.Economic Value Added (EVA)
Difficulty: Advanced
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
Express Scripts Holding Co., economic profit calculation
USD $ in thousands
| 12 months ended | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | |
|---|---|---|---|---|---|---|
| | Net operating profit after taxes (NOPAT)1 | |||||
| | Cost of capital2 | % | % | % | % | % |
| | Invested capital3 | |||||
| | Economic profit4 | |||||
Source: Based on data from Express Scripts Holding Co. Annual Reports
2017 Calculations
1 NOPAT. See Details »
2 Cost of capital. See Details »
3 Invested capital. See Details »
4 Economic profit = NOPAT – Cost of capital × Invested capital
= – % × =
| Item | Description | The company |
|---|---|---|
| Economic profit | Economic profit is a measure of corporate performance computed by taking the spread between the return on invested capital and the cost of capital, and multiplying by the invested capital. | Express Scripts Holding Co.'s economic profit increased from 2015 to 2016 but then slightly declined from 2016 to 2017. |
Net Operating Profit after Taxes (NOPAT)
Express Scripts Holding Co., NOPAT calculation
USD $ in thousands
| 12 months ended | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | |
|---|---|---|---|---|---|---|
| | Net income attributable to Express Scripts | |||||
| | Deferred income tax expense (benefit)1 | |||||
| | Increase (decrease) in allowance for doubtful accounts2 | |||||
| | Increase (decrease) in equity equivalents3 | |||||
| | Interest expense and other | |||||
| | Interest expense, operating lease obligations4 | |||||
| | Adjusted interest expense and other | |||||
| | Tax benefit of interest expense and other5 | |||||
| | Adjusted interest expense and other, after taxes6 | |||||
| | (Income) loss from discontinued operations, net of tax7 | |||||
| | Net income (loss) attributable to noncontrolling interest | |||||
| | Net operating profit after taxes (NOPAT) |
Source: Based on data from Express Scripts Holding Co. Annual Reports
2017 Calculations
1 Elimination of deferred tax expense. See Details »
2 Addition of increase (decrease) in allowance for doubtful accounts.
3 Addition of increase (decrease) in equity equivalents to net income attributable to Express Scripts.
4 Addition of interest expense on capitalized operating leases. See Details »
5 Tax benefit of interest expense and other = Adjusted interest expense and other × Statutory income tax rate
= × 35% =
6 Addition of after taxes interest expense to net income attributable to Express Scripts.
7 Elimination of discontinued operations.
| Item | Description | The company |
|---|---|---|
| NOPAT | Net operating profit after taxes is income from operations, but after removement of taxes calculated on cash basis that are relevant to operating income. | Express Scripts Holding Co.'s NOPAT increased from 2015 to 2016 but then slightly declined from 2016 to 2017. |
Cash Operating Taxes
Express Scripts Holding Co., cash operating taxes calculation
USD $ in thousands
| 12 months ended | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | |
|---|---|---|---|---|---|---|
| | Provision for income taxes | |||||
| | Less: Deferred income tax expense (benefit) | |||||
| | Add: Tax savings from interest expense and other | |||||
| | Cash operating taxes |
Source: Based on data from Express Scripts Holding Co. Annual Reports
| Item | Description | The company |
|---|---|---|
| Cash operating taxes | Cash operating taxes are estimated by adjusting income tax expense for changes in deferred taxes and tax benefit from the interest deduction. | Express Scripts Holding Co.'s cash operating taxes declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level. |
Invested Capital
Express Scripts Holding Co., invested capital calculation (financing approach)
USD $ in thousands
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| | Short-term debt and current maturities of long-term debt | |||||
| | Long-term debt, excluding current maturities | |||||
| | PV of operating lease payments1 | |||||
| | Total reported debt & leases | |||||
| | Total Express Scripts stockholders' equity | |||||
| | Net deferred tax (assets) liabilities2 | |||||
| | Allowance for doubtful accounts3 | |||||
| | Equity equivalents4 | |||||
| | Accumulated other comprehensive (income) loss, net of tax5 | |||||
| | Non-controlling interest | |||||
| | Adjusted total Express Scripts stockholders' equity | |||||
| | Invested capital |
Source: Based on data from Express Scripts Holding Co. Annual Reports
1 Addition of capitalized operating leases. See Details »
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 total Express Scripts stockholders' equity.
