp. | -6.50% | -6.13% | -3.58% | — | — | |
| Uber Technologies Inc. | -3.60% | -73.60% | -22.77% | — | — | |
| Union Pacific Corp. | -3.35% | -1.44% | -2.30% | — | — | |
| United Airlines Holdings Inc. | 0.91% | -3.31% | -10.24% | — | — | |
| United Parcel Service Inc. | 0.77% | 11.75% | 17.57% | — | — | |
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2023 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × 120 ÷ 30,476 = 0.39%
4 Click competitor name to see calculations.
The financial trajectory from 2019 to 2023 is characterized by a severe contraction in economic value followed by a multi-year recovery phase. A significant shift occurred in 2020, marking a transition from value creation to substantial economic value destruction, with a gradual return to profitability by the end of the period.
- Economic Profit Analysis
- Economic profit experienced a precipitous decline from 274 million USD in 2019 to a deficit of 12,778 million USD in 2020. A consistent recovery trend followed this nadir, with losses narrowing to 3,025 million USD in 2021 and 669 million USD in 2022. By December 31, 2023, the company returned to a positive economic profit of 120 million USD.
- Invested Capital Trends
- A general reduction in invested capital is observed between 2019 and 2021, falling from 35,495 million USD to 29,074 million USD. Following this decline, the capital base stabilized, showing a slight increase to 30,859 million USD in 2022 before settling at 30,476 million USD in 2023.
- Economic Spread Ratio Interpretation
- The economic spread ratio mirrors the volatility of economic profit, falling sharply from 0.77% in 2019 to -40.69% in 2020. The ratio improved steadily over the subsequent three years, moving to -10.40% in 2021 and -2.17% in 2022. The return to a positive spread of 0.39% in 2023 indicates that the return on invested capital once again exceeded the cost of capital, although it remains below the pre-crisis level of 2019.
The data indicates a successful reversal of economic value destruction. The alignment of positive economic profit and a positive economic spread ratio by 2023 suggests that the organization has regained its capacity to generate returns in excess of its capital charges.
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Economic Profit Margin
American Airlines Group Inc., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | 120) | (669) | (3,025) | (12,778) | 274) | |
| Operating revenues | 52,788) | 48,971) | 29,882) | 17,337) | 45,768) | |
| Performance Ratio | ||||||
| Economic profit margin2 | 0.23% | -1.37% | -10.12% | -73.71% | 0.60% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| FedEx Corp. | -5.01% | -4.36% | -2.74% | — | — | |
| Uber Technologies Inc. | -1.51% | -37.73% | -20.97% | — | — | |
| Union Pacific Corp. | -8.55% | -3.46% | -6.15% | — | — | |
| United Airlines Holdings Inc. | 0.76% | -3.02% | -21.56% | — | — | |
| United Parcel Service Inc. | 0.38% | 5.24% | 8.02% | — | — | |
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
1 Economic profit. See details »
2 2023 Calculation
Economic profit margin = 100 × Economic profit ÷ Operating revenues
= 100 × 120 ÷ 52,788 = 0.23%
3 Click competitor name to see calculations.
The financial trajectory between 2019 and 2023 is characterized by a severe contraction followed by a consistent multi-year recovery phase. While the period began with marginal value creation, a significant systemic shock led to substantial economic losses, which were gradually mitigated as operating revenues scaled back to and eventually exceeded pre-crisis levels.
- Operating Revenue Trends
- A sharp decline in operating revenues occurred in 2020, where figures dropped from 45,768 million USD to 17,337 million USD. This was followed by a steady upward trend, with revenues reaching 29,882 million USD in 2021, 48,971 million USD in 2022, and peaking at 52,788 million USD by the end of 2023. This indicates a full recovery of top-line performance, surpassing 2019 levels by approximately 15%.
- Economic Profit Performance
- Economic profit experienced extreme volatility, shifting from a positive 274 million USD in 2019 to a deficit of 12,778 million USD in 2020. The subsequent years show a trend of diminishing losses, with deficits narrowing to 3,025 million USD in 2021 and 669 million USD in 2022. A return to positive economic profit was achieved in 2023, reaching 120 million USD, signaling that the entity has resumed generating value above its cost of capital.
- Economic Profit Margin Analysis
- The economic profit margin mirrors the volatility of absolute profit, plummeting from 0.60% in 2019 to -73.71% in 2020. The recovery of this margin was gradual, improving to -10.12% in 2021 and -1.37% in 2022, before finally turning positive at 0.23% in 2023. The narrowness of the positive margins in both 2019 and 2023 suggests that while value is being created, the margin of safety remains slim relative to the scale of operating revenues.
The correlation between the expansion of operating revenues and the restoration of the economic profit margin indicates that the recovery was driven by volume and revenue growth. The transition from a deep negative margin to a positive one over four years demonstrates a successful reversal of the economic value destruction observed during the 2020 fiscal year.
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