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

Booking Holdings Inc., economic profit calculation

USD $ in thousands

 
12 months ended Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Net operating profit after taxes (NOPAT)1 2,397,713  2,118,014  2,566,383  2,511,154  1,945,838 
Cost of capital2 14.30% 14.51% 14.40% 14.87% 15.29%
Invested capital3 6,420,715  6,628,821  6,914,825  9,096,451  3,789,818 
Economic profit4 1,479,582  1,155,865  1,570,980  1,158,773  1,366,234 

Source: Based on data from Booking Holdings 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
= 2,397,713 – 14.30% × 6,420,715 = 1,479,582

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. Booking Holdings Inc.'s economic profit declined from 2015 to 2016 but then increased from 2016 to 2017 not reaching 2015 level.

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Net Operating Profit after Taxes (NOPAT)

Booking Holdings Inc., NOPAT calculation

USD $ in thousands

 
12 months ended Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Net income applicable to common stockholders 2,340,765  2,134,987  2,551,360  2,421,753  1,892,663 
Deferred income tax expense (benefit)1 (32,465) (111,905) (61,335) 31,707  (11,104)
Increase (decrease) in allowance for doubtful accounts2 13,717  10,551  802  96  3,794 
Increase (decrease) in equity equivalents3 (18,748) (101,354) (60,533) 31,803  (7,310)
Interest expense 253,976  207,900  160,229  88,353  83,289 
Interest expense, operating lease obligations4 20,373  17,963  13,941  14,192  13,724 
Adjusted interest expense 274,349  225,863  174,170  102,545  97,013 
Tax benefit of interest expense5 (96,022) (79,052) (60,959) (35,891) (33,954)
Adjusted interest expense, after taxes6 178,327  146,811  113,210  66,655  63,058 
(Gain) loss on marketable securities (700) (1,100) (2,200)
Interest income (157,194) (94,946) (55,729) (13,933) (4,167)
Investment income, before taxes (157,894) (96,046) (57,929) (13,933) (4,167)
Tax expense (benefit) of investment income7 55,263  33,616  20,275  4,877  1,458 
Investment income, after taxes8 (102,631) (62,430) (37,654) (9,056) (2,709)
Net income (loss) attributable to noncontrolling interest 135 
Net operating profit after taxes (NOPAT) 2,397,713  2,118,014  2,566,383  2,511,154  1,945,838 

Source: Based on data from Booking Holdings 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 equity equivalents to net income applicable to common stockholders.

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

5 Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 274,349 × 35% = 96,022

6 Addition of after taxes interest expense to net income applicable to common stockholders.

7 Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 157,894 × 35% = 55,263

8 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. Booking Holdings 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

Booking Holdings Inc., cash operating taxes calculation

USD $ in thousands

 
12 months ended Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Income tax expense 2,057,557  578,251  576,960  567,695  403,739 
Less: Deferred income tax expense (benefit) (32,465) (111,905) (61,335) 31,707  (11,104)
Add: Tax savings from interest expense 96,022  79,052  60,959  35,891  33,954 
Less: Tax imposed on investment income 55,263  33,616  20,275  4,877  1,458 
Cash operating taxes 2,130,781  735,592  678,979  567,002  447,339 

Source: Based on data from Booking Holdings 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. Booking Holdings Inc.'s cash operating taxes increased from 2015 to 2016 and from 2016 to 2017.

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Invested Capital

Booking Holdings Inc., invested capital calculation (financing approach)

USD $ in thousands

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Convertible debt 710,910  967,734  37,195  151,931 
Long-term debt 8,809,788  6,170,522  6,158,443  3,850,085  1,750,580 
PV of operating lease payments1 687,168  527,393  421,894  386,998  266,190 
Total reported debt & leases 10,207,866  7,665,649  6,580,337  4,274,278  2,168,701 
Stockholders' equity 11,260,598  9,820,142  8,795,469  8,566,694  6,909,729 
Net deferred tax (assets) liabilities2 439,812  798,673  871,466  879,200  244,721 
Allowance for doubtful accounts3 39,282  25,565  15,014  14,212  14,116 
Equity equivalents4 479,094  824,238  886,480  893,412  258,837 
Accumulated other comprehensive (income) loss, net of tax5 (236,982) 134,684  (244,852) 259,902  (84,729)
Adjusted stockholders' equity 11,502,710  10,779,064  9,437,097  9,720,008  7,083,837 
Building construction-in-progress6 (8,388) (5,945)
Available for sale securities7 (15,281,473) (11,809,947) (9,102,609) (4,897,835) (5,462,720)
Invested capital 6,420,715  6,628,821  6,914,825  9,096,451  3,789,818 

Source: Based on data from Booking Holdings 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 equity equivalents to stockholders' equity.

5 Removal of accumulated other comprehensive income.

6 Subtraction of building construction-in-progress.

7 Subtraction of available for sale 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. Booking Holdings Inc.'s invested capital declined from 2015 to 2016 and from 2016 to 2017.

