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.
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Kraft Foods Group Inc. pages available for free this week:
- Analysis of Short-term (Operating) Activity Ratios
- Analysis of Reportable Segments
- Common Stock Valuation Ratios
- Enterprise Value to EBITDA (EV/EBITDA)
- Enterprise Value to FCFF (EV/FCFF)
- Operating Profit Margin since 2012
- Return on Equity (ROE) since 2012
- Total Asset Turnover since 2012
- Price to Book Value (P/BV) since 2012
- Analysis of Debt
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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 financial data reveals several notable trends over the three-year period examined.
- Net Operating Profit After Taxes (NOPAT)
- There was a significant increase in NOPAT from 2012 to 2013, rising from 2,340 million US dollars to 3,734 million US dollars. However, this positive growth reversed sharply in 2014, with NOPAT dropping to 989 million US dollars. This decline represents a major contraction in profitability during the final year observed.
- Cost of Capital
- The cost of capital showed a gradual upward trend over the period, increasing from 12.15% in 2012 to 12.49% in 2013, and further to 12.76% in 2014. This continuous increase suggests a rising hurdle rate or risk premium expected by investors, potentially increasing the cost burden for the company.
- Invested Capital
- Invested capital expanded from 13,807 million US dollars in 2012 to 16,041 million US dollars in 2013, indicating additional resources were allocated or acquired during this timeframe. In 2014, invested capital decreased to 14,787 million US dollars, reflecting a retraction in capital deployment or possibly divestitures.
- Economic Profit
- Economic profit exhibited considerable volatility. It increased substantially from 662 million US dollars in 2012 to 1,731 million US dollars in 2013, demonstrating value creation beyond the cost of capital during this year. In contrast, economic profit turned negative in 2014, registering a loss of 898 million US dollars, indicating that the company did not cover its cost of capital and hence destroyed shareholder value in that year.
Overall, the data indicates robust profitability and value creation in 2013, followed by a steep decline in 2014. The increasing cost of capital alongside reduced NOPAT and economic profit in 2014 suggests heightened financial challenges during that period. The contraction in invested capital may reflect strategic adjustments in response to these challenges.
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.
- Economic Profit
- The economic profit showed significant variation over the three-year period. It increased markedly from 662 million USD in 2012 to 1731 million USD in 2013, indicating improved profitability and value creation. However, this positive trend reversed sharply in 2014, with the economic profit declining to a negative 898 million USD, suggesting a substantial loss in economic value during that year.
- Invested Capital
- Invested capital demonstrated an overall upward trend from 2012 to 2013, rising from 13,807 million USD to 16,041 million USD. However, in 2014, the invested capital decreased to 14,787 million USD, indicating a reduction in the company’s asset base or financial investments after the previous year's increase.
- Economic Spread Ratio
- The economic spread ratio experienced a notable increase in 2013, climbing from 4.8% in 2012 to 10.79%. This suggests an improved return on invested capital relative to the cost of capital during that period. In contrast, there was a considerable decline in 2014 to -6.07%, reflecting a negative spread and indicating that the returns generated were insufficient to cover the cost of capital, thereby eroding shareholder 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.
- Economic Profit
- The economic profit exhibited significant volatility over the observed three-year period. Initially, there was a substantial increase from 662 million US dollars in 2012 to 1,731 million US dollars in 2013, reflecting a strong improvement in value generation. However, this positive trend reversed sharply in 2014, with economic profit turning negative to -898 million US dollars, indicating a considerable loss in economic value during that year.
- Net Revenues
- Net revenues remained relatively stable over the three years, with a slight decline from 18,339 million US dollars in 2012 to 18,218 million US dollars in 2013, and a further marginal decrease to 18,205 million US dollars in 2014. This stability suggests a consistent revenue base without significant growth or contraction during the period.
- Economic Profit Margin
- The economic profit margin followed a trend consistent with economic profit, starting at a positive 3.61% in 2012 and improving substantially to 9.5% in 2013. The sharp decline to -4.93% in 2014 not only reflects the negative economic profit but also indicates a notable deterioration in profitability relative to revenues. This swing from a healthy margin to a negative state reveals challenges in maintaining profitable operations despite stable revenues.