.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
Broadcom Inc., economic profit calculation
USD $ in millions
| 12 months ended | Oct 29, 2017 | Oct 30, 2016 | Nov 1, 2015 | Nov 2, 2014 | Nov 3, 2013 | Oct 28, 2012 | |
|---|---|---|---|---|---|---|---|
| | Net operating profit after taxes (NOPAT)1 | ||||||
| | Cost of capital2 | % | % | % | % | % | % |
| | Invested capital3 | ||||||
| | Economic profit4 | ||||||
Source: Based on data from Broadcom 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. | Broadcom Inc.'s economic profit declined from 2015 to 2016 but then slightly increased from 2016 to 2017. |
Net Operating Profit after Taxes (NOPAT)
Broadcom Inc., NOPAT calculation
USD $ in millions
| 12 months ended | Oct 29, 2017 | Oct 30, 2016 | Nov 1, 2015 | Nov 2, 2014 | Nov 3, 2013 | Oct 28, 2012 | |
|---|---|---|---|---|---|---|---|
| | Net income (loss) attributable to ordinary shares | ||||||
| | Deferred income tax expense (benefit)1 | ||||||
| | Increase (decrease) in allowances for doubtful accounts2 | ||||||
| | Increase (decrease) in restructuring liabilities3 | ||||||
| | Increase (decrease) in equity equivalents4 | ||||||
| | Interest expense | ||||||
| | Interest expense, operating lease obligations5 | ||||||
| | Adjusted interest expense | ||||||
| | Tax benefit of interest expense6 | ||||||
| | Adjusted interest expense, after taxes7 | ||||||
| | 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 income (loss) attributable to noncontrolling interest | ||||||
| | Net operating profit after taxes (NOPAT) |
Source: Based on data from Broadcom Inc. Annual Reports
2017 Calculations
1 Elimination of deferred tax expense. See Details »
2 Addition of increase (decrease) in allowances for doubtful accounts.
3 Addition of increase (decrease) in restructuring liabilities.
4 Addition of increase (decrease) in equity equivalents to net income (loss) attributable to ordinary shares.
5 Addition of interest expense on capitalized operating leases. See Details »
6 Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= × 17% =
7 Addition of after taxes interest expense to net income (loss) attributable to ordinary shares.
8 Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= × 17% =
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. | Broadcom Inc.'s NOPAT declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level. |
Cash Operating Taxes
Broadcom Inc., cash operating taxes calculation
USD $ in millions
| 12 months ended | Oct 29, 2017 | Oct 30, 2016 | Nov 1, 2015 | Nov 2, 2014 | Nov 3, 2013 | Oct 28, 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 Broadcom 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. | Broadcom Inc.'s cash operating taxes declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level. |
Invested Capital
Broadcom Inc., invested capital calculation (financing approach)
USD $ in millions
| Oct 29, 2017 | Oct 30, 2016 | Nov 1, 2015 | Nov 2, 2014 | Nov 3, 2013 | Oct 28, 2012 | ||
|---|---|---|---|---|---|---|---|
| | Current portion of long-term debt | ||||||
| | Long-term debt | ||||||
| | Convertible notes payable to related party, non-current | ||||||
| | PV of operating lease payments1 | ||||||
| | Total reported debt & leases | ||||||
| | Total Broadcom Inc. stockholders’ equity | ||||||
| | Net deferred tax (assets) liabilities2 | ||||||
| | Allowances for doubtful accounts3 | ||||||
| | Restructuring liabilities4 | ||||||
| | Equity equivalents5 | ||||||
| | Accumulated other comprehensive (income) loss, net of tax6 | ||||||
| | Noncontrolling interest | ||||||
| | Adjusted total Broadcom Inc. stockholders’ equity | ||||||
| | Construction in progress7 | ||||||
| | Invested capital |
Source: Based on data from Broadcom 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 restructuring liabilities.