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Cost of Capital

Booking Holdings Inc., cost of capital calculations

Fair Value1 Weights Cost of Capital
Equity2 91,990,251  91,990,251  ÷ 103,777,418  = 0.89 0.89 × 15.92% = 14.11%
Senior Notes3 11,100,000  11,100,000  ÷ 103,777,418  = 0.11 0.11 × 2.59% × (1 – 35%) = 0.18%
PV of operating lease payments4 687,168  687,168  ÷ 103,777,418  = 0.01 0.01 × 2.59% × (1 – 35%) = 0.01%
Total: 103,777,418  1.00 14.30%

Source: Based on data from Booking Holdings Inc. Annual Reports

1 USD $ in thousands

2 Equity. See Details »

3 Senior Notes. See Details »

4 PV of operating lease payments. See Details »

Fair Value1 Weights Cost of Capital
Equity2 80,246,612  80,246,612  ÷ 89,174,006  = 0.90 0.90 × 15.92% = 14.32%
Senior Notes3 8,400,000  8,400,000  ÷ 89,174,006  = 0.09 0.09 × 2.95% × (1 – 35%) = 0.18%
PV of operating lease payments4 527,393  527,393  ÷ 89,174,006  = 0.01 0.01 × 2.95% × (1 – 35%) = 0.01%
Total: 89,174,006  1.00 14.51%

Source: Based on data from Booking Holdings Inc. Annual Reports

1 USD $ in thousands

2 Equity. See Details »

3 Senior Notes. See Details »

4 PV of operating lease payments. See Details »

Fair Value1 Weights Cost of Capital
Equity2 61,304,280  61,304,280  ÷ 68,726,174  = 0.89 0.89 × 15.92% = 14.20%
Senior Notes3 7,000,000  7,000,000  ÷ 68,726,174  = 0.10 0.10 × 2.82% × (1 – 35%) = 0.19%
PV of operating lease payments4 421,894  421,894  ÷ 68,726,174  = 0.01 0.01 × 2.82% × (1 – 35%) = 0.01%
Total: 68,726,174  1.00 14.40%

Source: Based on data from Booking Holdings Inc. Annual Reports

1 USD $ in thousands

2 Equity. See Details »

3 Senior Notes. See Details »

4 PV of operating lease payments. See Details »

Fair Value1 Weights Cost of Capital
Equity2 63,264,532  63,264,532  ÷ 68,451,530  = 0.92 0.92 × 15.92% = 14.71%
Senior Notes3 4,800,000  4,800,000  ÷ 68,451,530  = 0.07 0.07 × 3.19% × (1 – 35%) = 0.15%
PV of operating lease payments4 386,998  386,998  ÷ 68,451,530  = 0.01 0.01 × 3.19% × (1 – 35%) = 0.01%
Total: 68,451,530  1.00 14.87%

Source: Based on data from Booking Holdings Inc. Annual Reports

1 USD $ in thousands

2 Equity. See Details »

3 Senior Notes. See Details »

4 PV of operating lease payments. See Details »

Fair Value1 Weights Cost of Capital
Equity2 66,898,629  66,898,629  ÷ 70,264,819  = 0.95 0.95 × 15.92% = 15.15%
Senior Notes3 3,100,000  3,100,000  ÷ 70,264,819  = 0.04 0.04 × 4.50% × (1 – 35%) = 0.13%
PV of operating lease payments4 266,190  266,190  ÷ 70,264,819  = 0.00 0.00 × 4.50% × (1 – 35%) = 0.01%
Total: 70,264,819  1.00 15.29%

Source: Based on data from Booking Holdings Inc. Annual Reports

1 USD $ in thousands

2 Equity. See Details »

3 Senior Notes. See Details »

4 PV of operating lease payments. See Details »

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Economic Spread

Booking Holdings Inc., economic spread calculation

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Selected Financial Data (USD $ in thousands)
Economic profit1 1,479,582  1,155,865  1,570,980  1,158,773  1,366,234 
Invested capital2 6,420,715  6,628,821  6,914,825  9,096,451  3,789,818 
Ratio
Economic spread3 23.04% 17.44% 22.72% 12.74% 36.05%

Source: Based on data from Booking Holdings Inc. Annual Reports

2017 Calculations

1 Economic profit. See Details »

2 Invested capital. See Details »

3 Economic spread = 100 × Economic profit ÷ Invested capital
= 100 × 1,479,582 ÷ 6,420,715 = 23.04%

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. Booking Holdings Inc.'s economic spread deteriorated from 2015 to 2016 but then improved from 2016 to 2017 exceeding 2015 level.

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Economic Profit Margin

Booking Holdings Inc., economic profit margin calculation

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Selected Financial Data (USD $ in thousands)
Economic profit1 1,479,582  1,155,865  1,570,980  1,158,773  1,366,234 
Revenues 12,681,082  10,743,006  9,223,987  8,441,971  6,793,306 
Ratio
Economic profit margin2 11.67% 10.76% 17.03% 13.73% 20.11%

Source: Based on data from Booking Holdings Inc. Annual Reports

2017 Calculations

1 Economic profit. See Details »

2 Economic profit margin = 100 × Economic profit ÷ Revenues
= 100 × 1,479,582 ÷ 12,681,082 = 11.67%

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. Booking Holdings Inc.'s economic profit margin deteriorated from 2015 to 2016 but then slightly improved from 2016 to 2017.

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