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 – 20.23% × 7,220,061 = 163,801
The financial performance from 2019 to 2024 demonstrates a significant turnaround in economic value generation. The period is characterized by a transition from consistent value destruction to a state of sustained value creation, as the entity moved from negative economic profit to positive territory starting in 2022.
- Net Operating Profit After Taxes (NOPAT)
- A strong upward trajectory in NOPAT is observed following a brief contraction in 2020. After reaching a low of 973,389 thousand US dollars in 2020, NOPAT grew consistently each year, culminating in 1,624,422 thousand US dollars by May 31, 2024. This represents a substantial increase in operational efficiency and earnings power over the six-year period.
- Cost of Capital
- The cost of capital exhibits a steady and gradual increase throughout the analyzed timeframe. Starting at 18.91% in 2019, the rate rose incrementally to reach 20.23% by 2024. This indicates a rising hurdle rate that the company's investments were required to overcome to generate economic value.
- Invested Capital
- Invested capital remained relatively stable between 2019 and 2022, fluctuating between 6.49 billion and 6.73 billion US dollars. However, a more pronounced expansion occurred in the final two years, with capital increasing to 7,220,061 thousand US dollars by May 31, 2024, suggesting increased investment in the asset base to support growth.
- Economic Profit Evolution
- The most notable trend is the reversal of economic profit. From 2019 to 2021, the entity experienced negative economic profit, peaking in loss at -277,870 thousand US dollars in 2020. A critical pivot occurred in 2022, when economic profit turned positive at 67,942 thousand US dollars. This positive trend accelerated through 2024, reaching 163,801 thousand US dollars, confirming that the growth in NOPAT outpaced the combined effect of the rising cost of capital and the increase in invested capital.
In summary, the analysis reveals a successful strategic shift where operational profit growth became the primary driver of value. Despite a rising cost of capital, the substantial expansion of NOPAT allowed the organization to move beyond its cost of capital threshold, resulting in a consistent increase in economic value added from 2022 onward.
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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 data reveals notable trends in profitability over the six-year period ending May 31, 2024. Both net income and net operating profit after taxes (NOPAT) demonstrate consistent growth, indicating strengthening financial performance.
- Net Income Trends
- Net income experienced minor fluctuations in the early years, with a slight decrease from 884,981 thousand USD in 2019 to 876,037 thousand USD in 2020. From 2020 onwards, net income shows a steady upward trajectory, increasing annually to reach 1,571,592 thousand USD by 2024. This upward trend suggests successful operational and revenue enhancements that have contributed to improved bottom-line results.
- NOPAT Trends
- NOPAT follows a similar pattern but with more pronounced growth. After a slight dip from 1,006,907 thousand USD in 2019 to 973,389 thousand USD in 2020, NOPAT increased significantly each year thereafter, culminating at 1,624,422 thousand USD in 2024. The stronger growth in NOPAT compared to net income may reflect efficiency improvements, effective tax management, or a focus on after-tax operating profitability.
- Comparative Insights
- Over the period analyzed, the gap between NOPAT and net income widened, indicating that operating profitability net of taxes is improving at a faster rate than net income alone. This could suggest improved operational efficiency or changes in financial structure affecting income components outside operating results.
- Overall Pattern
- The data illustrates resilience and gradually accelerating profitability growth following 2020, which may correspond with recovery or strategic initiatives undertaken by the company. The consistent upward movement in these key profitability metrics over multiple years points toward a robust and improving financial profile.
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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).
The financial data demonstrates a noticeable upward trend in income tax expense over the six-year period. Starting at approximately $220 million in 2019, the tax expense decreased slightly in the following two years, reaching a low point of around $177 million in 2021. From 2021 onwards, however, there is a significant increase, peaking at just over $400 million in 2024. This reflects a substantial rise in tax obligations in the most recent years.
Similarly, cash operating taxes exhibit a consistent increase throughout the period. Beginning at about $208 million in 2019, the cash operating taxes experienced a progressive growth, with a minor dip in 2022 around $231 million, followed by a sharp rise in subsequent years. By 2024, cash operating taxes peaked at approximately $454 million, more than doubling the starting figure.
- Income Tax Expense
- Initial decline from 2019 to 2021, followed by a strong upward trajectory through 2024.
- Cash Operating Taxes
- Consistent growth with a slight fluctuation in 2022, culminating in a substantial increase by 2024.
- Overall Trends
- Both income tax expense and cash operating taxes show marked increases over the analyzed period, especially from 2021 onward, indicating rising tax burdens which may reflect higher taxable income or changes in tax rates or regulations.
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Invested Capital
Cintas Corp., invested capital calculation (financing approach)
US$ 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.
The financial data over the six-year period reveals several notable trends in the company's capital structure and financial position.
- Total reported debt & leases
- Debt levels exhibit some fluctuations but generally show a decreasing trend from 2019 through 2024. The total reported debt decreased from approximately $3.05 billion in 2019 to around $2.67 billion in 2024, with the highest value observed in 2019 and a notable decline by 2020. Debt levels increased slightly during 2021 and 2022 but again decreased in subsequent years.
