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. |
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. |
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. |
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. |
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 »
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. |
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. |