Economic Value Added (EVA)
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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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- Balance Sheet: Assets
- Cash Flow Statement
- Common-Size Income Statement
- Analysis of Long-term (Investment) Activity Ratios
- Capital Asset Pricing Model (CAPM)
- Operating Profit Margin since 2015
- Total Asset Turnover since 2015
- Price to Operating Profit (P/OP) since 2015
- Analysis of Revenues
- Analysis of Debt
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Economic Profit
Kraft Heinz Co., economic profit calculation
US$ in millions
| 12 months ended: | Dec 28, 2019 | Dec 29, 2018 | Dec 30, 2017 | Dec 31, 2016 | Dec 31, 2015 | |
|---|---|---|---|---|---|---|
| Net operating profit after taxes (NOPAT)1 | ||||||
| Cost of capital2 | ||||||
| Invested capital3 | ||||||
| Economic profit4 | ||||||
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
= – × =
- Net Operating Profit After Taxes (NOPAT)
- The net operating profit after taxes shows significant fluctuations over the analyzed periods. Initially, there is a substantial increase from 1,418 million USD in 2015 to 4,237 million USD in 2016, followed by a further rise to 5,287 million USD in 2017. However, this positive trend reverses sharply in 2018, with a large operating loss of -11,194 million USD. The figure rebounds in 2019 to 2,719 million USD, though it remains below the peak levels seen in 2016 and 2017.
- Cost of Capital
- The cost of capital shows a gradual decreasing trend over the periods analyzed. Starting at 12.63% in 2015 and 2016, it slightly decreases to 12.08% in 2017, then continues to decline to 10.45% in 2018 and 10.18% in 2019. This downward trend indicates a reduction in the rate required by investors for providing capital to the company.
- Invested Capital
- Invested capital increased moderately from 105,133 million USD in 2015 to 111,350 million USD in 2016 and stabilized near 112,007 million USD in 2017. It then declined significantly in 2018 to 96,541 million USD and continued to decrease slightly to 94,307 million USD in 2019. This reduction following 2017 suggests divestitures, asset sales, or depreciation exceeding new investments.
- Economic Profit
- Economic profit remains negative across all periods, indicating that the returns generated are insufficient to cover the cost of capital. While the negative economic profit lessens from -11,865 million USD in 2015 to -8,240 million USD in 2017, it worsens considerably in 2018 to -21,284 million USD, reflecting the significant operating loss during that year. There is improvement in 2019 with a negative economic profit of -6,884 million USD, the least negative value since 2015, but economic profit remains below breakeven.
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
= × =
6 2019 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= × 21.00% =
7 Addition of after taxes interest expense to net income (loss) attributable to Kraft Heinz.
- Net Income (Loss) Attributable to Kraft Heinz
- The net income showed significant volatility over the five-year period. Starting at $634 million in 2015, it experienced a substantial increase to $3,632 million in 2016 and peaked at $10,999 million in 2017. However, this trend reversed sharply in 2018, resulting in a significant net loss of $10,192 million. The company partially recovered in 2019, reporting net income of $1,935 million. This pattern suggests the company faced exceptional events or impairments in 2018 that drastically affected profitability.
- Net Operating Profit After Taxes (NOPAT)
- The NOPAT followed a similar trajectory to net income, indicating alignment between operating performance and net profitability. NOPAT increased from $1,418 million in 2015 to $4,237 million in 2016 and further to $5,287 million in 2017, reflecting improving operational efficiency or profitability. The figure then dropped markedly to a negative $11,194 million in 2018, consistent with the reported net loss. In 2019, NOPAT rebounded to $2,719 million, indicating a recovery in operating profit after taxes but remaining below the peak levels observed in 2017. This pattern underscores a volatile period with a significant downturn followed by a partial recovery.
- Summary of Trends
- Overall, both net income and NOPAT exhibited growth from 2015 to 2017, followed by a substantial deterioration in 2018, which indicates major adverse developments during that year. The recovery in 2019 points to improvement but not a full restoration to prior peak levels. Such fluctuations suggest the presence of extraordinary losses or impairments in 2018, impacting both reported net income and operating profit after taxes.
Cash Operating Taxes
Kraft Heinz Co., cash operating taxes calculation
US$ 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).
The financial data reveals notable fluctuations in the provision for (benefit from) income taxes over the five-year period. Initially, the provision increased significantly from 366 million US dollars in 2015 to 1381 million US dollars in 2016. Subsequently, there was a sharp reversal, with the provision moving into a substantial benefit position, showing -5460 million US dollars in 2017 and a continued benefit of -1067 million US dollars in 2018. In 2019, the provision returned to a positive value of 728 million US dollars, indicating a reversion to a tax expense position.
In contrast, cash operating taxes exhibited a different pattern, showing more stability and less volatility. The amount rose from 1157 million US dollars in 2015 to a peak of 1815 million US dollars in 2016, followed by a decline to 1448 million US dollars in 2017. Afterward, cash operating taxes decreased further to 1177 million US dollars in 2018 but increased again to 1312 million US dollars in 2019. Overall, cash operating taxes remained within a narrower range compared to the provision for income taxes, reflecting relatively steadier tax cash payments despite fluctuations in tax provisions.
The divergence between the provision for income taxes and cash operating taxes suggests that significant non-cash tax items affected the income tax provision, particularly in 2017 and 2018. These years experienced considerable tax benefits recorded in the provision, which could be linked to one-time adjustments, changes in tax laws, or deferred tax asset/liability movements. Meanwhile, cash taxes paid remained consistently positive and relatively stable, highlighting the difference between accounting tax expenses and actual cash outflows related to taxes.
