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
Kraft Foods Group Inc., economic profit calculation
US$ in millions
Based on: 10-K (reporting date: 2014-12-27), 10-K (reporting date: 2013-12-28), 10-K (reporting date: 2012-12-29).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2014 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 989 – 15.08% × 14,787 = -1,241
The financial performance from 2012 to 2014 is characterized by significant volatility in value creation, culminating in a transition from positive economic profit to substantial economic value destruction by the end of the period.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited a non-linear trend, increasing from 2,340 million US$ in 2012 to a peak of 3,734 million US$ in 2013. However, this growth was not sustained, as 2014 witnessed a sharp decline to 989 million US$, representing a reduction of approximately 73.5% from the previous year's high.
- Cost of Capital and Invested Capital
- The cost of capital demonstrated a consistent upward trajectory, rising from 14.33% in 2012 to 15.08% in 2014. During the same period, invested capital grew from 13,807 million US$ to 16,041 million US$ in 2013, before contracting to 14,787 million US$ in 2014. The steady increase in the cost of capital effectively raised the financial hurdle required to generate positive economic value.
- Economic Profit
- Economic profit showed extreme variance, rising from 362 million US$ in 2012 to 1,369 million US$ in 2013. This trend reversed sharply in 2014, with economic profit falling to -1,241 million US$. The shift into negative territory indicates that the operating returns in 2014 were insufficient to cover the cost of the capital employed, resulting in a significant erosion of economic value.
AI Ask an analyst for more
Net Operating Profit after Taxes (NOPAT)
Kraft Foods Group Inc., NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2014-12-27), 10-K (reporting date: 2013-12-28), 10-K (reporting date: 2012-12-29).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowances related to accounts receivable.
3 Addition of increase (decrease) in restructuring costs liability.
4 Addition of increase (decrease) in equity equivalents to net earnings.
5 2014 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 369 × 4.62% = 17
6 2014 Calculation
Tax benefit of interest and other expense, net = Adjusted interest and other expense, net × Statutory income tax rate
= 501 × 35.00% = 175
7 Addition of after taxes interest expense to net earnings.
The financial data reveals notable fluctuations in both net earnings and net operating profit after taxes (NOPAT) over the three-year period under consideration.
- Net Earnings
- Net earnings increased significantly from 1,642 million US dollars in 2012 to 2,715 million US dollars in 2013. However, in 2014, net earnings declined sharply to 1,043 million US dollars, representing a substantial decrease relative to the prior year and even falling below the 2012 level.
- Net Operating Profit After Taxes (NOPAT)
- Similar to net earnings, NOPAT demonstrated strong growth from 2,340 million US dollars in 2012 to 3,734 million US dollars in 2013. Yet, there was a pronounced decline in 2014, with NOPAT dropping to 989 million US dollars, marking a significant reduction compared to both preceding years.
Overall, the data suggests that although the company experienced robust profitability improvements in 2013, this positive trend was not sustained, with a marked downturn occurring in 2014. Both profitability indicators reflect this pattern, highlighting sensitivity to potentially adverse operational or market conditions during the latter year.
AI Ask an analyst for more
Cash Operating Taxes
Kraft Foods Group Inc., cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2014-12-27), 10-K (reporting date: 2013-12-28), 10-K (reporting date: 2012-12-29).
The analysis of the provided annual financial data reveals notable fluctuations in the tax-related expenses over the three-year period ending December 27, 2014.
- Provision for Income Taxes
- There is a significant fluctuation observed in the provision for income taxes. In 2012, the provision was reported at 811 million US dollars, which increased substantially to 1,375 million US dollars in 2013, representing a considerable rise. However, in 2014, this figure sharply declined to 363 million US dollars, indicating a substantial reduction from the previous year. This large variance may reflect changes in pre-tax income, tax policies, or adjustments related to prior periods.
- Cash Operating Taxes
- The cash operating taxes also show an upward trend throughout the examined period. Starting at 437 million US dollars in 2012, the amount nearly doubled to 849 million US dollars in 2013 and saw a further increase to 899 million US dollars in 2014. The consistent increase may indicate higher taxable income or changes in tax payment practices.
