Economic Value Added (EVA)
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
Cintas Corp., economic profit calculation
US$ in thousands
Based on: 10-K (reporting date: 2024-05-31), 10-K (reporting date: 2023-05-31), 10-K (reporting date: 2022-05-31), 10-K (reporting date: 2021-05-31), 10-K (reporting date: 2020-05-31), 10-K (reporting date: 2019-05-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2024 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 1,624,422 – 20.25% × 7,220,061 = 162,336
An analysis of the financial performance from May 31, 2019, to May 31, 2024, reveals a significant transition from value destruction to value creation. The organization successfully shifted from generating negative economic profit to achieving a sustained positive economic profit, indicating that operational returns now exceed the cost of capital employed.
- Net Operating Profit After Taxes (NOPAT)
- A strong growth trend is observed in NOPAT, which rose from 1,006,907 thousand USD in 2019 to 1,624,422 thousand USD by 2024. Despite a slight contraction in 2020, the subsequent years show accelerated growth, suggesting improved operational efficiency and a strengthening of the core business profitability.
- Cost of Capital
- The cost of capital exhibits a gradual and consistent increase over the observed period, rising from 18.92% in 2019 to 20.25% in 2024. This steady upward movement represents an increasing financial hurdle that the company must overcome to generate economic value.
- Invested Capital
- Invested capital remained relatively stable between 2019 and 2022, before trending upward to reach 7,220,061 thousand USD in 2024. The moderate growth in the capital base, paired with the rapid growth in NOPAT, suggests a highly efficient utilization of newly deployed assets.
- Economic Profit Trajectory
- The economic profit experienced a pivotal turnaround between 2021 and 2022. After recording losses that peaked at -279,115 thousand USD in 2020, the figure shifted to a positive 66,651 thousand USD in 2022. This positive trajectory continued through 2024, concluding at 162,336 thousand USD, confirming that the company is now generating returns above its cost of capital.
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Net Operating Profit after Taxes (NOPAT)
Cintas Corp., NOPAT calculation
US$ in thousands
Based on: 10-K (reporting date: 2024-05-31), 10-K (reporting date: 2023-05-31), 10-K (reporting date: 2022-05-31), 10-K (reporting date: 2021-05-31), 10-K (reporting date: 2020-05-31), 10-K (reporting date: 2019-05-31).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowance for credit losses.
3 Addition of increase (decrease) in equity equivalents to net income.
4 2024 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 192,551 × 3.48% = 6,701
5 2024 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 107,441 × 21.00% = 22,563
6 Addition of after taxes interest expense to net income.
7 2024 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 5,742 × 21.00% = 1,206
8 Elimination of after taxes investment income.
9 Elimination of discontinued operations.
The financial performance from May 31, 2019, to May 31, 2024, is characterized by a sustained upward trajectory in both operational profitability and bottom-line earnings. Following a marginal contraction during the 2020 fiscal year, both metrics entered a period of consistent year-over-year expansion.
- Net Income Trends
- Net income experienced a slight decline in 2020, falling to 876,037 thousand dollars. This was followed by a sharp recovery in 2021, where earnings rose to 1,110,968 thousand dollars. The growth trend continued steadily through 2024, culminating in a value of 1,571,592 thousand dollars, which reflects a significant increase over the five-year period.
- Net Operating Profit After Taxes (NOPAT) Trends
- NOPAT exhibited a trend closely mirrored by net income, with a minor dip in 2020 to 973,389 thousand dollars followed by an uninterrupted increase. NOPAT grew to 1,624,422 thousand dollars by May 31, 2024. This steady rise indicates an improvement in the core operational efficiency and the capacity of the company to generate profit from its operating assets regardless of its financing structure.
- Operational Profitability Correlation
- A consistent positive variance is observed between NOPAT and net income throughout the entire period. Because NOPAT remained higher than net income in every reported year, the delta suggests the ongoing impact of non-operating expenses, such as interest payments, on the final net profit. The high degree of correlation between the two metrics indicates that the growth in net income was primarily driven by operational performance rather than non-operating gains or changes in financial leverage.