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.
- Total Reported Debt & Leases
- The total reported debt and leases increased significantly from 25,825 million USD in 2015 to a peak of 32,787 million USD in 2016. After reaching this peak, the amount decreased slightly over the next three years, ending at 29,845 million USD in 2019. This indicates an overall rise in leverage in 2016, followed by some reduction, although debt levels remained higher than in 2015.
- Shareholders’ Equity
- Shareholders’ equity showed variability during the period. It was relatively stable between 2015 (57,685 million USD) and 2016 (57,358 million USD), then increased notably to 66,034 million USD in 2017. After this peak, equity declined sharply in 2018 to 51,657 million USD and remained nearly constant through 2019 at 51,623 million USD. This pattern suggests a significant equity event or adjustment between 2017 and 2018, followed by stabilization at a lower level.
- Invested Capital
- The invested capital gradually increased from 105,133 million USD in 2015 to a peak of 112,007 million USD in 2017. However, this was followed by a marked decline over the next two years, reaching 94,307 million USD by 2019. This trajectory shows an initial expansion of capital investment, succeeded by a contraction, which aligns with the observed reductions in debt and equity during the latter years.
Cost of Capital
Kraft Heinz Co., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ||||||
| Invested capital2 | ||||||
| Performance Ratio | ||||||
| Economic spread ratio3 | ||||||
| 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 × ÷ =
4 Click competitor name to see calculations.
- Economic Profit
- The economic profit experienced significant fluctuations over the five-year period. Initially, it showed a negative value of -11,865 million USD at the end of 2015, indicating losses beyond the cost of capital. This negative trend improved gradually through 2016 and 2017, with economic profit increasing to -9,822 million USD and then -8,240 million USD respectively. However, a sharp decline occurred in 2018, plunging to -21,284 million USD, the lowest point in the dataset. By 2019, the economic profit improved again but remained negative at -6,884 million USD, illustrating continued economic challenges despite partial recovery.
- Invested Capital
- The invested capital demonstrated a modest upward trend from 2015 to 2017, increasing from 105,133 million USD to 112,007 million USD, suggesting ongoing investment or asset growth. However, from 2017 onwards, invested capital declined steadily, reaching 96,541 million USD in 2018 and slightly decreasing further to 94,307 million USD in 2019. This reduction may reflect asset disposals, impairments, or a strategic withdrawal of capital employed in business operations.
- Economic Spread Ratio
- The economic spread ratio, a measure of return on invested capital relative to cost of capital, consistently remained negative throughout the period. In 2015, it was at -11.29%, gradually improving to -7.36% by 2017, reflecting a reduction in the negative returns. A marked deterioration occurred in 2018 when the ratio dropped sharply to -22.05%, indicating significantly increased losses relative to capital costs. There was a noticeable recovery in 2019 with the spread ratio improving to -7.3%, almost returning to the earlier levels prior to 2018, but still not achieving profitability above capital costs.
- Overall Analysis
- The financial performance over these years reveals a pattern of volatile and predominantly negative economic profitability, despite some recovery attempts. The economic profit and spread ratio improvements up to 2017 suggest efforts to optimize performance or mitigate losses, but the significant downturn in 2018 signals a period of considerable financial stress or operational challenges. The subsequent partial rebound in 2019 indicates some corrective actions or market improvements but does not fully restore positive economic value creation. Concurrently, the decline in invested capital after 2017 aligns with the sharp drop in economic profit and spread, hinting at possible restructuring or asset rationalization strategies aimed at improving efficiency or focusing on core operations.
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 | ||||||
| Net sales | ||||||
| Performance Ratio | ||||||
| Economic profit margin2 | ||||||
| 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 × ÷ =
3 Click competitor name to see calculations.
- Economic Profit
- Economic profit exhibited significant fluctuations during the period, with a general trend of large negative values indicating economic losses. The losses decreased from -$11,865 million in 2015 to -$8,240 million in 2017, showing some improvement. However, in 2018, the economic profit sharply declined to -$21,284 million, the worst performance in the analyzed timeframe. In 2019, the economic loss receded again to -$6,884 million.
- Net Sales
- Net sales experienced a noticeable increase from $18,338 million in 2015 to a peak of $26,487 million in 2016. After 2016, sales remained relatively stable, fluctuating slightly around the $26,000 million mark until 2018, when sales were recorded at $26,268 million, before decreasing modestly to $24,977 million in 2019.
- Economic Profit Margin
- The economic profit margin followed a pattern consistent with the economic profit figures, reflecting substantial negative margins throughout the period. Starting at -64.7% in 2015, the margin improved to -31.41% by 2017, indicating a reduction in economic losses relative to net sales. Nevertheless, earnings margins deteriorated sharply in 2018 to -81.03%, before improving again to -27.56% in 2019, demonstrating ongoing volatility and challenges in profitability.
- Summary Insights
- The data reveals a company facing persistent challenges in generating positive economic profit, despite relatively stable net sales levels after 2016. The significant negative economic profit and margins suggest high costs or capital charges not being covered by operating results. The pronounced dip in 2018's economic profit and margin implies extraordinary factors negatively impacting profitability during that year. The partial recovery in 2019 suggests some corrective measures or improvements, yet profitability remains well below break-even levels. Overall, the company must address structural profitability issues to convert sales into sustainable economic value.