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
Diamondback Energy Inc., economic profit calculation
US$ in millions
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2021 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 3,031 – 28.23% × 21,230 = -2,962
The financial performance from 2017 to 2021 demonstrates a consistent inability to generate positive economic profit, indicating that the returns on invested capital remained below the company's cost of capital throughout the entire period. While operating results showed significant volatility, the overall trend reflects a persistent destruction of economic value.
- Net Operating Profit After Taxes (NOPAT)
- Operating profitability exhibited extreme fluctuations. After an increase in 2018, NOPAT declined in 2019 and reached a significant deficit of 5,563 million US$ in 2020. A substantial recovery occurred in 2021, with NOPAT rising to 3,031 million US$, the highest level within the analyzed timeframe.
- Invested Capital Dynamics
- A massive expansion of the capital base occurred between 2017 and 2018, with invested capital increasing from 7,167 million US$ to 20,304 million US$. This capital base peaked in 2019 at 22,002 million US$ before contracting to 16,329 million US$ in 2020 and rebounding to 21,230 million US$ by the end of 2021.
- Cost of Capital Trends
- The cost of capital remained high, fluctuating between a peak of 32.58% in 2017 and a low of 23.93% in 2019. The high hurdle rate placed significant pressure on the company's ability to achieve a positive economic profit, as the required return on the expanded capital base was substantial.
- Economic Profit Analysis
- Economic profit remained negative for all five years, signaling that the company did not create value for its shareholders over the long term. The economic loss deepened from 1,814 million US$ in 2017 to a peak deficit of 9,521 million US$ in 2020, coinciding with the sharp decline in NOPAT. Although the loss narrowed to 2,962 million US$ in 2021 due to improved operating profits, the company failed to cross the threshold into positive value creation.
The correlation between the surge in invested capital in 2018 and the deepening economic losses suggests that the expansion of the asset base did not yield proportional increases in operating returns. The severe downturn in 2020 underscores a high sensitivity to external shocks, though the 2021 recovery indicates a positive trajectory toward narrowing the gap between actual returns and the cost of capital.
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Net Operating Profit after Taxes (NOPAT)
Diamondback Energy Inc., NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in equity equivalents to net income (loss) attributable to Diamondback Energy, Inc..
3 2021 Calculation
Tax benefit of interest expense, less capitalized interest = Adjusted interest expense, less capitalized interest × Statutory income tax rate
= 189 × 21.00% = 40
4 Addition of after taxes interest expense to net income (loss) attributable to Diamondback Energy, Inc..
5 2021 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 1 × 21.00% = 0
6 Elimination of after taxes investment income.
- Net Income (Loss) Attributable to Diamondback Energy, Inc.
- The net income experienced significant fluctuations over the five-year period. Starting at $482 million in 2017, it increased substantially to $846 million in 2018, indicating strong profitability growth. However, a sharp decline occurred in 2019, with net income dropping to $240 million. The year 2020 saw a drastic reversal, as the company reported a substantial net loss of $4,517 million, reflecting considerable financial distress or extraordinary losses. In 2021, the company recovered strongly, posting a net income of $2,182 million, the highest figure in the period under review, signaling a robust turnaround.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT also displayed significant variability, mirroring the trends seen in net income. The value rose from $521 million in 2017 to $1,175 million in 2018, more than doubling, which suggests improved operational efficiency and profitability. In 2019, NOPAT decreased substantially to $495 million, indicating a drop in operating profitability. The year 2020 showed a severe negative NOPAT of $5,563 million, consistent with the net loss trend, indicating a substantial operational and tax burden. By 2021, NOPAT recovered to $3,031 million, reflecting a strong improvement in operational performance and effective tax management.
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Cash Operating Taxes
Diamondback Energy Inc., cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
The financial data indicates significant volatility in the provision for income taxes over the five-year period. In 2017, the provision showed a tax benefit of $20 million, which shifted dramatically to a tax expense of $168 million in 2018. This was followed by a moderate tax expense of $47 million in 2019. The year 2020 saw a substantial reversal with a large tax benefit of $1,104 million, marking the most pronounced change within the timeframe. In 2021, the provision returned to a notable tax expense of $631 million.
Cash operating taxes also exhibited variability but on a relatively smaller scale compared to the provision for income taxes. From $14 million in 2017, cash operating taxes increased slightly to $15 million in 2018 and then rose more substantially to $35 million by 2019. In 2020, cash operating taxes decreased to a negative $22 million, implying a cash inflow or tax refund situation. By 2021, cash operating taxes had increased sharply to $64 million, the highest in the observed period.