Overall, while cash operating taxes steadily increased each year, the provision for income taxes displayed considerable volatility, peaking in 2013 before dropping sharply the following year. This divergence between the provision and cash taxes could denote timing differences in tax recognition or other accounting factors affecting recorded tax expense versus actual cash payments.
AI Ask an analyst for more
Invested Capital
Kraft Foods Group Inc., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2014-12-27), 10-K (reporting date: 2013-12-28), 10-K (reporting date: 2012-12-29).
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 restructuring costs liability.
5 Addition of equity equivalents to equity.
6 Removal of accumulated other comprehensive income.
7 Subtraction of construction in progress.
- Total Reported Debt & Leases
- The total reported debt and leases remained relatively stable over the three-year period, with a slight increase from 10,353 million USD in 2012 to 10,402 million USD in 2013. It then remained almost constant at 10,401 million USD in 2014, indicating a stable capital structure in terms of debt obligations.
- Equity
- Equity experienced a notable increase from 3,572 million USD in 2012 to 5,187 million USD in 2013, representing a significant growth. However, this was followed by a decrease to 4,365 million USD in 2014. This fluctuation suggests some variability in shareholder value or retained earnings within this timeframe.
- Invested Capital
- Invested capital showed an upward trend from 13,807 million USD in 2012 to 16,041 million USD in 2013, before declining to 14,787 million USD in 2014. This pattern aligns with the changes in both equity and debt, reflecting adjustments in the company’s total funding and asset base.
- Overall Analysis
- The financial data reveals that while debt levels were largely maintained, equity and invested capital exhibited growth followed by contraction over the three years. The rise in equity and invested capital in 2013 may reflect increased investment or retained earnings that year, but the subsequent decline in 2014 indicates a pullback or redistribution. Stability in debt suggests a consistent leverage approach, but the variations in equity and invested capital warrant further investigation to understand the underlying causes, such as potential asset disposals, dividend payments, or changes in profitability.
AI Ask an analyst for more
Cost of Capital
Kraft Foods Group Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 37,731) | 37,731) | ÷ | 49,101) | = | 0.77 | 0.77 | × | 18.72% | = | 14.39% | ||
| Debt3 | 11,000) | 11,000) | ÷ | 49,101) | = | 0.22 | 0.22 | × | 4.62% × (1 – 35.00%) | = | 0.67% | ||
| Operating lease liability4 | 369) | 369) | ÷ | 49,101) | = | 0.01 | 0.01 | × | 4.62% × (1 – 35.00%) | = | 0.02% | ||
| Total: | 49,101) | 1.00 | 15.08% | ||||||||||
Based on: 10-K (reporting date: 2014-12-27).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 32,851) | 32,851) | ÷ | 43,973) | = | 0.75 | 0.75 | × | 18.72% | = | 13.99% | ||
| Debt3 | 10,700) | 10,700) | ÷ | 43,973) | = | 0.24 | 0.24 | × | 4.62% × (1 – 35.00%) | = | 0.73% | ||
| Operating lease liability4 | 422) | 422) | ÷ | 43,973) | = | 0.01 | 0.01 | × | 4.62% × (1 – 35.00%) | = | 0.03% | ||
| Total: | 43,973) | 1.00 | 14.75% | ||||||||||
Based on: 10-K (reporting date: 2013-12-28).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 30,654) | 30,654) | ÷ | 42,536) | = | 0.72 | 0.72 | × | 18.72% | = | 13.49% | ||
| Debt3 | 11,500) | 11,500) | ÷ | 42,536) | = | 0.27 | 0.27 | × | 4.62% × (1 – 35.00%) | = | 0.81% | ||
| Operating lease liability4 | 382) | 382) | ÷ | 42,536) | = | 0.01 | 0.01 | × | 4.62% × (1 – 35.00%) | = | 0.03% | ||
| Total: | 42,536) | 1.00 | 14.33% | ||||||||||
Based on: 10-K (reporting date: 2012-12-29).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Kraft Foods Group Inc., economic spread ratio calculation, comparison to benchmarks
| Dec 27, 2014 | Dec 28, 2013 | Dec 29, 2012 | ||
|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||
| Economic profit1 | (1,241) | 1,369) | 362) | |
| Invested capital2 | 14,787) | 16,041) | 13,807) | |
| Performance Ratio | ||||
| Economic spread ratio3 | -8.40% | 8.53% | 2.62% | |
| Benchmarks | ||||
| Economic Spread Ratio, Competitors4 | ||||
| lululemon athletica inc. | — | — | — | |
| Nike Inc. | — | — | — | |
Based on: 10-K (reporting date: 2014-12-27), 10-K (reporting date: 2013-12-28), 10-K (reporting date: 2012-12-29).
