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
Etsy Inc., economic profit calculation
US$ in thousands
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
= 413,095 – 20.14% × 2,842,921 = -159,551
The financial results indicate a period of aggressive expansion and volatility in economic value creation between 2017 and 2021. While operating profitability experienced significant growth, the scale of invested capital increased at a rate that frequently exceeded the growth of net operating profits, resulting in inconsistent economic profit margins.
- Net Operating Profit After Taxes (NOPAT)
- A consistent upward trajectory in NOPAT is observed, rising from 47,642 thousand dollars in 2017 to 413,095 thousand dollars in 2021. A substantial acceleration occurred in 2020, where NOPAT increased by approximately 278% compared to the previous year, suggesting a period of rapid operational scaling or an external demand surge.
- Invested Capital
- Invested capital grew exponentially over the five-year period, expanding from 498,789 thousand dollars to 2,842,921 thousand dollars. The most aggressive growth phase occurred between 2020 and 2021, during which the capital base nearly doubled. This indicates a heavy commitment of resources to grow the business infrastructure or acquire assets.
- Cost of Capital
- The cost of capital remained relatively stable, fluctuating within a narrow range between 20.14% and 23.62%. A gradual downward trend is noted toward the end of the period, reaching its lowest point of 20.14% in 2021, which suggests a slight improvement in the efficiency of capital sourcing or a change in the risk profile.
- Economic Profit
- Economic profit remained negative for the majority of the analyzed period, indicating that the returns generated were insufficient to cover the cost of the capital employed. A brief transition to positive economic profit was achieved in 2020 (47,605 thousand dollars), coinciding with the spike in NOPAT. However, this was reversed in 2021, with economic profit falling to -159,551 thousand dollars. This decline occurred because the massive increase in invested capital created a capital charge that significantly outweighed the modest growth in NOPAT, leading to a destruction of economic value despite the absolute increase in operating profit.
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Net Operating Profit after Taxes (NOPAT)
Etsy Inc., NOPAT calculation
US$ in thousands
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 allowance for credit losses.
3 Addition of increase (decrease) in deferred revenue.
4 Addition of increase (decrease) in equity equivalents to net income.
5 2021 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 47,764 × 4.46% = 2,130
6 2021 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 12,015 × 21.00% = 2,523
7 Addition of after taxes interest expense to net income.
- Net Income
- The net income demonstrates a generally increasing trend over the five-year period. Initially, the net income registers at 81,800 thousand USD at the end of 2017, followed by a slight decline to 77,491 thousand USD in 2018. From 2018 onwards, there is consistent growth, with net income rising to 95,894 thousand USD in 2019. This growth accelerates significantly in 2020, reaching 349,246 thousand USD, and continues to increase substantially in 2021, amounting to 493,507 thousand USD. The sharp increase during 2020 and 2021 indicates a notable improvement in profitability.
- Net Operating Profit After Taxes (NOPAT)
- The NOPAT figures also show a positive trajectory throughout the period. Starting at 47,642 thousand USD in 2017, NOPAT rises to 76,568 thousand USD in 2018, reflecting an increase in operating efficiency or profitability. The upward trend continues in 2019 with NOPAT reaching 103,763 thousand USD. A marked jump occurs in 2020, with NOPAT surging to 393,749 thousand USD, aligning with the sharp increase observed in net income during the same year. In 2021, NOPAT grows further but at a slower pace, reaching 413,095 thousand USD. This overall trend indicates enhanced operational performance and effective tax management over the years considered.
- Summary of Trends
- Both net income and NOPAT exhibit substantial growth, particularly between 2019 and 2021. The periods of 2020 and 2021 stand out as years of significant earnings expansion, indicating improved operational efficiency and overall profitability. The rise in NOPAT more closely aligns with operational improvements, while net income additionally reflects the impact of non-operational factors and tax considerations. The data suggests strengthened financial health and operational leverage leading to improved earnings capacity.