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Cash Operating Taxes
Cintas Corp., cash operating taxes calculation
US$ in thousands
Based on: 10-K (reporting date: 2024-05-31), 10-K (reporting date: 2023-05-31), 10-K (reporting date: 2022-05-31), 10-K (reporting date: 2021-05-31), 10-K (reporting date: 2020-05-31), 10-K (reporting date: 2019-05-31).
An analysis of the tax profiles from 2019 to 2024 reveals a period of initial volatility followed by an aggressive upward trajectory in both income tax expense and cash operating taxes. While income tax expenses experienced a decline between 2019 and 2021, cash operating taxes maintained a general upward trend during that same interval, indicating a divergence between accrual-based reporting and actual cash outflows.
- Income Tax Expense Trends
- A U-shaped pattern is observed in the income tax expense, which decreased from 219,764 thousand US dollars in 2019 to a minimum of 176,781 thousand US dollars in 2021. Subsequently, a period of rapid growth occurred, with expenses increasing to 263,011 thousand US dollars in 2022, 345,138 thousand US dollars in 2023, and peaking at 402,043 thousand US dollars in 2024.
- Cash Operating Taxes Trends
- Cash operating taxes exhibited a more consistent upward trajectory compared to the accrual expense. Values rose from 207,657 thousand US dollars in 2019 to 240,238 thousand US dollars in 2021. Despite a slight contraction to 230,781 thousand US dollars in 2022, the figure escalated sharply over the following two years, reaching 342,302 thousand US dollars in 2023 and 453,900 thousand US dollars in 2024.
- Analysis of Accrual versus Cash Divergence
- Significant variances between income tax expense and cash operating taxes are evident. In 2020 and 2021, cash taxes exceeded the reported tax expense, suggesting the settlement of prior-year liabilities or the impact of non-deductible expenses. By 2024, this gap widened substantially, with cash operating taxes exceeding income tax expense by 51,857 thousand US dollars, which implies an increase in the immediate cash burden relative to the accounting expense.
- Implications for Economic Value Added (EVA)
- The steady increase in cash operating taxes, particularly the acceleration since 2022, directly reduces the cash flow available to the firm. Because EVA utilizes cash taxes rather than accrual expenses to determine the Net Operating Profit After Taxes (NOPAT), the increasing gap between these two metrics in 2024 suggests a higher cash tax burden that may weigh more heavily on the company's economic value generation than the income statement expense would indicate.
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Invested Capital
Cintas Corp., invested capital calculation (financing approach)
US$ in thousands
Based on: 10-K (reporting date: 2024-05-31), 10-K (reporting date: 2023-05-31), 10-K (reporting date: 2022-05-31), 10-K (reporting date: 2021-05-31), 10-K (reporting date: 2020-05-31), 10-K (reporting date: 2019-05-31).
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 equity equivalents to shareholders’ equity.
5 Removal of accumulated other comprehensive income.
6 Subtraction of construction in progress.
Invested capital exhibited a gradual upward trajectory over the six-year period from May 31, 2019, to May 31, 2024. After remaining relatively stagnant between 2019 and 2022, a more pronounced growth phase occurred in the final two years, culminating in a peak of US$ 7,220,061 thousand in 2024. This represents an overall increase of approximately 11.1% over the analyzed timeframe.
- Total Reported Debt and Leases
- A general downward trend in debt and lease obligations is observed. From a peak of US$ 3,048,635 thousand in 2019, the balance declined to US$ 2,668,080 thousand by 2024. Although there was a temporary increase in 2022, the long-term trend indicates a reduction in the reliance on borrowed capital and lease liabilities to fund operations.
- Shareholders' Equity
- Shareholders' equity demonstrated consistent and significant growth, increasing from US$ 3,002,721 thousand in 2019 to US$ 4,316,372 thousand in 2024. Despite a slight contraction in 2022, the overall growth rate of approximately 43.7% indicates a strong accumulation of retained earnings or capital contributions, substantially strengthening the company's equity base.
