Microsoft Excel LibreOffice Calc

Broadcom Inc. (NASDAQ:AVGO)

Economic Value Added (EVA)

Advanced level

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

US$ in millions

Microsoft Excel LibreOffice Calc
12 months ended Nov 3, 2019 Nov 4, 2018 Oct 29, 2017 Oct 30, 2016 Nov 1, 2015 Nov 2, 2014
Net operating profit after taxes (NOPAT)1 3,003  4,475  1,798  (712) 1,315  348 
Cost of capital2 9.96% 10.58% 10.59% 10.42% 11.13% 10.41%
Invested capital3 60,032  44,617  51,048  45,840  8,437  8,755 
 
Economic profit4 (2,979) (243) (3,607) (5,490) 376  (563)

Based on: 10-K (filing date: 2019-12-20), 10-K (filing date: 2018-12-21), 10-K (filing date: 2017-12-21), 10-K (filing date: 2016-12-23), 10-K (filing date: 2015-12-17), 10-K (filing date: 2014-12-29).

1 NOPAT. See details »

2 Cost of capital. See details »

3 Invested capital. See details »

4 2019 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 3,003 – 9.96% × 60,032 = -2,979

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 increased from 2017 to 2018 but then slightly decreased from 2018 to 2019 not reaching 2017 level.

Net Operating Profit after Taxes (NOPAT)

Broadcom Inc., NOPAT calculation

US$ in millions

Microsoft Excel LibreOffice Calc
12 months ended Nov 3, 2019 Nov 4, 2018 Oct 29, 2017 Oct 30, 2016 Nov 1, 2015 Nov 2, 2014
Net income (loss) attributable to Broadcom Inc. stockholders 2,724  12,259  1,692  (1,739) 1,364  263 
Deferred income tax expense (benefit)1 (787) (8,548) (235) 418  (220) (92)
Increase (decrease) in allowances for doubtful accounts2 —  —  (9) 6  1  1 
Increase (decrease) in restructuring liabilities3 86  (23) (106) 125  (14) 40 
Increase (decrease) in equity equivalents4 (701) (8,571) (350) 549  (233) (51)
Interest expense 1,444  628  454  585  191  110 
Interest expense, operating lease liability5 24  17  20  13  6  5 
Adjusted interest expense 1,468  645  474  598  197  115 
Tax benefit of interest expense6 (308) (136) (81) (102) (33) (19)
Adjusted interest expense, after taxes7 1,160  510  393  496  163  95 
(Gain) loss on marketable securities (145) (3) 1  —  —  — 
Interest income (98) (114) (44) (10) (8) (6)
Investment income, before taxes (243) (117) (43) (10) (8) (6)
Tax expense (benefit) of investment income8 51  25  7  2  1  1 
Investment income, after taxes9 (192) (92) (36) (8) (7) (5)
(Income) loss from discontinued operations, net of tax10 12  19  6  112  27  46 
Net income (loss) attributable to noncontrolling interest —  351  92  (122) —  — 
Net operating profit after taxes (NOPAT) 3,003  4,475  1,798  (712) 1,315  348 

Based on: 10-K (filing date: 2019-12-20), 10-K (filing date: 2018-12-21), 10-K (filing date: 2017-12-21), 10-K (filing date: 2016-12-23), 10-K (filing date: 2015-12-17), 10-K (filing date: 2014-12-29).

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 Broadcom Inc. stockholders.

5 2019 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 649 × 3.70% = 24

6 2019 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 1,468 × 21.00% = 308

7 Addition of after taxes interest expense to net income (loss) attributable to Broadcom Inc. stockholders.

8 2019 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 243 × 21.00% = 51

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 increased from 2017 to 2018 but then slightly decreased from 2018 to 2019 not reaching 2017 level.

Cash Operating Taxes

Broadcom Inc., cash operating taxes calculation

US$ in millions

Microsoft Excel LibreOffice Calc
12 months ended Nov 3, 2019 Nov 4, 2018 Oct 29, 2017 Oct 30, 2016 Nov 1, 2015 Nov 2, 2014
Provision for (benefit from) income taxes (510) (8,084) 35  642  76  33 
Less: Deferred income tax expense (benefit) (787) (8,548) (235) 418  (220) (92)
Add: Tax savings from interest expense 308  136  81  102  33  19 
Less: Tax imposed on investment income 51  25  7  2  1  1 
Cash operating taxes 534  575  343  324  328  143 

Based on: 10-K (filing date: 2019-12-20), 10-K (filing date: 2018-12-21), 10-K (filing date: 2017-12-21), 10-K (filing date: 2016-12-23), 10-K (filing date: 2015-12-17), 10-K (filing date: 2014-12-29).

