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 Heinz Co., economic profit calculation
US$ in millions
Based on: 10-K (reporting date: 2019-12-28), 10-K (reporting date: 2018-12-29), 10-K (reporting date: 2017-12-30), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2019 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 2,719 – 11.51% × 94,307 = -8,140
Economic profit remained consistently negative throughout the period from 2015 to 2019, indicating that the returns generated from operations were insufficient to cover the company's cost of capital. While there were periods of volatility, the company failed to achieve a positive economic value added (EVA) in any of the reported years.
- Net Operating Profit After Taxes (NOPAT)
- A period of growth is observed from 2015 to 2017, with NOPAT increasing from US$ 1,418 million to a peak of US$ 5,287 million. This upward trend was abruptly reversed in 2018, where NOPAT fell to -US$ 11,194 million, marking a significant operational deficit. A partial recovery occurred in 2019, with NOPAT returning to a positive US$ 2,719 million.
- Cost of Capital and Invested Capital
- The cost of capital showed a steady and consistent decline over the five-year period, decreasing from 14.68% in 2015 to 11.51% by 2019. Invested capital grew initially, peaking at US$ 112,007 million in 2017, before trending downward to US$ 94,307 million in 2019. This reduction in the capital base occurred concurrently with the decline in the cost of capital.
- Economic Profit Trends
- Economic profit improved slightly between 2015 and 2017, moving from -US$ 14,015 million to -US$ 10,353 million. However, the sharp decline in NOPAT in 2018 led to a substantial deterioration in economic profit, which reached its lowest point at -US$ 22,632 million. By 2019, economic profit improved to -US$ 8,140 million, the highest value in the observed period, although it remained negative.
The analysis indicates that the severe decline in economic profit in 2018 was driven primarily by the collapse of NOPAT rather than changes in the cost of capital or invested capital. The subsequent improvement in 2019 suggests a recovery in operational efficiency and a reduction in the capital charge, though the organization continued to destroy economic value relative to its cost of capital.
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Net Operating Profit after Taxes (NOPAT)
Kraft Heinz Co., NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2019-12-28), 10-K (reporting date: 2018-12-29), 10-K (reporting date: 2017-12-30), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowances related to trade accounts receivable.
3 Addition of increase (decrease) in liability balance for Integration Program and restructuring project costs.
4 Addition of increase (decrease) in equity equivalents to net income (loss) attributable to Kraft Heinz.
5 2019 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 601 × 4.00% = 24
6 2019 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 1,385 × 21.00% = 291
7 Addition of after taxes interest expense to net income (loss) attributable to Kraft Heinz.
The financial performance from 2015 through 2019 is characterized by high volatility, featuring a three-year growth phase, a severe collapse in 2018, and a partial recovery in 2019. There is a strong correlation between the movement of Net income attributable to Kraft Heinz and Net operating profit after taxes (NOPAT), indicating that the primary drivers of profitability and subsequent losses were rooted in operating performance.
- Net Operating Profit After Taxes (NOPAT) Trajectory
- An upward trend is observed from 2015 to 2017, with NOPAT increasing from US$ 1,418 million to US$ 5,287 million. This growth was abruptly reversed in 2018, where the figure plummeted to a negative US$ 11,194 million. A recovery occurred in 2019, with NOPAT returning to a positive US$ 2,719 million, although this represents only approximately 51% of the 2017 peak.
- Net Income Performance and Volatility
- Net income followed a similar pattern of expansion and contraction. From 2015 to 2017, net income rose substantially from US$ 634 million to a high of US$ 10,999 million. The subsequent drop in 2018 to a loss of US$ 10,192 million signifies a total reversal of the prior gains. The 2019 result of US$ 1,935 million indicates a return to profitability, yet it remains well below the levels observed during the 2016-2017 period.
