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
Keurig Dr Pepper 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).
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
= 2,588 – 10.97% × 44,109 = -2,249
Economic profit has remained negative from 2018 through 2021, indicating that the company has not generated returns sufficient to cover its cost of capital. However, a consistent trend toward recovery is observed, as the economic loss narrowed from -3,592 million USD in 2018 to -2,249 million USD by the end of 2021.
- Net Operating Profit After Taxes (NOPAT)
- A strong upward trajectory is evident, with NOPAT increasing from 903 million USD in 2018 to 2,588 million USD in 2021. This represents a significant expansion in operational profitability over the four-year period.
- Cost of Capital
- The cost of capital has experienced a steady incremental increase, rising from 10.07% in 2018 to 10.97% in 2021. This rising hurdle rate places additional pressure on the company to increase its operating returns to achieve positive economic value.
- Invested Capital
- Invested capital remained relatively stable, fluctuating within a narrow range between 43,835 million USD and 44,635 million USD. The lack of significant volatility in the capital base suggests that the improvements in economic profit are driven by operational performance rather than changes in the capital structure.
- Economic Profit Dynamics
- The reduction in economic loss is primarily attributed to the substantial growth in NOPAT, which has more than offset the simultaneous increase in the cost of capital. While the company continues to operate below its cost of capital, the gap is closing as operating efficiency improves relative to the invested capital base.
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Net Operating Profit after Taxes (NOPAT)
Keurig Dr Pepper 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).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowance for expected credit losses.
3 Addition of increase (decrease) in product warranties.
4 Addition of increase (decrease) in restructuring liabilities.
5 Addition of increase (decrease) in equity equivalents to net income attributable to KDP.
6 2021 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 684 × 4.30% = 29
7 2021 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 529 × 21.00% = 111
8 Addition of after taxes interest expense to net income attributable to KDP.
A consistent upward trajectory is observed in both net income attributable to the company and net operating profit after taxes (NOPAT) over the four-year period ending December 31, 2021. Both metrics experienced substantial growth, with a period of rapid acceleration between 2018 and 2019, a stabilization phase in 2020, and a subsequent surge in 2021.
- Net Income Trends
- Net income attributable to the entity expanded from US$ 586 million in 2018 to US$ 2,146 million in 2021. The most significant increase occurred between 2018 and 2019, where net income more than doubled. Following a marginal increase in 2020, the metric rose by approximately 62% in 2021, signaling strong growth in overall profitability.
- NOPAT Analysis
- Net operating profit after taxes demonstrated a strong positive trend, rising from US$ 903 million in 2018 to US$ 2,588 million by 2021. This growth reflects an improvement in the core operational efficiency of the business. The increase from 2018 to 2019 was particularly sharp, with NOPAT increasing by approximately 94%.
- Operating Performance versus Bottom-Line Profit
- NOPAT remained consistently higher than net income throughout the entire period. This variance suggests that the operational profitability of the firm is significantly higher than the final net income, indicating that financing costs—specifically interest expenses associated with the company's capital structure—exert a notable downward pressure on the final net earnings. The persistent gap between these two figures underscores the impact of leverage on the reported net income relative to the underlying operating performance.
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Cash Operating Taxes
Keurig Dr Pepper 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).
An analysis of tax expenditures from 2018 to 2021 reveals a consistent upward trajectory in both cash operating taxes and the provision for income taxes, indicating a significant increase in the total tax burden over the period.
- Cash Operating Taxes Trend
- Cash operating taxes exhibited a steady and continuous increase, rising from 381 million US dollars in 2018 to 733 million US dollars by 2021. This represents a total increase of approximately 92% over the four-year span, reflecting a growing cash outflow for tax obligations.
- Provision for Income Taxes Analysis
- The provision for income taxes demonstrated more volatility but a stronger overall growth rate, starting at 202 million US dollars in 2018 and reaching 653 million US dollars in 2021. A minor contraction was observed between 2019 and 2020, where the provision decreased from 440 million US dollars to 428 million US dollars, before surging in 2021.
- Variance Between Cash Taxes and Provisions
- Throughout the period, cash operating taxes consistently exceeded the provision for income taxes. This discrepancy suggests the existence of temporary or permanent differences between accounting tax expenses and actual cash remittances. The gap was most pronounced in 2020, with a difference of 184 million US dollars, but converged significantly in 2021, narrowing to 80 million US dollars as the provision for income taxes grew more rapidly than the cash payments.