- Provision for Income Taxes:
- Highly volatile with alternating tax expenses and benefits.
- Significant tax benefit in 2020 contrasts with consistent tax expenses in most other years.
- The peak tax expense occurred in 2021 at $631 million.
- Cash Operating Taxes:
- Gradual increase from 2017 through 2019.
- Negative value in 2020 suggests tax refunds or credits received.
- Sharp increase in 2021, reaching the highest cash tax outlay in the period.
Overall, the trends reveal considerable fluctuations in tax-related financial items, with 2020 standing out due to exceptional tax benefits and cash tax refunds. The years following show a return to positive tax expenses and increased cash tax payments, signaling potential changes in tax obligations and operational profitability.
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Invested Capital
Diamondback Energy Inc., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 Elimination of deferred taxes from assets and liabilities. See details »
2 Addition of equity equivalents to total Diamondback Energy, Inc. stockholders’ equity.
3 Removal of accumulated other comprehensive income.
4 Subtraction of investment.
- Total reported debt & leases
- The total debt and leases showed a significant increase from 2017 to 2018, rising from $1,477 million to $4,464 million. This upward trend continued in the following years, reaching $6,687 million by the end of 2021. The consistent rise indicates increasing leverage and possibly greater investments or acquisitions financed through debt.
- Total stockholders’ equity
- Stockholders’ equity increased markedly from $5,255 million in 2017 to a peak of $13,699 million in 2018. After a slight decline to $13,249 million in 2019, equity decreased further to $8,794 million in 2020, before recovering to $12,088 million in 2021. This pattern suggests volatility in retained earnings or equity capital transactions over the period, with a notable dip during 2020, possibly reflecting challenging market conditions or one-time charges.
- Invested capital
- Invested capital followed a similar upward trajectory from $7,167 million in 2017 to $22,002 million in 2019, indicating substantial growth in the company’s asset base. However, this figure declined sharply to $16,329 million in 2020, before increasing again to $21,230 million in 2021. The fluctuation mirrors the trends seen in equity and debt, implying adjustments in asset investment and financing approaches possibly influenced by external economic factors.
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Cost of Capital
Diamondback Energy Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 22,690) | 22,690) | ÷ | 29,838) | = | 0.76 | 0.76 | × | 36.18% | = | 27.51% | ||
| Debt3 | 7,148) | 7,148) | ÷ | 29,838) | = | 0.24 | 0.24 | × | 3.77% × (1 – 21.00%) | = | 0.71% | ||
| Total: | 29,838) | 1.00 | 28.23% | ||||||||||
Based on: 10-K (reporting date: 2021-12-31).
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 10,913) | 10,913) | ÷ | 17,126) | = | 0.64 | 0.64 | × | 36.18% | = | 23.05% | ||
| Debt3 | 6,213) | 6,213) | ÷ | 17,126) | = | 0.36 | 0.36 | × | 4.13% × (1 – 21.00%) | = | 1.18% | ||
| Total: | 17,126) | 1.00 | 24.24% | ||||||||||
Based on: 10-K (reporting date: 2020-12-31).
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 9,415) | 9,415) | ÷ | 14,960) | = | 0.63 | 0.63 | × | 36.18% | = | 22.77% | ||
| Debt3 | 5,545) | 5,545) | ÷ | 14,960) | = | 0.37 | 0.37 | × | 3.97% × (1 – 21.00%) | = | 1.16% | ||
| Total: | 14,960) | 1.00 | 23.93% | ||||||||||
Based on: 10-K (reporting date: 2019-12-31).
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 17,308) | 17,308) | ÷ | 21,721) | = | 0.80 | 0.80 | × | 36.18% | = | 28.83% | ||
| Debt3 | 4,413) | 4,413) | ÷ | 21,721) | = | 0.20 | 0.20 | × | 4.55% × (1 – 21.00%) | = | 0.73% | ||
| Total: | 21,721) | 1.00 | 29.56% | ||||||||||
Based on: 10-K (reporting date: 2018-12-31).
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 12,286) | 12,286) | ÷ | 13,793) | = | 0.89 | 0.89 | × | 36.18% | = | 32.23% | ||
| Debt3 | 1,507) | 1,507) | ÷ | 13,793) | = | 0.11 | 0.11 | × | 5.06% × (1 – 35.00%) | = | 0.36% | ||
| Total: | 13,793) | 1.00 | 32.58% | ||||||||||
Based on: 10-K (reporting date: 2017-12-31).