- Capital Composition and Funding Shift
- The growth in total invested capital was driven exclusively by the expansion of shareholders' equity, which more than offset the simultaneous reduction in total debt and leases. The capital structure shifted from a nearly equal split between debt and equity in 2019 to a position in 2024 where equity represents the dominant portion of the invested capital base. This shift suggests a strategic movement toward a more equity-heavy capital structure, reducing financial leverage over time.
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Cost of Capital
Cintas Corp., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 76,064,420) | 76,064,420) | ÷ | 78,649,771) | = | 0.97 | 0.97 | × | 20.83% | = | 20.15% | ||
| Debt3 | 2,392,800) | 2,392,800) | ÷ | 78,649,771) | = | 0.03 | 0.03 | × | 4.00% × (1 – 21.00%) | = | 0.10% | ||
| Operating lease liability4 | 192,551) | 192,551) | ÷ | 78,649,771) | = | 0.00 | 0.00 | × | 3.48% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 78,649,771) | 1.00 | 20.25% | ||||||||||
Based on: 10-K (reporting date: 2024-05-31).
1 US$ in thousands
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 51,334,724) | 51,334,724) | ÷ | 53,960,512) | = | 0.95 | 0.95 | × | 20.83% | = | 19.82% | ||
| Debt3 | 2,443,800) | 2,443,800) | ÷ | 53,960,512) | = | 0.05 | 0.05 | × | 4.00% × (1 – 21.00%) | = | 0.14% | ||
| Operating lease liability4 | 181,988) | 181,988) | ÷ | 53,960,512) | = | 0.00 | 0.00 | × | 2.87% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 53,960,512) | 1.00 | 19.97% | ||||||||||
Based on: 10-K (reporting date: 2023-05-31).
1 US$ in thousands
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 41,410,212) | 41,410,212) | ÷ | 44,445,348) | = | 0.93 | 0.93 | × | 20.83% | = | 19.41% | ||
| Debt3 | 2,862,200) | 2,862,200) | ÷ | 44,445,348) | = | 0.06 | 0.06 | × | 3.70% × (1 – 21.00%) | = | 0.19% | ||
| Operating lease liability4 | 172,936) | 172,936) | ÷ | 44,445,348) | = | 0.00 | 0.00 | × | 2.20% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 44,445,348) | 1.00 | 19.60% | ||||||||||
Based on: 10-K (reporting date: 2022-05-31).
1 US$ in thousands
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 40,194,294) | 40,194,294) | ÷ | 43,157,718) | = | 0.93 | 0.93 | × | 20.83% | = | 19.40% | ||
| Debt3 | 2,788,800) | 2,788,800) | ÷ | 43,157,718) | = | 0.06 | 0.06 | × | 3.80% × (1 – 21.00%) | = | 0.19% | ||
| Operating lease liability4 | 174,624) | 174,624) | ÷ | 43,157,718) | = | 0.00 | 0.00 | × | 2.32% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 43,157,718) | 1.00 | 19.60% | ||||||||||
Based on: 10-K (reporting date: 2021-05-31).
1 US$ in thousands
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 31,649,998) | 31,649,998) | ÷ | 34,619,924) | = | 0.91 | 0.91 | × | 20.83% | = | 19.05% | ||
| Debt3 | 2,804,200) | 2,804,200) | ÷ | 34,619,924) | = | 0.08 | 0.08 | × | 3.80% × (1 – 21.00%) | = | 0.24% | ||
| Operating lease liability4 | 165,726) | 165,726) | ÷ | 34,619,924) | = | 0.00 | 0.00 | × | 2.66% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 34,619,924) | 1.00 | 19.30% | ||||||||||
Based on: 10-K (reporting date: 2020-05-31).
1 US$ in thousands
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 26,818,808) | 26,818,808) | ÷ | 30,016,373) | = | 0.89 | 0.89 | × | 20.83% | = | 18.61% | ||
| Debt3 | 2,998,700) | 2,998,700) | ÷ | 30,016,373) | = | 0.10 | 0.10 | × | 3.70% × (1 – 21.00%) | = | 0.29% | ||
| Operating lease liability4 | 198,864) | 198,864) | ÷ | 30,016,373) | = | 0.01 | 0.01 | × | 3.70% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 30,016,373) | 1.00 | 18.92% | ||||||||||
Based on: 10-K (reporting date: 2019-05-31).