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Invested Capital
Keurig Dr Pepper 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).
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 product warranties.
5 Addition of restructuring liabilities.
6 Addition of equity equivalents to stockholders’ equity.
7 Removal of accumulated other comprehensive income.
8 Subtraction of construction-in-progress.
Invested capital remained relatively stable between 2018 and 2021, fluctuating within a narrow range between US$ 43,835 million and US$ 44,635 million. While a slight contraction was observed from 2018 through 2020, a marginal recovery occurred in 2021, indicating a consistent scale of capital employment over the period.
- Debt and Lease Obligations
- A consistent downward trajectory is observed in total reported debt and leases, which declined from US$ 16,236 million in 2018 to US$ 13,266 million by 2021. This represents a steady reduction in total leveraged liabilities over the four-year interval.
- Stockholders' Equity
- Stockholders' equity demonstrated a continuous upward trend, increasing from US$ 22,533 million in 2018 to US$ 24,972 million in 2021. The growth in equity occurred annually and consistently throughout the period analyzed.
The interplay between these components reveals a strategic shift in the financing mix. The systematic reduction in debt was effectively offset by the increase in stockholders' equity, resulting in a nearly constant level of total invested capital. This pattern indicates a deleveraging process, where the organization transitioned toward a more equity-heavy capital structure without significantly altering the total amount of capital invested in the business.
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Cost of Capital
Keurig Dr Pepper Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 51,976) | 51,976) | ÷ | 66,587) | = | 0.78 | 0.78 | × | 13.23% | = | 10.32% | ||
| Short-term borrowings, long-term obligations (including current portion), and finance lease liability3 | 13,927) | 13,927) | ÷ | 66,587) | = | 0.21 | 0.21 | × | 3.67% × (1 – 21.00%) | = | 0.61% | ||
| Operating lease liability4 | 684) | 684) | ÷ | 66,587) | = | 0.01 | 0.01 | × | 4.30% × (1 – 21.00%) | = | 0.03% | ||
| Total: | 66,587) | 1.00 | 10.97% | ||||||||||
Based on: 10-K (reporting date: 2021-12-31).
1 US$ in millions
2 Equity. See details »
3 Short-term borrowings, long-term obligations (including current portion), and finance lease liability. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 43,428) | 43,428) | ÷ | 60,119) | = | 0.72 | 0.72 | × | 13.23% | = | 9.55% | ||
| Short-term borrowings, long-term obligations (including current portion), and finance lease liability3 | 16,039) | 16,039) | ÷ | 60,119) | = | 0.27 | 0.27 | × | 4.00% × (1 – 21.00%) | = | 0.84% | ||
| Operating lease liability4 | 652) | 652) | ÷ | 60,119) | = | 0.01 | 0.01 | × | 4.30% × (1 – 21.00%) | = | 0.04% | ||
| Total: | 60,119) | 1.00 | 10.43% | ||||||||||
Based on: 10-K (reporting date: 2020-12-31).
1 US$ in millions
2 Equity. See details »
3 Short-term borrowings, long-term obligations (including current portion), and finance lease liability. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 39,733) | 39,733) | ÷ | 56,055) | = | 0.71 | 0.71 | × | 13.23% | = | 9.38% | ||
| Short-term borrowings, long-term obligations (including current portion), and finance lease liability3 | 15,826) | 15,826) | ÷ | 56,055) | = | 0.28 | 0.28 | × | 3.90% × (1 – 21.00%) | = | 0.87% | ||
| Operating lease liability4 | 496) | 496) | ÷ | 56,055) | = | 0.01 | 0.01 | × | 4.60% × (1 – 21.00%) | = | 0.03% | ||
| Total: | 56,055) | 1.00 | 10.28% | ||||||||||
Based on: 10-K (reporting date: 2019-12-31).
1 US$ in millions
2 Equity. See details »
3 Short-term borrowings, long-term obligations (including current portion), and finance lease liability. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 35,363) | 35,363) | ÷ | 51,421) | = | 0.69 | 0.69 | × | 13.23% | = | 9.10% | ||
| Short-term borrowings, long-term obligations (including current portion), and finance lease liability3 | 15,812) | 15,812) | ÷ | 51,421) | = | 0.31 | 0.31 | × | 3.92% × (1 – 21.00%) | = | 0.95% | ||
| Operating lease liability4 | 246) | 246) | ÷ | 51,421) | = | 0.00 | 0.00 | × | 6.18% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 51,421) | 1.00 | 10.07% | ||||||||||
Based on: 10-K (reporting date: 2018-12-31).