Economic Spread Ratio
Diamondback Energy Inc., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | (2,962) | (9,521) | (4,771) | (4,827) | (1,814) | |
| Invested capital2 | 21,230) | 16,329) | 22,002) | 20,304) | 7,167) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -13.95% | -58.31% | -21.68% | -23.77% | -25.31% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Chevron Corp. | -2.37% | — | — | — | — | |
| ConocoPhillips | 5.03% | — | — | — | — | |
| Exxon Mobil Corp. | 3.26% | — | — | — | — | |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2021 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -2,962 ÷ 21,230 = -13.95%
4 Click competitor name to see calculations.
The analysis of economic value added metrics reveals a consistent failure to generate positive economic profit between 2017 and 2021. Throughout this five-year period, the company operated with a negative economic spread ratio, indicating that the returns generated on invested capital were insufficient to cover the cost of that capital.
- Economic Profit Trends
- Economic profit remained negative for all reported years, reflecting a persistent destruction of shareholder value. A significant deterioration is observed in 2020, where economic profit reached a period low of negative 9,521 million US dollars. A recovery trend emerged in 2021, as the figure improved to negative 2,962 million US dollars, though it remained well below the break-even point.
- Invested Capital Dynamics
- Invested capital showed substantial growth in the early part of the period, increasing from 7,167 million US dollars in 2017 to 22,002 million US dollars by 2019. A notable contraction occurred in 2020, with capital decreasing to 16,329 million US dollars, before rebounding to 21,230 million US dollars in 2021.
- Economic Spread Ratio Performance
- The economic spread ratio exhibited high volatility. After a period of marginal improvement between 2017 and 2019, the ratio collapsed to negative 58.31% in 2020, coinciding with the peak in economic losses. In 2021, the ratio improved sharply to negative 13.95%, marking the most favorable result in the analyzed timeframe, although the overall spread remained negative.
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Economic Profit Margin
Diamondback Energy Inc., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | (2,962) | (9,521) | (4,771) | (4,827) | (1,814) | |
| Revenue from contracts with customers | 6,747) | 2,756) | 3,887) | 2,130) | 1,186) | |
| Performance Ratio | ||||||
| Economic profit margin2 | -43.90% | -345.46% | -122.73% | -226.62% | -152.94% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Chevron Corp. | -2.95% | — | — | — | — | |
| ConocoPhillips | 8.39% | — | — | — | — | |
| Exxon Mobil Corp. | 3.21% | — | — | — | — | |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 Economic profit. See details »
2 2021 Calculation
Economic profit margin = 100 × Economic profit ÷ Revenue from contracts with customers
= 100 × -2,962 ÷ 6,747 = -43.90%
3 Click competitor name to see calculations.
The financial performance from 2017 to 2021 is characterized by persistent negative economic profit, indicating that the company failed to generate returns in excess of its cost of capital throughout the entire period. While revenue demonstrated a general growth trajectory, the economic profit margin remained volatile and negative, reflecting a structural gap between operational earnings and the capital charges required for the company's investment base.
- Economic Profit Trends
- Economic profit exhibited significant volatility and a consistent deficit. The deficit expanded from -1,814 million USD in 2017 to -4,827 million USD in 2018, followed by a period of relative stability in 2019. A severe decline occurred in 2020, where the economic profit dropped to its lowest point of -9,521 million USD. A substantial recovery was observed in 2021, with the deficit narrowing to -2,962 million USD.
- Revenue Performance
- Revenue grew overall from 1,186 million USD in 2017 to 6,747 million USD in 2021. Growth was steady between 2017 and 2019, peaking at 3,887 million USD before experiencing a contraction in 2020 to 2,756 million USD. The final year of the period saw a sharp increase in revenue, more than doubling the 2020 figures.
- Economic Profit Margin Analysis
- The economic profit margin remained negative throughout the period, reflecting an inability to cover the cost of capital relative to revenue. The margin fluctuated significantly, reaching a peak deficit of -345.46% in 2020, coinciding with the lowest point of economic profit and a dip in revenue. However, the margin improved markedly by 2021, rising to -43.90%, which suggests that the surge in revenue and the reduction in economic profit began to align the company closer to a break-even point regarding economic value addition.
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