- Comparative Analysis of NOPAT and Net Income
- The relationship between the two metrics shifted over the period. In 2017, Net income significantly exceeded NOPAT, suggesting the presence of substantial non-operating gains. Conversely, in 2018, the NOPAT loss of US$ 11,194 million was more severe than the Net income loss of US$ 10,192 million, indicating that operating losses were the dominant factor in the overall financial decline.
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Cash Operating Taxes
Kraft Heinz Co., cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2019-12-28), 10-K (reporting date: 2018-12-29), 10-K (reporting date: 2017-12-30), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
An analysis of tax metrics from 2015 to 2019 reveals a significant divergence between accounting tax provisions and actual cash tax outflows. While the tax provision experienced extreme volatility, the cash operating taxes remained relatively stable, illustrating the distinction between accrual-based tax reporting and actual cash liquidity requirements.
- Provision for Income Taxes Trends
- The accounting provision for income taxes demonstrated high variance, shifting from a cost of 366 million USD in 2015 to a cost of 1,381 million USD in 2016. This was followed by substantial tax benefits in 2017 and 2018, with the benefit reaching 5,460 million USD in 2017 and 1,067 million USD in 2018, before returning to a positive expense of 728 million USD in 2019.
- Cash Operating Taxes Analysis
- Cash operating taxes exhibited significantly lower volatility than the accounting provision. Outflows peaked in 2016 at 1,815 million USD and reached a low of 1,177 million USD in 2018. By 2019, cash taxes were 1,312 million USD. The relative stability of these figures suggests that actual cash tax obligations remained decoupled from the accounting benefits recorded in the provision line.
- Implications for Economic Value Added (EVA)
- The variance between the tax provision and cash operating taxes underscores the necessity of using cash taxes for EVA calculations. The accounting benefits recorded in 2017 and 2018 would have artificially inflated the Net Operating Profit After Taxes (NOPAT) if utilized; conversely, the cash operating taxes provide a more accurate representation of the capital actually exiting the business, allowing for a more realistic assessment of economic value creation.
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Invested Capital
Kraft Heinz Co., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2019-12-28), 10-K (reporting date: 2018-12-29), 10-K (reporting date: 2017-12-30), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
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 liability balance for Integration Program and restructuring project costs.
5 Addition of equity equivalents to shareholders’ equity.
6 Removal of accumulated other comprehensive income.
7 Subtraction of construction in progress.
Invested capital exhibited a growth phase between 2015 and 2017, followed by a notable contraction in the subsequent two years. The capital base peaked in December 2017 at 112,007 million US$ before declining to 94,307 million US$ by December 2019, representing a total reduction of approximately 15.8% from its peak.
- Total Reported Debt and Leases
- A significant increase in debt and lease obligations was observed between 2015 and 2016, rising from 25,825 million US$ to 32,787 million US$. Following this peak, a gradual downward trend occurred over the next three years, with the balance receding to 29,845 million US$ by the end of 2019. This pattern indicates an initial period of capital expansion through borrowing, followed by a steady deleveraging process.
- Shareholders' Equity
- Equity levels remained relatively stable from 2015 to 2016, followed by a peak of 66,034 million US$ in 2017. A substantial contraction occurred in 2018, with equity falling to 51,657 million US$, a level that remained nearly constant through 2019. This sharp decrease in equity served as the primary catalyst for the overall reduction in invested capital during the 2018 and 2019 fiscal years.
- Invested Capital Dynamics
- The total invested capital trajectory reflects a transition from expansion to rationalization. The increase from 105,133 million US$ in 2015 to the 2017 peak was supported by both rising debt and increasing equity. Conversely, the subsequent decline to 94,307 million US$ by 2019 was driven by a combined reduction in both the debt load and the equity base, signaling a period of balance sheet contraction.
