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Economic Value Added (EVA)

Difficulty: Advanced


Economic Profit

Apple Inc., economic profit calculation

USD $ in millions

 
12 months ended Sep 30, 2017 Sep 24, 2016 Sep 26, 2015 Sep 27, 2014 Sep 28, 2013 Sep 29, 2012
Net operating profit after taxes (NOPAT)1
Cost of capital2 % % % % % %
Invested capital3
Economic profit4

Source: Based on data from Apple 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. Apple Inc.'s economic profit declined from 2015 to 2016 but then slightly increased from 2016 to 2017.

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Net Operating Profit after Taxes (NOPAT)

Apple Inc., NOPAT calculation

USD $ in millions

 
12 months ended Sep 30, 2017 Sep 24, 2016 Sep 26, 2015 Sep 27, 2014 Sep 28, 2013 Sep 29, 2012
Net income
Deferred income tax expense (benefit)1
Increase (decrease) in allowance for doubtful accounts2
Increase (decrease) in deferred revenue3
Increase (decrease) in accrued warranty and related costs4
Increase (decrease) in equity equivalents5
Interest expense
Interest expense, operating lease obligations6
Adjusted interest expense
Tax benefit of interest expense7
Adjusted interest expense, after taxes8
(Gain) loss on marketable securities
Interest and dividend income
Investment income, before taxes
Tax expense (benefit) of investment income9
Investment income, after taxes10
Net operating profit after taxes (NOPAT)

Source: Based on data from Apple Inc. Annual Reports

2017 Calculations

1 Elimination of deferred tax expense. See Details »

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

3 Addition of increase (decrease) in deferred revenue.

4 Addition of increase (decrease) in accrued warranty and related costs.

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

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

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

8 Addition of after taxes interest expense to net income.

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

10 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. Apple Inc.'s NOPAT declined from 2015 to 2016 but then increased from 2016 to 2017 not reaching 2015 level.

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Cash Operating Taxes

Apple Inc., cash operating taxes calculation

USD $ in millions

 
12 months ended Sep 30, 2017 Sep 24, 2016 Sep 26, 2015 Sep 27, 2014 Sep 28, 2013 Sep 29, 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 Apple 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. Apple Inc.'s cash operating taxes declined from 2015 to 2016 and from 2016 to 2017.

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Invested Capital

Apple Inc., invested capital calculation (financing approach)

USD $ in millions

 
Sep 30, 2017 Sep 24, 2016 Sep 26, 2015 Sep 27, 2014 Sep 28, 2013 Sep 29, 2012
Commercial paper
Current portion of long-term debt
Long-term debt, excluding current portion
PV of operating lease payments1
Total reported debt & leases
Shareholders' equity
Net deferred tax (assets) liabilities2
Allowance for doubtful accounts3
Deferred revenue4
Accrued warranty and related costs5
Equity equivalents6
Accumulated other comprehensive (income) loss, net of tax7
Adjusted shareholders' equity
Marketable securities8
Invested capital

Source: Based on data from Apple 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 accrued warranty and related costs.

6 Addition of equity equivalents to shareholders' equity.

7 Removal of accumulated other comprehensive income.

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

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Cost of Capital

Apple Inc., cost of capital calculations

Fair Value1 Weights Cost of Capital
Equity2 ÷ = × % = %
Commercial paper and long-term debt3 ÷ = × % × (1 – 35%) = %
PV of operating lease payments4 ÷ = × % × (1 – 35%) = %
Total: %

Source: Based on data from Apple Inc. Annual Reports

1 USD $ in millions

2 Equity. See Details »

3 Commercial paper and long-term debt. See Details »

4 PV of operating lease payments. See Details »

Fair Value1 Weights Cost of Capital
Equity2 ÷ = × % = %
Commercial paper and long-term debt3 ÷ = × % × (1 – 35%) = %
PV of operating lease payments4 ÷ = × % × (1 – 35%) = %
Total: %

Source: Based on data from Apple Inc. Annual Reports

1 USD $ in millions

2 Equity. See Details »

3 Commercial paper and long-term debt. See Details »

4 PV of operating lease payments. See Details »

Fair Value1 Weights Cost of Capital
Equity2 ÷ = × % = %
Commercial paper and long-term debt3 ÷ = × % × (1 – 35%) = %
PV of operating lease payments4 ÷ = × % × (1 – 35%) = %
Total: %

Source: Based on data from Apple Inc. Annual Reports

1 USD $ in millions

2 Equity. See Details »

3 Commercial paper and long-term debt. See Details »

4 PV of operating lease payments. See Details »

Fair Value1 Weights Cost of Capital
Equity2 ÷ = × % = %
Commercial paper and long-term debt3 ÷ = × % × (1 – 35%) = %
PV of operating lease payments4 ÷ = × % × (1 – 35%) = %
Total: %

Source: Based on data from Apple Inc. Annual Reports

1 USD $ in millions

2 Equity. See Details »

3 Commercial paper and long-term debt. See Details »

4 PV of operating lease payments. See Details »

Fair Value1 Weights Cost of Capital
Equity2 ÷ = × % = %
Commercial paper and long-term debt3 ÷ = × % × (1 – 35%) = %
PV of operating lease payments4 ÷ = × % × (1 – 35%) = %
Total: %

Source: Based on data from Apple Inc. Annual Reports

1 USD $ in millions

2 Equity. See Details »

3 Commercial paper and long-term debt. See Details »

4 PV of operating lease payments. See Details »

Fair Value1 Weights Cost of Capital
Equity2 ÷ = × % = %
Commercial paper and long-term debt3 ÷ = × % × (1 – 35%) = %
PV of operating lease payments4 ÷ = × % × (1 – 35%) = %
Total: %

Source: Based on data from Apple Inc. Annual Reports

1 USD $ in millions

2 Equity. See Details »

3 Commercial paper and long-term debt. See Details »

4 PV of operating lease payments. See Details »

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Economic Spread

Apple Inc., economic spread calculation

 
Sep 30, 2017 Sep 24, 2016 Sep 26, 2015 Sep 27, 2014 Sep 28, 2013 Sep 29, 2012
Selected Financial Data (USD $ in millions)
Economic profit1
Invested capital2
Ratio
Economic spread3 % % % % % %

Source: Based on data from Apple 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. Apple Inc.'s economic spread deteriorated from 2015 to 2016 and from 2016 to 2017.

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Economic Profit Margin

Apple Inc., economic profit margin calculation

 
Sep 30, 2017 Sep 24, 2016 Sep 26, 2015 Sep 27, 2014 Sep 28, 2013 Sep 29, 2012
Selected Financial Data (USD $ in millions)
Economic profit1
Net sales
Increase (decrease) in deferred revenue
Ratio
Economic profit margin2 % % % % % %

Source: Based on data from Apple Inc. Annual Reports

2017 Calculations

1 Economic profit. See Details »

2 Economic profit margin = 100 × Economic profit ÷ (Net sales + 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. Apple Inc.'s economic profit margin deteriorated from 2015 to 2016 but then slightly improved from 2016 to 2017.

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