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 = -159,395
The analysis of economic value creation between 2017 and 2021 reveals a pattern of aggressive capital expansion and inconsistent economic profit generation. While operating earnings grew significantly, the scale of investment required to achieve that growth frequently exceeded the returns generated.
- Operating Profitability
- Net operating profit after taxes (NOPAT) demonstrated consistent growth over the five-year period, increasing from 47.6 million US dollars in 2017 to 413.1 million US dollars in 2021. The most pronounced increase occurred in 2020, where NOPAT rose from 103.8 million to 393.7 million US dollars.
- Capital Investment and Cost
- Invested capital increased substantially from 498.8 million US dollars in 2017 to 2.84 billion US dollars in 2021. During this period, the cost of capital remained relatively range-bound, starting at 23.62% in 2017 and ending at 20.14% in 2021.
- Economic Profitability
- Economic profit was negative in four of the five years analyzed. Despite a peak in 2020 where a positive economic profit of 47.7 million US dollars was recorded, the value dropped sharply to -159.4 million US dollars in 2021. This indicates that the massive increase in invested capital during the final year significantly exceeded the incremental growth in operating profit, resulting in a destruction of economic value.
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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% | = | 20.07% | ||
| 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% | = | 23.12% | ||
| 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% | = | 21.27% | ||
| 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 | 21.67% | ||||||||||
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% | = | 23.13% | ||
| 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% | = | 23.46% | ||
| 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 | (159,395) | 47,699) | (88,714) | (48,432) | (70,164) | |
| 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. | -1.96% | — | — | — | — | |
| Home Depot Inc. | 12.28% | — | — | — | — | |
| Lowe’s Cos. Inc. | 9.24% | — | — | — | — | |
| TJX Cos. Inc. | -12.50% | — | — | — | — | |
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 × -159,395 ÷ 2,842,921 = -5.61%
4 Click competitor name to see calculations.
The financial trajectory from 2017 to 2021 is characterized by a substantial and continuous expansion of the capital base paired with inconsistent economic value creation, leading to a volatile economic spread ratio.
- Invested Capital Trends
- Invested capital demonstrated a consistent upward trend throughout the period, increasing from 498,789 thousand US dollars in 2017 to 2,842,921 thousand US dollars by 2021. The growth accelerated significantly after 2019, indicating a period of aggressive capital accumulation or investment in the business infrastructure.
- Economic Profit Performance
- Economic profit remained predominantly negative, indicating that the returns generated were generally insufficient to cover the cost of capital. A period of losses was observed from 2017 to 2019, followed by a brief transition into positive territory in 2020 with a profit of 47,699 thousand US dollars. This positive momentum was short-lived, as 2021 saw a sharp decline to a five-year low of -159,395 thousand US dollars.
- Economic Spread Ratio Interpretation
- The economic spread ratio fluctuated in alignment with economic profit, reflecting the efficiency of capital utilization relative to its cost. The ratio began at -14.07% in 2017 and showed a gradual recovery through 2019. A peak of 3.20% was reached in 2020, marking the only instance in the period where the company generated a return exceeding its cost of capital. However, by 2021, the ratio reverted to -5.61%, confirming a return to capital destruction despite the significantly larger scale of invested capital.
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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 | (159,395) | 47,699) | (88,714) | (48,432) | (70,164) | |
| 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 | -6.84% | 2.76% | -10.84% | -8.01% | -15.88% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Amazon.com Inc. | -0.84% | — | — | — | — | |
| Home Depot Inc. | 4.62% | — | — | — | — | |
| Lowe’s Cos. Inc. | 2.93% | — | — | — | — | |
| TJX Cos. Inc. | -8.70% | — | — | — | — | |
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 × -159,395 ÷ 2,330,189 = -6.84%
3 Click competitor name to see calculations.
The financial performance from 2017 to 2021 is characterized by rapid revenue expansion contrasted with significant volatility in economic value creation. While adjusted revenue demonstrated consistent and accelerating growth, the ability to generate economic profit remained inconsistent, with the company failing to maintain a positive return above its cost of capital for the majority of the period.
- Adjusted Revenue Growth
- A strong upward trajectory is observed in adjusted revenue, which increased from 441.8 million US dollars in 2017 to 2.33 billion US dollars by 2021. The most substantial growth occurred between 2019 and 2020, where revenue more than doubled, indicating a period of rapid scale expansion.
- Economic Profit Volatility
- Economic profit exhibited high variability, remaining negative for four of the five years analyzed. After narrowing the loss in 2018 and widening it in 2019, the company achieved a positive economic profit of 47.7 million US dollars in 2020. However, this gain was reversed in 2021, which saw the largest absolute economic loss of 159.4 million US dollars, despite the period's highest revenue levels.
- Economic Profit Margin Trends
- The economic profit margin reflected the instability of value creation relative to scale. The margin improved from -15.88% in 2017 to a peak of 2.76% in 2020. The subsequent decline to -6.84% in 2021 suggests that the costs associated with capital or operations grew at a rate that eclipsed the revenue gains achieved during the final year of the sequence.
The divergence between the steady increase in revenue and the fluctuating economic profit indicates that revenue growth did not linearly translate into economic value. The significant drop in economic profit in 2021, following the success of 2020, highlights a period of intensified capital charges or reduced operational efficiency relative to the cost of capital.
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