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Cash Operating Taxes
Etsy Inc., cash operating taxes calculation
US$ in thousands
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).
- Income Tax Provision (Benefit)
- The income tax provision shows significant fluctuations over the five-year period. Beginning in 2017, the provision was a substantial negative figure indicating a tax benefit of -$49,535 thousand. This negative trend decreased in magnitude over the following years, with the benefit lessening to -$22,413 thousand in 2018 and further narrowing to -$15,248 thousand in 2019. Notably, in 2020, the trend reversed to a positive tax provision of $16,463 thousand, indicating an actual tax expense during this year. However, in 2021, the tax provision returned to a negative value of -$21,853 thousand. This irregular pattern suggests volatility in taxable income or tax strategy changes across the years.
- Cash Operating Taxes
- Cash operating taxes displayed a marked upward trend throughout the observed period. The value, which was a minor negative amount of -$1,409 thousand in 2017, shifted to positive in 2018 at $5,774 thousand. Following this, the amount continued to increase consistently each year, reaching $2,782 thousand in 2019, then sharply rising to $23,282 thousand in 2020, and culminating in a substantial $69,622 thousand in 2021. This steady and sharp increase suggests a growing cash outflow related to taxes paid from operating activities, possibly reflecting higher taxable earnings or changes in tax payment timing or policies.
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Invested Capital
Etsy Inc., invested capital calculation (financing approach)
US$ in thousands
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 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 deferred revenue.
5 Addition of equity equivalents to stockholders’ equity.
6 Removal of accumulated other comprehensive income.
7 Subtraction of construction in progress.
8 Subtraction of marketable securities.
- Total reported debt & leases
- The total reported debt and leases show a significant and consistent increase over the five-year period. Starting from 88,048 thousand US dollars at the end of 2017, the figure rose substantially to 2,435,883 thousand US dollars by the end of 2021. This represents a nearly 28-fold increase, indicating a sharp rise in the company's leverage and financial obligations.
- Stockholders’ equity
- Stockholders’ equity experienced moderate growth from 396,894 thousand US dollars in 2017 to 742,424 thousand in 2020, peaking during the year 2020. However, there was a decline in 2021 to 628,619 thousand US dollars. Overall, equity increased by approximately 58% from 2017 to 2021, but the decline in the final year suggests potential pressures or adjustments impacting the company's net assets.
- Invested capital
- Invested capital exhibited a continuous and pronounced increase throughout the period evaluated. Beginning at 498,789 thousand US dollars in 2017, it more than quintupled to 2,842,921 thousand US dollars by the end of 2021. This upward trajectory suggests substantial capital deployment, likely reflecting expansion activities supported by rising debt levels and equity contributions.
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Cost of Capital
Etsy Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 18,920,287) | 18,920,287) | ÷ | 22,754,289) | = | 0.83 | 0.83 | × | 24.14% | = | 20.08% | ||
| Debt and finance lease liabilities3 | 3,786,238) | 3,786,238) | ÷ | 22,754,289) | = | 0.17 | 0.17 | × | 0.46% × (1 – 21.00%) | = | 0.06% | ||
| Operating lease liability4 | 47,764) | 47,764) | ÷ | 22,754,289) | = | 0.00 | 0.00 | × | 4.46% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 22,754,289) | 1.00 | 20.14% | ||||||||||
Based on: 10-K (reporting date: 2021-12-31).
1 US$ in thousands
2 Equity. See details »
3 Debt and finance lease liabilities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 27,764,874) | 27,764,874) | ÷ | 28,984,790) | = | 0.96 | 0.96 | × | 24.14% | = | 23.13% | ||
| Debt and finance lease liabilities3 | 1,198,198) | 1,198,198) | ÷ | 28,984,790) | = | 0.04 | 0.04 | × | 3.81% × (1 – 21.00%) | = | 0.12% | ||
| Operating lease liability4 | 21,718) | 21,718) | ÷ | 28,984,790) | = | 0.00 | 0.00 | × | 4.26% × (1 – 21.00%) | = | 0.00% | ||
| Total: | 28,984,790) | 1.00 | 23.25% | ||||||||||
Based on: 10-K (reporting date: 2020-12-31).