1 Economic profit. See details »
2 Invested capital. See details »
3 2014 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -1,241 ÷ 14,787 = -8.40%
4 Click competitor name to see calculations.
The analysis of economic value metrics reveals a period of extreme volatility, characterized by a sharp peak in value creation followed by a substantial reversal into value destruction.
- Economic Profit
- A significant upward trajectory was observed between 2012 and 2013, with economic profit increasing from 362 million USD to 1,369 million USD. However, this trend reversed sharply in 2014, resulting in a negative economic profit of 1,241 million USD, indicating that the returns generated were insufficient to cover the cost of capital.
- Invested Capital
- Invested capital expanded from 13,807 million USD in 2012 to a peak of 16,041 million USD in 2013. A subsequent reduction to 14,787 million USD occurred in 2014, suggesting a contraction in the capital base during the same period that economic profit turned negative.
- Economic Spread Ratio
- The spread ratio mirrors the volatility of the economic profit, rising from 2.62% in 2012 to 8.53% in 2013, which signifies a healthy margin over the cost of capital. By 2014, the ratio plummeted to -8.40%, representing a critical shift toward significant value erosion.
AI Ask an analyst for more
Economic Profit Margin
Kraft Foods Group Inc., economic profit margin calculation, comparison to benchmarks
| Dec 27, 2014 | Dec 28, 2013 | Dec 29, 2012 | ||
|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||
| Economic profit1 | (1,241) | 1,369) | 362) | |
| Net revenues | 18,205) | 18,218) | 18,339) | |
| Performance Ratio | ||||
| Economic profit margin2 | -6.82% | 7.51% | 1.97% | |
| Benchmarks | ||||
| Economic Profit Margin, Competitors3 | ||||
| lululemon athletica inc. | — | — | — | |
| Nike Inc. | — | — | — | |
Based on: 10-K (reporting date: 2014-12-27), 10-K (reporting date: 2013-12-28), 10-K (reporting date: 2012-12-29).
1 Economic profit. See details »
2 2014 Calculation
Economic profit margin = 100 × Economic profit ÷ Net revenues
= 100 × -1,241 ÷ 18,205 = -6.82%
3 Click competitor name to see calculations.
The financial performance regarding economic value creation exhibits significant volatility over the three-year period ending December 27, 2014. While top-line revenue remained essentially flat, there was a drastic shift from positive economic profit to a substantial economic loss, indicating a volatile relationship between operating returns and the cost of capital.
- Net Revenues
- Net revenues remained stable, showing a marginal decline from 18,339 million US dollars in 2012 to 18,205 million US dollars in 2014. This stagnation suggests that the subsequent fluctuations in economic profit were not the result of changes in sales volume or revenue generation.
- Economic Profit
- Economic profit demonstrated extreme variance, increasing from 362 million US dollars in 2012 to a peak of 1,369 million US dollars in 2013, before reversing to a deficit of 1,241 million US dollars in 2014. The sharp transition from a peak in 2013 to a substantial loss in 2014 points to a significant increase in the capital charge or a sharp decline in net operating profit after tax.
- Economic Profit Margin
- The economic profit margin mirrored the volatility of the absolute economic profit figures. The margin expanded from 1.97% in 2012 to 7.51% in 2013, before contracting sharply to -6.82% in 2014. The shift into negative territory in the final year indicates that the company's returns fell below its required cost of capital, resulting in a destruction of economic value during that period.
AI Ask an analyst for more