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.
Paying user area
Try for free
Kraft Foods Group Inc. pages available for free this week:
The data is hidden behind: . Unhide it.
Get full access to the entire website from $10.42/mo, or
get 1-month access to Kraft Foods Group Inc. for $22.49.
This is a one-time payment. There is no automatic renewal.
We accept:
Economic Profit
Kraft Foods Group Inc., economic profit calculation
US$ in millions
| 12 months ended: | Dec 27, 2014 | Dec 28, 2013 | Dec 29, 2012 | |
|---|---|---|---|---|
| Net operating profit after taxes (NOPAT)1 | ||||
| Cost of capital2 | ||||
| Invested capital3 | ||||
| Economic profit4 | ||||
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
= – × =
The economic performance between 2012 and 2014 is characterized by an initial phase of value creation followed by a significant reversal into value destruction. The overall trajectory reveals substantial volatility in operational profitability that ultimately failed to meet the increasing requirements of the cost of capital by the end of the period.
- Net Operating Profit After Taxes (NOPAT)
- Operational profitability exhibited a non-linear trend, increasing from US$ 2,340 million in 2012 to a peak of US$ 3,734 million in 2013. A substantial contraction occurred in 2014, with NOPAT falling to US$ 989 million, marking a significant decrease from the prior year's performance.
- Cost of Capital
- The cost of capital demonstrated a consistent upward trend throughout the analyzed period. Rates rose steadily from 14.28% in 2012 to 14.69% in 2013, and further increased to 15.02% in 2014, indicating a rising hurdle rate for invested capital.
- Invested Capital
- Invested capital grew from US$ 13,807 million in 2012 to US$ 16,041 million in 2013, before declining to US$ 14,787 million in 2014. The expansion in 2013 aligned with the peak in operational profit, while the subsequent reduction in 2014 was insufficient to mitigate the impact of falling earnings.
- Economic Profit
- Economic profit shifted from US$ 369 million in 2012 to a peak of US$ 1,378 million in 2013, signifying strong economic value added. However, by 2014, this figure plummeted to negative US$ 1,233 million. This reversal indicates that the NOPAT was no longer sufficient to cover the cost of capital, resulting in the destruction of shareholder value.
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
= × =
6 2014 Calculation
Tax benefit of interest and other expense, net = Adjusted interest and other expense, net × Statutory income tax rate
= × 35.00% =
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.
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.
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.
Cost of Capital
Kraft Foods Group Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ||||
| Invested capital2 | ||||
| Performance Ratio | ||||
| Economic spread ratio3 | ||||
| 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 × ÷ =
4 Click competitor name to see calculations.
The financial performance regarding economic value creation exhibits significant volatility between 2012 and 2014, characterized by an initial period of expansion followed by a sharp contraction.
- Economic Profit
- A substantial increase in economic profit was recorded from 2012 to 2013, rising from US$ 369 million to US$ 1,378 million. However, this trend reversed sharply in 2014, with the figure dropping to a deficit of US$ 1,233 million, signaling a transition from value creation to value destruction.
- Invested Capital
- The capital base expanded between 2012 and 2013, increasing from US$ 13,807 million to US$ 16,041 million. A subsequent reduction occurred in 2014, bringing the invested capital down to US$ 14,787 million, indicating a slight contraction in the total capital employed during the final year of the period.
- Economic Spread Ratio
- The economic spread ratio mirrors the trajectory of economic profit, increasing from 2.67% in 2012 to a peak of 8.59% in 2013. In 2014, the ratio experienced a severe decline to -8.34%. This negative value indicates that the return on invested capital failed to meet the company's cost of capital, resulting in a loss of economic value.
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 | ||||
| Net revenues | ||||
| Performance Ratio | ||||
| Economic profit margin2 | ||||
| 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 × ÷ =
3 Click competitor name to see calculations.
The financial performance regarding economic value generation exhibits significant volatility between 2012 and 2014. While net revenues remained relatively stagnant, the economic profit margin fluctuated drastically, moving from a modest positive position to a peak, and finally to a deficit.
- Net Revenue Stability
- Net revenues showed a marginal downward trajectory, decreasing from US$ 18,339 million in 2012 to US$ 18,205 million in 2014. This stability suggests that the fluctuations in economic profit were not driven by top-line revenue volatility, but rather by changes in operating costs, tax obligations, or the cost of capital.
- Economic Profit Volatility
- Economic profit experienced a sharp increase from US$ 369 million in 2012 to US$ 1,378 million in 2013, followed by a severe contraction to negative US$ 1,233 million in 2014. This movement indicates a rapid shift from a period of substantial value creation to one of value destruction.
- Economic Profit Margin Trends
- The economic profit margin mirrored the trajectory of absolute economic profit, expanding from 2.01% in 2012 to 7.56% in 2013, before collapsing to -6.77% in 2014. The negative margin in 2014 signifies that the company's net operating profit after tax was insufficient to cover the imputed cost of the capital employed during that period.