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 increased from 2017 to 2018 but then slightly decreased from 2018 to 2019.

Invested Capital

Broadcom Inc., invested capital calculation (financing approach)

US$ in millions

Microsoft Excel LibreOffice Calc
Nov 3, 2019 Nov 4, 2018 Oct 29, 2017 Oct 30, 2016 Nov 1, 2015 Nov 2, 2014
Current portion of long-term debt 2,787  —  117  454  46  46 
Long-term debt, excluding current portion 30,011  17,493  17,431  13,188  3,903  4,543 
Convertible notes payable to related party, non-current —  —  —  —  —  920 
Operating lease liability1 649  512  591  410  140  112 
Total reported debt & leases 33,447  18,005  18,139  14,052  4,089  5,621 
Total Broadcom Inc. stockholders’ equity 24,941  26,657  20,285  18,892  4,714  3,243 
Net deferred tax (assets) liabilities2 1,481  (115) 9,998  9,979  (315) (3)
Allowances for doubtful accounts3 —  —  —  9  3  2 
Restructuring liabilities4 108  22  45  151  26  40 
Equity equivalents5 1,589  (93) 10,043  10,139  (286) 39 
Accumulated other comprehensive (income) loss, net of tax6 140  115  91  134  73  50 
Noncontrolling interest —  —  2,901  2,984  —  — 
Adjusted total Broadcom Inc. stockholders’ equity 26,670  26,679  33,320  32,149  4,501  3,332 
Construction in progress7 (85) (67) (411) (361) (153) (198)
Invested capital 60,032  44,617  51,048  45,840  8,437  8,755 

Based on: 10-K (filing date: 2019-12-20), 10-K (filing date: 2018-12-21), 10-K (filing date: 2017-12-21), 10-K (filing date: 2016-12-23), 10-K (filing date: 2015-12-17), 10-K (filing date: 2014-12-29).

1 Addition of capitalized operating leases.

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 decreased from 2017 to 2018 but then increased from 2018 to 2019 exceeding 2017 level.

Cost of Capital

Broadcom Inc., cost of capital calculations

Capital (fair value)1 Weights Cost of capital
Equity2 126,896  126,896  ÷ 165,591  = 0.77 0.77 × 11.93% = 9.15%
8.00% Mandatory Convertible Preferred Stock, Series A 4,394  4,394  ÷ 165,591  = 0.03 0.03 × 8.00% = 0.21%
Debt3 33,652  33,652  ÷ 165,591  = 0.20 0.20 × 3.70% × (1 – 21.00%) = 0.59%
Operating lease liability4 649  649  ÷ 165,591  = 0.00 0.00 × 3.70% × (1 – 21.00%) = 0.01%
Total: 165,591  1.00 9.96%

Based on: 10-K (filing date: 2019-12-20).

1 US$ in millions

2 Equity. See details »

3 Debt. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 99,745  99,745  ÷ 116,884  = 0.85 0.85 × 11.93% = 10.18%
8.00% Mandatory Convertible Preferred Stock, Series A —  —  ÷ 116,884  = 0.00 0.00 × 0.00% = 0.00%
Debt3 16,627  16,627  ÷ 116,884  = 0.14 0.14 × 3.38% × (1 – 21.00%) = 0.38%
Operating lease liability4 512  512  ÷ 116,884  = 0.00 0.00 × 3.38% × (1 – 21.00%) = 0.01%
Total: 116,884  1.00 10.58%

Based on: 10-K (filing date: 2018-12-21).

1 US$ in millions

2 Equity. See details »

3 Debt. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 107,061  107,061  ÷ 125,605  = 0.85 0.85 × 11.93% = 10.17%
8.00% Mandatory Convertible Preferred Stock, Series A —  —  ÷ 125,605  = 0.00 0.00 × 0.00% = 0.00%
Debt3 17,953  17,953  ÷ 125,605  = 0.14 0.14 × 3.38% × (1 – 17.00%) = 0.40%
Operating lease liability4 591  591  ÷ 125,605  = 0.00 0.00 × 3.38% × (1 – 17.00%) = 0.01%
Total: 125,605  1.00 10.59%

Based on: 10-K (filing date: 2017-12-21).