5 Removal of accumulated other comprehensive income.
| Item | Description | The company |
|---|---|---|
| Invested capital | Capital is an approximation of the economic book value of all cash invested in going-concern business activities. | Express Scripts Holding Co.'s invested capital declined from 2015 to 2016 but then increased from 2016 to 2017 not reaching 2015 level. |
Cost of Capital
Express Scripts Holding Co., cost of capital calculations
| Fair Value1 | Weights | Cost of Capital | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | % | = | % | |||||
| Debt3 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| PV of operating lease payments4 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| Total: | % | ||||||||||
Source: Based on data from Express Scripts Holding Co. Annual Reports
1 USD $ in thousands
2 Equity. See Details »
3 Debt. See Details »
4 PV of operating lease payments. See Details »
| Fair Value1 | Weights | Cost of Capital | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | % | = | % | |||||
| Debt3 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| PV of operating lease payments4 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| Total: | % | ||||||||||
Source: Based on data from Express Scripts Holding Co. Annual Reports
1 USD $ in thousands
2 Equity. See Details »
3 Debt. See Details »
4 PV of operating lease payments. See Details »
| Fair Value1 | Weights | Cost of Capital | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | % | = | % | |||||
| Debt3 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| PV of operating lease payments4 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| Total: | % | ||||||||||
Source: Based on data from Express Scripts Holding Co. Annual Reports
1 USD $ in thousands
2 Equity. See Details »
3 Debt. See Details »
4 PV of operating lease payments. See Details »
| Fair Value1 | Weights | Cost of Capital | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | % | = | % | |||||
| Debt3 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| PV of operating lease payments4 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| Total: | % | ||||||||||
Source: Based on data from Express Scripts Holding Co. Annual Reports
1 USD $ in thousands
2 Equity. See Details »
3 Debt. See Details »
4 PV of operating lease payments. See Details »
| Fair Value1 | Weights | Cost of Capital | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | % | = | % | |||||
| Debt3 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| PV of operating lease payments4 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| Total: | % | ||||||||||
Source: Based on data from Express Scripts Holding Co. Annual Reports
1 USD $ in thousands
2 Equity. See Details »
3 Debt. See Details »
4 PV of operating lease payments. See Details »
Economic Spread
Express Scripts Holding Co., economic spread calculation
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (USD $ in thousands) | ||||||
| | Economic profit1 | |||||
| | Invested capital2 | |||||
| Ratio | ||||||
| | Economic spread3 | % | % | % | % | % |
Source: Based on data from Express Scripts Holding Co. Annual Reports
2017 Calculations
1 Economic profit. See Details »
2 Invested capital. See Details »
3 Economic spread = 100 × Economic profit ÷ Invested capital
= 100 × ÷ = %
| Ratio | Description | The company |
|---|---|---|
| Economic spread | The ratio of economic profit to invested capital, also equal to the difference between return on invested capital (ROIC) and cost of capital. | Express Scripts Holding Co.'s economic spread improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017. |
Economic Profit Margin
Express Scripts Holding Co., economic profit margin calculation
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (USD $ in thousands) | ||||||
| | Economic profit1 | |||||
| | Revenues | |||||
| Ratio | ||||||
| | Economic profit margin2 | % | % | % | % | % |
Source: Based on data from Express Scripts Holding Co. Annual Reports
2017 Calculations
1 Economic profit. See Details »
2 Economic profit margin = 100 × Economic profit ÷ Revenues
= 100 × ÷ = %
| Ratio | Description | The company |
|---|---|---|
| Economic profit margin | The ratio of economic profit to sales. It is the company's profit margin covering income efficiency and asset management. Economic profit margin is not biased in favor of capital-intensive business models, because any added capital is a cost to the economic profit margin. | Express Scripts Holding Co.'s economic profit margin improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017. |