- Shareholders’ equity
- Shareholders’ equity increases consistently over the period, reflecting growth in net assets attributable to shareholders. It rose from about $3.00 billion in 2019 to approximately $4.32 billion in 2024, with a significant rise between 2019 and 2021, followed by some variability but an overall upward trajectory through to 2024. This suggests strengthening financial stability and retained earnings growth.
- Invested capital
- The invested capital, representing the total amount of capital invested in the company's operations, experiences moderate growth. Starting at roughly $6.50 billion in 2019, it remains relatively stable through 2020 but then steadily increases to about $7.22 billion by 2024. This gradual growth indicates continued investment in business assets or operations, supporting expansion or enhancement efforts.
Overall, the data indicates that the company has been managing its debt prudently while enhancing its equity base and overall capital investment. This pattern implies a strengthening balance sheet and potentially a lower financial risk profile over the analyzed period.
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Cost of Capital
Cintas Corp., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 76,064,420) | 76,064,420) | ÷ | 78,649,771) | = | 0.97 | 0.97 | × | 20.81% | = | 20.13% | ||
| Debt3 | 2,392,800) | 2,392,800) | ÷ | 78,649,771) | = | 0.03 | 0.03 | × | 4.00% × (1 – 21.00%) | = | 0.10% | ||
| Operating lease liability4 | 192,551) | 192,551) | ÷ | 78,649,771) | = | 0.00 | 0.00 | × | 3.48% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 78,649,771) | 1.00 | 20.23% | ||||||||||
Based on: 10-K (reporting date: 2024-05-31).
1 US$ 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 | × | 20.81% | = | 19.80% | ||
| 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 | 19.95% | ||||||||||
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 | × | 20.81% | = | 19.39% | ||
| 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 | 19.59% | ||||||||||
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 | × | 20.81% | = | 19.38% | ||
| 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 | 19.58% | ||||||||||
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 | × | 20.81% | = | 19.03% | ||
| 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 | 19.28% | ||||||||||
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 | × | 20.81% | = | 18.59% | ||
| 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 | 18.91% | ||||||||||
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 × 163,801 ÷ 7,220,061 = 2.27%
The financial trajectory from 2019 to 2024 reflects a significant transition from economic value destruction to consistent value creation. The period is characterized by an initial phase of negative economic profit followed by a decisive pivot toward positive returns starting in 2022.
- Economic Profit Trends
- Economic profit exhibited a volatile downward movement initially, reaching its lowest point of -277.87 million USD in 2020. A recovery phase began in 2021, leading to a positive shift by May 31, 2022, with 67.94 million USD. This upward momentum continued through 2024, where economic profit reached 163.80 million USD, indicating a substantial increase in the ability to generate returns above the cost of capital.
- Economic Spread Ratio Analysis
- The economic spread ratio mirrors the profit trend, moving from a low of -4.28% in 2020 to a high of 2.27% in 2024. The transition from negative to positive percentages between 2021 and 2022 signifies the point at which the return on invested capital began to exceed the weighted average cost of capital. The steady increase from 1.03% in 2022 to 2.27% in 2024 demonstrates a strengthening of the spread and improved capital efficiency.
- Invested Capital Dynamics
- Invested capital remained relatively stable over the six-year period, ranging from 6.49 billion USD in 2020 to 7.22 billion USD in 2024. Because the growth in economic profit and the spread ratio occurred alongside only a moderate increase in the capital base, it is evident that the improvement in economic value added was driven by operational performance and enhanced asset utilization rather than a massive infusion of new capital.
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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 × 163,801 ÷ 9,596,615 = 1.71%
A significant positive shift in economic value creation is evident over the six-year period ending May 31, 2024. After three consecutive years of negative economic profit, a financial turnaround occurred in 2022, leading to a consistent upward trajectory in both absolute economic profit and the associated margin.
- Revenue Growth Trends
- Revenue exhibited steady expansion throughout the observed period, increasing from $6.89 billion in 2019 to approximately $9.60 billion in 2024. This growth reflects a consistent increase in the scale of operations, providing the necessary baseline for the eventual transition to positive economic value added.
- Economic Profit Trajectory
- Economic profit remained negative from 2019 through 2021, reaching a trough of negative $277.87 million in 2020. A reversal was achieved by May 31, 2022, when economic profit shifted to a positive $67.94 million. This positive momentum accelerated through 2023 and 2024, culminating in an economic profit of $163.80 million by the end of the analyzed period.
- Economic Profit Margin Evaluation
- The economic profit margin mirrored the absolute profit trend, moving from a low of -3.92% in 2020 to a peak of 1.71% in 2024. The transition from a negative margin in 2021 (-2.71%) to a positive margin in 2022 (0.87%) indicates that the entity began generating returns in excess of its cost of capital. The subsequent steady increase in the margin suggests improving operational efficiency and a strengthening capacity to create value relative to total revenue.
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