1 US$ in thousands
2 Equity. See details »
3 Debt and finance lease liabilities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 6,831,610) | 6,831,610) | ÷ | 7,752,517) | = | 0.88 | 0.88 | × | 24.14% | = | 21.28% | ||
| Debt and finance lease liabilities3 | 894,451) | 894,451) | ÷ | 7,752,517) | = | 0.12 | 0.12 | × | 4.28% × (1 – 21.00%) | = | 0.39% | ||
| Operating lease liability4 | 26,456) | 26,456) | ÷ | 7,752,517) | = | 0.00 | 0.00 | × | 4.26% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 7,752,517) | 1.00 | 21.68% | ||||||||||
Based on: 10-K (reporting date: 2019-12-31).
1 US$ in thousands
2 Equity. See details »
3 Debt and finance lease liabilities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 8,521,497) | 8,521,497) | ÷ | 8,890,586) | = | 0.96 | 0.96 | × | 24.14% | = | 23.14% | ||
| Debt and finance lease liabilities3 | 345,070) | 345,070) | ÷ | 8,890,586) | = | 0.04 | 0.04 | × | 4.81% × (1 – 21.00%) | = | 0.15% | ||
| Operating lease liability4 | 24,019) | 24,019) | ÷ | 8,890,586) | = | 0.00 | 0.00 | × | 7.65% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 8,890,586) | 1.00 | 23.30% | ||||||||||
Based on: 10-K (reporting date: 2018-12-31).
1 US$ in thousands
2 Equity. See details »
3 Debt and finance lease liabilities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 3,076,450) | 3,076,450) | ÷ | 3,164,497) | = | 0.97 | 0.97 | × | 24.14% | = | 23.47% | ||
| Debt and finance lease liabilities3 | 69,962) | 69,962) | ÷ | 3,164,497) | = | 0.02 | 0.02 | × | 8.49% × (1 – 35.00%) | = | 0.12% | ||
| Operating lease liability4 | 18,086) | 18,086) | ÷ | 3,164,497) | = | 0.01 | 0.01 | × | 8.49% × (1 – 35.00%) | = | 0.03% | ||
| Total: | 3,164,497) | 1.00 | 23.62% | ||||||||||
Based on: 10-K (reporting date: 2017-12-31).
1 US$ in thousands
2 Equity. See details »
3 Debt and finance lease liabilities. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Etsy 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 thousands) | ||||||
| Economic profit1 | (159,551) | 47,605) | (88,766) | (48,466) | (70,196) | |
| Invested capital2 | 2,842,921) | 1,488,547) | 888,183) | 536,522) | 498,789) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -5.61% | 3.20% | -9.99% | -9.03% | -14.07% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Amazon.com Inc. | -1.99% | — | — | — | — | |
| Home Depot Inc. | 12.21% | — | — | — | — | |
| Lowe’s Cos. Inc. | 9.17% | — | — | — | — | |
| TJX Cos. Inc. | -12.59% | — | — | — | — | |
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 × -159,551 ÷ 2,842,921 = -5.61%
4 Click competitor name to see calculations.
The financial performance from 2017 to 2021 is characterized by a substantial expansion of the capital base coupled with inconsistent economic profitability. For the majority of the period, the entity failed to generate returns exceeding its cost of capital, with the exception of a singular positive outlier in 2020.
- Economic Spread Ratio
- The economic spread ratio remained negative for four of the five analyzed years, indicating that the return on invested capital was generally lower than the required rate of return. The ratio improved from -14.07% in 2017 to -9.03% in 2018, followed by a slight decline to -9.99% in 2019. A positive shift to 3.20% was observed in 2020, before the ratio reverted to -5.61% in 2021. This volatility suggests a lack of sustainable value creation relative to the cost of capital.