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Cost of Capital
Kraft Heinz Co., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 32,831) | 32,831) | ÷ | 64,532) | = | 0.51 | 0.51 | × | 17.75% | = | 9.03% | ||
| Debt3 | 31,100) | 31,100) | ÷ | 64,532) | = | 0.48 | 0.48 | × | 6.44% × (1 – 21.00%) | = | 2.45% | ||
| Operating lease liability4 | 601) | 601) | ÷ | 64,532) | = | 0.01 | 0.01 | × | 4.00% × (1 – 21.00%) | = | 0.03% | ||
| Total: | 64,532) | 1.00 | 11.51% | ||||||||||
Based on: 10-K (reporting date: 2019-12-28).
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 | 35,061) | 35,061) | ÷ | 65,729) | = | 0.53 | 0.53 | × | 17.75% | = | 9.47% | ||
| Debt3 | 30,100) | 30,100) | ÷ | 65,729) | = | 0.46 | 0.46 | × | 6.45% × (1 – 21.00%) | = | 2.33% | ||
| Operating lease liability4 | 568) | 568) | ÷ | 65,729) | = | 0.01 | 0.01 | × | 6.45% × (1 – 21.00%) | = | 0.04% | ||
| Total: | 65,729) | 1.00 | 11.85% | ||||||||||
Based on: 10-K (reporting date: 2018-12-29).
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 | 86,291) | 86,291) | ÷ | 119,709) | = | 0.72 | 0.72 | × | 17.75% | = | 12.80% | ||
| Debt3 | 33,000) | 33,000) | ÷ | 119,709) | = | 0.28 | 0.28 | × | 6.42% × (1 – 35.00%) | = | 1.15% | ||
| Operating lease liability4 | 417) | 417) | ÷ | 119,709) | = | 0.00 | 0.00 | × | 6.42% × (1 – 35.00%) | = | 0.01% | ||
| Total: | 119,709) | 1.00 | 13.96% | ||||||||||
Based on: 10-K (reporting date: 2017-12-30).
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 | 113,121) | 113,121) | ÷ | 146,703) | = | 0.77 | 0.77 | × | 17.75% | = | 13.69% | ||
| Debt3 | 33,200) | 33,200) | ÷ | 146,703) | = | 0.23 | 0.23 | × | 6.41% × (1 – 35.00%) | = | 0.94% | ||
| Operating lease liability4 | 383) | 383) | ÷ | 146,703) | = | 0.00 | 0.00 | × | 6.41% × (1 – 35.00%) | = | 0.01% | ||
| Total: | 146,703) | 1.00 | 14.64% | ||||||||||
Based on: 10-K (reporting date: 2016-12-31).
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 | 94,019) | 94,019) | ÷ | 120,311) | = | 0.78 | 0.78 | × | 17.75% | = | 13.87% | ||
| Debt3 | 25,700) | 25,700) | ÷ | 120,311) | = | 0.21 | 0.21 | × | 5.67% × (1 – 35.00%) | = | 0.79% | ||
| Operating lease liability4 | 591) | 591) | ÷ | 120,311) | = | 0.00 | 0.00 | × | 5.67% × (1 – 35.00%) | = | 0.02% | ||
| Total: | 120,311) | 1.00 | 14.68% | ||||||||||
Based on: 10-K (reporting date: 2015-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Kraft Heinz Co., economic spread ratio calculation, comparison to benchmarks
| Dec 28, 2019 | Dec 29, 2018 | Dec 30, 2017 | Dec 31, 2016 | Dec 31, 2015 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | (8,140) | (22,632) | (10,353) | (12,069) | (14,015) | |
| Invested capital2 | 94,307) | 96,541) | 112,007) | 111,350) | 105,133) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -8.63% | -23.44% | -9.24% | -10.84% | -13.33% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Coca-Cola Co. | — | — | — | — | — | |
| Mondelēz International Inc. | — | — | — | — | — | |
| PepsiCo Inc. | — | — | — | — | — | |
| Philip Morris International Inc. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2019-12-28), 10-K (reporting date: 2018-12-29), 10-K (reporting date: 2017-12-30), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2019 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -8,140 ÷ 94,307 = -8.63%
4 Click competitor name to see calculations.
The financial performance from 2015 to 2019 is characterized by a persistent failure to generate positive economic value, as evidenced by consistently negative economic profit and economic spread ratios. While there were periods of relative improvement, a significant volatility spike occurred in 2018 before a partial recovery in 2019.