5 Addition of equity equivalents to total Broadcom Inc. stockholders’ equity.
6 Removal of accumulated other comprehensive income.
7 Subtraction of construction in progress.
| Item | Description | The company |
|---|---|---|
| Invested capital | Capital is an approximation of the economic book value of all cash invested in going-concern business activities. | Broadcom Inc.'s invested capital increased from 2015 to 2016 and from 2016 to 2017. |
Cost of Capital
Broadcom Inc., cost of capital calculations
| Fair Value1 | Weights | Cost of Capital | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | % | = | % | |||||
| Borrowings3 | ÷ | = | × | % × (1 – 17%) | = | % | |||||
| PV of operating lease payments4 | ÷ | = | × | % × (1 – 17%) | = | % | |||||
| Total: | % | ||||||||||
Source: Based on data from Broadcom Inc. Annual Reports
1 USD $ in millions
2 Equity. See Details »
3 Borrowings. See Details »
4 PV of operating lease payments. See Details »
| Fair Value1 | Weights | Cost of Capital | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | % | = | % | |||||
| Borrowings3 | ÷ | = | × | % × (1 – 17%) | = | % | |||||
| PV of operating lease payments4 | ÷ | = | × | % × (1 – 17%) | = | % | |||||
| Total: | % | ||||||||||
Source: Based on data from Broadcom Inc. Annual Reports
1 USD $ in millions
2 Equity. See Details »
3 Borrowings. See Details »
4 PV of operating lease payments. See Details »
| Fair Value1 | Weights | Cost of Capital | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | % | = | % | |||||
| Borrowings3 | ÷ | = | × | % × (1 – 17%) | = | % | |||||
| PV of operating lease payments4 | ÷ | = | × | % × (1 – 17%) | = | % | |||||
| Total: | % | ||||||||||
Source: Based on data from Broadcom Inc. Annual Reports
1 USD $ in millions
2 Equity. See Details »
3 Borrowings. See Details »
4 PV of operating lease payments. See Details »
| Fair Value1 | Weights | Cost of Capital | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | % | = | % | |||||
| Borrowings3 | ÷ | = | × | % × (1 – 17%) | = | % | |||||
| PV of operating lease payments4 | ÷ | = | × | % × (1 – 17%) | = | % | |||||
| Total: | % | ||||||||||
Source: Based on data from Broadcom Inc. Annual Reports
1 USD $ in millions
2 Equity. See Details »
3 Borrowings. See Details »
4 PV of operating lease payments. See Details »
| Fair Value1 | Weights | Cost of Capital | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | % | = | % | |||||
| Borrowings3 | ÷ | = | × | % × (1 – 17%) | = | % | |||||
| PV of operating lease payments4 | ÷ | = | × | % × (1 – 17%) | = | % | |||||
| Total: | % | ||||||||||
Source: Based on data from Broadcom Inc. Annual Reports
1 USD $ in millions
2 Equity. See Details »
3 Borrowings. See Details »
4 PV of operating lease payments. See Details »
| Fair Value1 | Weights | Cost of Capital | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | % | = | % | |||||
| Borrowings3 | ÷ | = | × | % × (1 – 17%) | = | % | |||||
| PV of operating lease payments4 | ÷ | = | × | % × (1 – 17%) | = | % | |||||
| Total: | % | ||||||||||
Source: Based on data from Broadcom Inc. Annual Reports
1 USD $ in millions
2 Equity. See Details »
3 Borrowings. See Details »
4 PV of operating lease payments. See Details »
Economic Spread
Broadcom Inc., economic spread calculation
| Oct 29, 2017 | Oct 30, 2016 | Nov 1, 2015 | Nov 2, 2014 | Nov 3, 2013 | Oct 28, 2012 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (USD $ in millions) | |||||||
| | Economic profit1 | ||||||
| | Invested capital2 | ||||||
| Ratio | |||||||
| | Economic spread3 | % | % | % | % | % | % |
Source: Based on data from Broadcom 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. | Broadcom Inc.'s economic spread deteriorated from 2015 to 2016 but then slightly improved from 2016 to 2017. |
Economic Profit Margin
Broadcom Inc., economic profit margin calculation
| Oct 29, 2017 | Oct 30, 2016 | Nov 1, 2015 | Nov 2, 2014 | Nov 3, 2013 | Oct 28, 2012 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (USD $ in millions) | |||||||
| | Economic profit1 | ||||||
| | Net revenue | ||||||
| Ratio | |||||||
| | Economic profit margin2 | % | % | % | % | % | % |
Source: Based on data from Broadcom Inc. Annual Reports
2017 Calculations
1 Economic profit. See Details »
2 Economic profit margin = 100 × Economic profit ÷ Net 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. | Broadcom Inc.'s economic profit margin deteriorated from 2015 to 2016 but then slightly improved from 2016 to 2017. |