1 US$ in millions

2 Equity. See details »

3 Debt. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 72,590  72,590  ÷ 86,642  = 0.84 0.84 × 11.93% = 10.00%
8.00% Mandatory Convertible Preferred Stock, Series A —  —  ÷ 86,642  = 0.00 0.00 × 0.00% = 0.00%
Debt3 13,642  13,642  ÷ 86,642  = 0.16 0.16 × 3.15% × (1 – 17.00%) = 0.41%
Operating lease liability4 410  410  ÷ 86,642  = 0.00 0.00 × 3.15% × (1 – 17.00%) = 0.01%
Total: 86,642  1.00 10.42%

Based on: 10-K (filing date: 2016-12-23).

1 US$ in millions

2 Equity. See details »

3 Debt. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 38,841  38,841  ÷ 42,930  = 0.90 0.90 × 11.93% = 10.80%
8.00% Mandatory Convertible Preferred Stock, Series A —  —  ÷ 42,930  = 0.00 0.00 × 0.00% = 0.00%
Debt3 3,949  3,949  ÷ 42,930  = 0.09 0.09 × 4.15% × (1 – 17.00%) = 0.32%
Operating lease liability4 140  140  ÷ 42,930  = 0.00 0.00 × 4.15% × (1 – 17.00%) = 0.01%
Total: 42,930  1.00 11.13%

Based on: 10-K (filing date: 2015-12-17).

1 US$ in millions

2 Equity. See details »

3 Debt. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 25,863  25,863  ÷ 31,435  = 0.82 0.82 × 11.93% = 9.82%
8.00% Mandatory Convertible Preferred Stock, Series A —  —  ÷ 31,435  = 0.00 0.00 × 0.00% = 0.00%
Debt3 5,460  5,460  ÷ 31,435  = 0.17 0.17 × 4.01% × (1 – 17.00%) = 0.58%
Operating lease liability4 112  112  ÷ 31,435  = 0.00 0.00 × 4.01% × (1 – 17.00%) = 0.01%
Total: 31,435  1.00 10.41%

Based on: 10-K (filing date: 2014-12-29).

1 US$ in millions

2 Equity. See details »

3 Debt. See details »

4 Operating lease liability. See details »

Economic Spread Ratio

Broadcom Inc., economic spread ratio calculation

Microsoft Excel LibreOffice Calc
Nov 3, 2019 Nov 4, 2018 Oct 29, 2017 Oct 30, 2016 Nov 1, 2015 Nov 2, 2014
Selected Financial Data (US$ in millions)
Economic profit1 (2,979) (243) (3,607) (5,490) 376  (563)
Invested capital2 60,032  44,617  51,048  45,840  8,437  8,755 
Performance Ratio
Economic spread ratio3 -4.96% -0.55% -7.07% -11.98% 4.46% -6.43%

Based on: 10-K (filing date: 2019-12-20), 10-K (filing date: 2018-12-21), 10-K (filing date: 2017-12-21), 10-K (filing date: 2016-12-23), 10-K (filing date: 2015-12-17), 10-K (filing date: 2014-12-29).

1 Economic profit. See details »

2 Invested capital. See details »

3 2019 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -2,979 ÷ 60,032 = -4.96%

Performance ratio Description The company
Economic spread ratio 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 ratio improved from 2017 to 2018 but then slightly deteriorated from 2018 to 2019 not reaching 2017 level.

Economic Profit Margin

Broadcom Inc., economic profit margin calculation

Microsoft Excel LibreOffice Calc
Nov 3, 2019 Nov 4, 2018 Oct 29, 2017 Oct 30, 2016 Nov 1, 2015 Nov 2, 2014
Selected Financial Data (US$ in millions)
Economic profit1 (2,979) (243) (3,607) (5,490) 376  (563)
Net revenue 22,597  20,848  17,636  13,240  6,824  4,269 
Performance Ratio
Economic profit margin2 -13.18% -1.17% -20.45% -41.47% 5.51% -13.20%

Based on: 10-K (filing date: 2019-12-20), 10-K (filing date: 2018-12-21), 10-K (filing date: 2017-12-21), 10-K (filing date: 2016-12-23), 10-K (filing date: 2015-12-17), 10-K (filing date: 2014-12-29).

1 Economic profit. See details »

2 2019 Calculation
Economic profit margin = 100 × Economic profit ÷ Net revenue
= 100 × -2,979 ÷ 22,597 = -13.18%

Performance 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 improved from 2017 to 2018 but then slightly deteriorated from 2018 to 2019 not reaching 2017 level.