1 US$ in thousands
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Cintas Corp., economic spread ratio calculation
Based on: 10-K (reporting date: 2024-05-31), 10-K (reporting date: 2023-05-31), 10-K (reporting date: 2022-05-31), 10-K (reporting date: 2021-05-31), 10-K (reporting date: 2020-05-31), 10-K (reporting date: 2019-05-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2024 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × 162,336 ÷ 7,220,061 = 2.25%
The financial data indicates a significant transition from value destruction to value creation between 2019 and 2024. A pronounced turnaround is evident, as the company moved from negative economic profits and negative spreads to a consistent trajectory of positive economic returns.
- Economic Profit Trend
- Economic profit experienced significant volatility in the initial period, reaching a low of -279,115 thousand USD in 2020. However, a recovery phase began in 2021, leading to a pivotal shift in 2022 when the figure turned positive at 66,651 thousand USD. This positive momentum accelerated through 2024, culminating in an economic profit of 162,336 thousand USD, representing a substantial improvement in the company's ability to generate returns above its cost of capital.
- Invested Capital Analysis
- Invested capital remained relatively stable for the first four years, fluctuating between approximately 6.49 billion USD and 6.74 billion USD. Starting in 2023, an upward trend in capital deployment is observed, with invested capital increasing to 6.86 billion USD and eventually reaching 7.22 billion USD by May 31, 2024. This suggests an expansion of the capital base coinciding with the period of positive economic profit.
- Economic Spread Ratio Performance
- The economic spread ratio mirrors the trajectory of economic profit, illustrating a steady climb from a trough of -4.30% in 2020. The ratio transitioned into positive territory in 2022 at 1.01%, indicating that the return on invested capital began to exceed the weighted average cost of capital. The spread continued to widen annually, reaching 2.25% by 2024, which signifies increasing efficiency in capital utilization and improved shareholder value creation.
Overall, the synchronization of rising invested capital with an expanding economic spread ratio suggests that the growth in the company's asset base is being managed efficiently, resulting in an accelerating rate of economic value addition.
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Economic Profit Margin
Cintas Corp., economic profit margin calculation
Based on: 10-K (reporting date: 2024-05-31), 10-K (reporting date: 2023-05-31), 10-K (reporting date: 2022-05-31), 10-K (reporting date: 2021-05-31), 10-K (reporting date: 2020-05-31), 10-K (reporting date: 2019-05-31).
1 Economic profit. See details »
2 2024 Calculation
Economic profit margin = 100 × Economic profit ÷ Revenue
= 100 × 162,336 ÷ 9,596,615 = 1.69%
An analysis of the financial performance from 2019 to 2024 reveals a significant turnaround in the company's ability to generate economic value. After a period of value destruction characterized by negative economic profit, the company achieved a transition to positive economic value creation starting in 2022, which has continued to accelerate through 2024.
- Economic Profit Trend
- Economic profit exhibited a volatile but ultimately positive trajectory. Following a decline to a low of -279,115 thousand US$ in 2020, the figure improved steadily. The pivot to positive territory occurred in 2022 with an economic profit of 66,651 thousand US$, followed by substantial growth to 162,336 thousand US$ by May 31, 2024. This progression indicates that the company's net operating profit after taxes now exceeds its cost of capital.
- Revenue Growth Patterns
- Total revenue demonstrated consistent and uninterrupted growth throughout the period. Starting at 6,892,303 thousand US$ in 2019, revenue climbed to 9,596,615 thousand US$ by 2024. The steady increase in the top line provided the scale necessary to reverse the negative economic profit trend and support higher absolute returns.
- Economic Profit Margin Evolution
- The economic profit margin mirrored the trend of absolute economic profit, shifting from negative to positive. The margin reached its lowest point in 2020 at -3.94% before recovering to -2.73% in 2021 and crossing the breakeven threshold in 2022 at 0.85%. The margin continued to expand, reaching 1.69% in 2024, reflecting an improvement in capital efficiency and a greater capacity to generate surplus value per dollar of revenue.
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