- Invested Capital
- A consistent and aggressive upward trajectory is observed in invested capital. The amount grew from US$ 498.8 million in 2017 to US$ 2.84 billion by 2021, representing a nearly six-fold increase over the five-year span. The most significant acceleration occurred between 2019 and 2021, where capital deployment increased rapidly, signaling substantial expansion of the company's asset base.
- Economic Profit
- Economic profit demonstrated significant instability throughout the period. After sustaining losses from 2017 through 2019, a positive economic profit of US$ 47.6 million was recorded in 2020. However, this was followed by a sharp reversal in 2021, resulting in a loss of US$ 159.6 million, the lowest point in the analyzed timeframe. The disconnect between the rapidly growing invested capital and the fluctuating economic profit indicates that the increase in capital deployment did not translate into consistent economic value added.
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Economic Profit Margin
Etsy 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 thousands) | ||||||
| Economic profit1 | (159,551) | 47,605) | (88,766) | (48,466) | (70,196) | |
| Revenue | 2,329,114) | 1,725,625) | 818,379) | 603,693) | 441,231) | |
| Add: Increase (decrease) in deferred revenue | 1,075) | 3,647) | 139) | 1,216) | 614) | |
| Adjusted revenue | 2,330,189) | 1,729,272) | 818,518) | 604,909) | 441,845) | |
| Performance Ratio | ||||||
| Economic profit margin2 | -6.85% | 2.75% | -10.84% | -8.01% | -15.89% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Amazon.com Inc. | -0.85% | — | — | — | — | |
| Home Depot Inc. | 4.59% | — | — | — | — | |
| Lowe’s Cos. Inc. | 2.90% | — | — | — | — | |
| TJX Cos. Inc. | -8.77% | — | — | — | — | |
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 ÷ Adjusted revenue
= 100 × -159,551 ÷ 2,330,189 = -6.85%
3 Click competitor name to see calculations.
An analysis of the financial performance from 2017 to 2021 reveals a period of significant revenue expansion contrasted by high volatility in economic value creation. While the top-line growth followed a consistent upward trajectory, the ability to generate economic profit—profit exceeding the cost of capital—remained inconsistent, characterized by a single year of positive value creation followed by a substantial decline.
- Adjusted Revenue Trends
- Adjusted revenue demonstrated sustained and accelerating growth throughout the period. From 2017 to 2019, revenue increased steadily from US$ 441.8 million to US$ 818.5 million. A significant surge occurred in 2020, where revenue more than doubled to US$ 1.73 billion, continuing its climb to reach US$ 2.33 billion by the end of 2021.
- Economic Profit Volatility
- Economic profit exhibited significant fluctuations and failed to scale proportionally with revenue growth. The period began with negative economic profit in 2017 and 2018, followed by a decline in 2019 to negative US$ 88.8 million. A notable reversal occurred in 2020, with economic profit turning positive at US$ 47.6 million. However, this gain was erased in 2021, as economic profit dropped to its lowest point in the series at negative US$ 159.6 million.
- Economic Profit Margin Analysis
- The economic profit margin reflects the inefficiency of value creation relative to the scale of operations. The margin improved from -15.89% in 2017 to -8.01% in 2018, before slipping to -10.84% in 2019. The margin peaked in 2020 at 2.75%, coinciding with the sharp spike in revenue. Despite the continued increase in adjusted revenue in 2021, the margin regressed to -6.85%, indicating that the costs of capital or operational expenses outweighed the gains from the expanded revenue base.
The divergence between the consistent growth in adjusted revenue and the erratic movements of economic profit suggests that the increase in scale did not automatically translate into sustainable economic value. The sharp contraction in economic profit in 2021, despite record revenues, indicates a significant increase in the cost of capital or a decrease in operational efficiency during that fiscal year.
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