1 US$ in millions
2 Equity. See details »
3 Short-term borrowings, long-term obligations (including current portion), and finance lease liability. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Keurig Dr Pepper Inc., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||
| Economic profit1 | (2,249) | (2,788) | (2,784) | (3,592) | |
| Invested capital2 | 44,109) | 43,835) | 44,138) | 44,635) | |
| Performance Ratio | |||||
| Economic spread ratio3 | -5.10% | -6.36% | -6.31% | -8.05% | |
| Benchmarks | |||||
| Economic Spread Ratio, Competitors4 | |||||
| Coca-Cola Co. | 5.38% | — | — | — | |
| Mondelēz International Inc. | -0.75% | — | — | — | |
| PepsiCo Inc. | 4.92% | — | — | — | |
| Philip Morris International Inc. | 26.25% | — | — | — | |
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).
1 Economic profit. See details »
2 Invested capital. See details »
3 2021 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -2,249 ÷ 44,109 = -5.10%
4 Click competitor name to see calculations.
The analysis of the financial metrics from 2018 to 2021 reveals a consistent trend of improvement in value creation, despite the company remaining in a negative economic profit position throughout the period. The narrowing gap between the return on invested capital and the cost of capital indicates an upward trajectory in operational efficiency.
- Economic Profit Trends
- Economic profit exhibited a general recovery, moving from a deficit of 3,592 million US dollars in 2018 to a deficit of 2,249 million US dollars by 2021. While the values remained negative, the total improvement of approximately 1,343 million US dollars over four years suggests a systematic reduction in economic losses.
- Invested Capital Stability
- Invested capital remained relatively stable, fluctuating within a narrow range between 43,835 million and 44,635 million US dollars. The lack of significant volatility in the capital base implies that the improvements in economic profit were driven by operational performance and earnings growth rather than a strategic reduction in the asset base.
- Economic Spread Ratio Analysis
- The economic spread ratio showed a positive trend, increasing from -8.05% in 2018 to -5.10% in 2021. A marginal contraction was observed in 2020, where the ratio shifted from -6.31% to -6.36%, before recovering significantly in the following year. This progression indicates that the company is steadily reducing the spread between its actual return and its required cost of capital, moving closer to a point of positive economic value addition.
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Economic Profit Margin
Keurig Dr Pepper Inc., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||
| Economic profit1 | (2,249) | (2,788) | (2,784) | (3,592) | |
| Net sales | 12,683) | 11,618) | 11,120) | 7,442) | |
| Performance Ratio | |||||
| Economic profit margin2 | -17.73% | -23.99% | -25.03% | -48.27% | |
| Benchmarks | |||||
| Economic Profit Margin, Competitors3 | |||||
| Coca-Cola Co. | 11.18% | — | — | — | |
| Mondelēz International Inc. | -1.61% | — | — | — | |
| PepsiCo Inc. | 4.32% | — | — | — | |
| Philip Morris International Inc. | 24.37% | — | — | — | |
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).
1 Economic profit. See details »
2 2021 Calculation
Economic profit margin = 100 × Economic profit ÷ Net sales
= 100 × -2,249 ÷ 12,683 = -17.73%
3 Click competitor name to see calculations.
An analysis of the economic performance from 2018 to 2021 reveals a consistent trend of improvement in value creation efficiency, characterized by substantial revenue growth and a steady reduction in economic losses.
- Net Sales Growth
- A strong upward trend in net sales is observed, increasing from 7,442 million USD in 2018 to 12,683 million USD by 2021. This represents a significant expansion of the top line over the four-year period.
- Economic Profit Trajectory
- Economic profit remained negative throughout the period, indicating that the company did not generate returns exceeding its cost of capital. However, the magnitude of these losses decreased steadily from 3,592 million USD in 2018 to 2,249 million USD in 2021, signaling a positive trend toward economic break-even.
- Economic Profit Margin Improvement
- The economic profit margin showed a marked recovery, narrowing from -48.27% in 2018 to -17.73% in 2021. This compression of the negative margin suggests that the growth in net sales, combined with the reduction in absolute economic loss, has improved the company's relative economic efficiency.
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