- Economic Profit Trends
- Economic profit remained negative throughout the analyzed period, indicating that the returns on invested capital did not exceed the cost of that capital. A steady improvement was observed between 2015 and 2017, with losses narrowing from -14,015 million USD to -10,353 million USD. However, this trend reversed sharply in 2018, where economic profit plummeted to -22,632 million USD, representing the lowest point in the five-year sequence. By 2019, a substantial recovery occurred, with losses reducing to -8,140 million USD, the most favorable result within the period.
- Invested Capital Dynamics
- Invested capital exhibited an initial growth phase, rising from 105,133 million USD in 2015 to a peak of 112,007 million USD in 2017. Following this peak, a contraction is observed, with capital decreasing to 96,541 million USD in 2018 and further declining to 94,307 million USD by 2019. This reduction in the capital base coincides with the period of the most significant economic profit volatility.
- Economic Spread Ratio Analysis
- The economic spread ratio mirrored the trajectory of economic profit, remaining in negative territory for all five years. The ratio improved from -13.33% in 2015 to -9.24% in 2017, signaling an increase in efficiency relative to the cost of capital. A severe deterioration occurred in 2018, with the ratio dropping to -23.44%, reflecting the sharp increase in economic losses. In 2019, the ratio rebounded to -8.63%, marking the highest efficiency level recorded during the observed timeframe.
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Economic Profit Margin
Kraft Heinz Co., economic profit margin calculation, comparison to benchmarks
| Dec 28, 2019 | Dec 29, 2018 | Dec 30, 2017 | Dec 31, 2016 | Dec 31, 2015 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | (8,140) | (22,632) | (10,353) | (12,069) | (14,015) | |
| Net sales | 24,977) | 26,268) | 26,232) | 26,487) | 18,338) | |
| Performance Ratio | ||||||
| Economic profit margin2 | -32.59% | -86.16% | -39.47% | -45.57% | -76.43% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Coca-Cola Co. | — | — | — | — | — | |
| Mondelēz International Inc. | — | — | — | — | — | |
| PepsiCo Inc. | — | — | — | — | — | |
| Philip Morris International Inc. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2019-12-28), 10-K (reporting date: 2018-12-29), 10-K (reporting date: 2017-12-30), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
1 Economic profit. See details »
2 2019 Calculation
Economic profit margin = 100 × Economic profit ÷ Net sales
= 100 × -8,140 ÷ 24,977 = -32.59%
3 Click competitor name to see calculations.
The analysis of economic value added reveals a persistent state of negative economic profit between 2015 and 2019, indicating that the entity failed to generate returns exceeding its cost of capital throughout the entire five-year period.
- Economic Profit Trends
- A period of gradual improvement was observed from 2015 to 2017, as losses narrowed from -14,015 million to -10,353 million. This trend was sharply reversed in 2018, when economic profit deteriorated significantly to -22,632 million. A strong recovery occurred in 2019, with economic profit improving to -8,140 million, marking the lowest deficit in the analyzed sequence.
- Net Sales Performance
- A substantial increase in net sales occurred between 2015 and 2016, rising from 18,338 million to 26,487 million. Revenue remained relatively stagnant from 2016 through 2018, followed by a slight decline to 24,977 million in 2019.
- Economic Profit Margin Analysis
- The economic profit margin exhibited significant volatility, closely correlating with the fluctuations in absolute economic profit. The margin improved from -76.43% in 2015 to -39.47% in 2017 before experiencing a severe contraction to -86.16% in 2018. In 2019, the margin reached its most favorable level of -32.59%, demonstrating an improvement in capital efficiency despite the overall decrease in net sales.
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