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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

Charter Communications Inc., economic profit calculation

USD $ in millions

 
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
Cost of capital2 % % % % %
Invested capital3
Economic profit4

Source: Based on data from Charter Communications 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. Charter Communications 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)

Charter Communications Inc., NOPAT calculation

USD $ in millions

 
12 months ended Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Net income (loss) attributable to Charter shareholders
Deferred income tax expense (benefit)1
Increase (decrease) in allowance for doubtful accounts2
Increase (decrease) in deferred revenue3
Increase (decrease) in accruals for merger and restructuring costs4
Increase (decrease) in equity equivalents5
Interest expense, net
Interest expense, operating lease obligations6
Adjusted interest expense, net
Tax benefit of interest expense, net7
Adjusted interest expense, net, after taxes8
Net income (loss) attributable to noncontrolling interest
Net operating profit after taxes (NOPAT)

Source: Based on data from Charter Communications 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 accruals for merger and restructuring costs.

5 Addition of increase (decrease) in equity equivalents to net income (loss) attributable to Charter shareholders.

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

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

8 Addition of after taxes interest expense to net income (loss) attributable to Charter shareholders.

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. Charter Communications Inc.'s NOPAT increased from 2015 to 2016 but then slightly declined from 2016 to 2017.

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Cash Operating Taxes

Charter Communications Inc., cash operating taxes calculation

USD $ in millions

 
12 months ended Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Income tax expense (benefit)
Less: Deferred income tax expense (benefit)
Add: Tax savings from interest expense, net
Cash operating taxes

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

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Invested Capital

Charter Communications Inc., invested capital calculation (financing approach)

USD $ in millions

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Current portion of long-term debt
Long-term debt, less current portion
PV of operating lease payments1
Total reported debt & leases
Total Charter shareholders' equity (deficit)
Net deferred tax (assets) liabilities2
Allowance for doubtful accounts3
Deferred revenue4
Accruals for merger and restructuring costs5
Equity equivalents6
Accumulated other comprehensive (income) loss, net of tax7
Noncontrolling interests
Adjusted total Charter shareholders' equity (deficit)
Invested capital

Source: Based on data from Charter Communications 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 accruals for merger and restructuring costs.

6 Addition of equity equivalents to total Charter shareholders' equity (deficit).

7 Removal of accumulated other comprehensive income.

Item Description The company
Invested capital Capital is an approximation of the economic book value of all cash invested in going-concern business activities. Charter Communications Inc.'s invested capital increased from 2015 to 2016 but then slightly declined from 2016 to 2017.

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Cost of Capital

Charter Communications Inc., cost of capital calculations

Fair Value1 Weights Cost of Capital
Equity2 ÷ = × % = %
Long-term debt, including current portion3 ÷ = × % × (1 – 35%) = %
PV of operating lease payments4 ÷ = × % × (1 – 35%) = %
Total: %

Source: Based on data from Charter Communications Inc. Annual Reports

1 USD $ in millions

2 Equity. See Details »

3 Long-term debt, including current portion. See Details »

4 PV of operating lease payments. See Details »

Fair Value1 Weights Cost of Capital
Equity2 ÷ = × % = %
Long-term debt, including current portion3 ÷ = × % × (1 – 35%) = %
PV of operating lease payments4 ÷ = × % × (1 – 35%) = %
Total: %

Source: Based on data from Charter Communications Inc. Annual Reports

1 USD $ in millions

2 Equity. See Details »

3 Long-term debt, including current portion. See Details »

4 PV of operating lease payments. See Details »

Fair Value1 Weights Cost of Capital
Equity2 ÷ = × % = %
Long-term debt, including current portion3 ÷ = × % × (1 – 35%) = %
PV of operating lease payments4 ÷ = × % × (1 – 35%) = %
Total: %

Source: Based on data from Charter Communications Inc. Annual Reports

1 USD $ in millions

2 Equity. See Details »

3 Long-term debt, including current portion. See Details »

4 PV of operating lease payments. See Details »

Fair Value1 Weights Cost of Capital
Equity2 ÷ = × % = %
Long-term debt, including current portion3 ÷ = × % × (1 – 35%) = %
PV of operating lease payments4 ÷ = × % × (1 – 35%) = %
Total: %

Source: Based on data from Charter Communications Inc. Annual Reports

1 USD $ in millions

2 Equity. See Details »

3 Long-term debt, including current portion. See Details »

4 PV of operating lease payments. See Details »

Fair Value1 Weights Cost of Capital
Equity2 ÷ = × % = %
Long-term debt, including current portion3 ÷ = × % × (1 – 35%) = %
PV of operating lease payments4 ÷ = × % × (1 – 35%) = %
Total: %

Source: Based on data from Charter Communications Inc. Annual Reports

1 USD $ in millions

2 Equity. See Details »

3 Long-term debt, including current portion. See Details »

4 PV of operating lease payments. See Details »

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Economic Spread

Charter Communications Inc., economic spread calculation

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Selected Financial Data (USD $ in millions)
Economic profit1
Invested capital2
Ratio
Economic spread3 % % % % %

Source: Based on data from Charter Communications 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. Charter Communications Inc.'s economic spread deteriorated from 2015 to 2016 but then slightly improved from 2016 to 2017.

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Economic Profit Margin

Charter Communications 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 millions)
Economic profit1
Revenues
Increase (decrease) in deferred revenue
Ratio
Economic profit margin2 % % % % %

Source: Based on data from Charter Communications Inc. Annual Reports

2017 Calculations

1 Economic profit. See Details »

2 Economic profit margin = 100 × Economic profit ÷ (Revenues + 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. Charter Communications Inc.'s economic profit margin deteriorated from 2015 to 2016 but then improved from 2016 to 2017 not reaching 2015 level.

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