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
Marriott International Inc., economic profit calculation
US$ in millions
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 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
= 1,577 – 16.60% × 13,992 = -745
The financial performance from 2015 to 2019 is characterized by a significant transition in capital structure and a subsequent struggle to generate positive economic profit. While the period began with positive value creation, a dramatic increase in the capital base led to a sustained period of economic loss, where the returns on invested capital failed to exceed the cost of capital.
- Invested Capital and Economic Profit Correlation
- A critical inflection point occurred in 2016, where invested capital surged from 758 million US$ to 16,537 million US$. This expansion corresponds directly with the shift in economic profit from a positive 971 million US$ in 2015 to a deficit of 1,726 million US$ in 2016. The substantial increase in the capital base created a high hurdle for profitability, resulting in negative economic profit for the remainder of the analyzed period.
- Net Operating Profit After Taxes (NOPAT) Trends
- NOPAT exhibited volatility, starting at 1,097 million US$ in 2015 and reaching a peak of 2,260 million US$ in 2018. Despite this growth, the increase in operating profit was insufficient to offset the cost of the expanded capital base. A notable decline occurred in 2019, with NOPAT falling to 1,577 million US$, which exacerbated the economic loss, increasing it to 745 million US$.
- Cost of Capital Stability
- The cost of capital remained relatively stable throughout the five-year period, fluctuating within a narrow range between 16.60% and 17.84%. Because this rate remained consistent, the negative trajectory of the economic profit is attributable to the scale of invested capital and the fluctuations in NOPAT rather than changes in the cost of financing.
Overall, the analysis indicates that the organization underwent a massive expansion of its asset base in 2016 that fundamentally altered its economic value added profile. Although operating profits improved significantly by 2018, nearly neutralizing the economic loss, the subsequent decline in 2019 suggests that the company has not yet achieved a sustainable return that exceeds its cost of capital given the current scale of investment.
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Net Operating Profit after Taxes (NOPAT)
Marriott International Inc., NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 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 accounts receivable reserve.
3 Addition of increase (decrease) in deferred revenue.
4 Addition of increase (decrease) in equity equivalents to net income.
5 2019 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 1,012 × 4.80% = 49
6 2019 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 443 × 21.00% = 93
7 Addition of after taxes interest expense to net income.
8 2019 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 26 × 21.00% = 5
9 Elimination of after taxes investment income.
The financial trajectory between 2015 and 2019 exhibits a period of volatility characterized by significant growth peaking in 2018, followed by a contraction in 2019. Both Net Income and Net Operating Profit After Taxes (NOPAT) demonstrate a synchronized directional movement, suggesting that the drivers of operating profit were closely aligned with the final bottom-line results.
- Net Operating Profit After Taxes (NOPAT) Trends
- NOPAT experienced a marginal decrease from US$ 1,097 million in 2015 to US$ 1,039 million in 2016. A subsequent period of strong acceleration is observed, with NOPAT rising to US$ 1,463 million in 2017 and reaching a five-year peak of US$ 2,260 million in 2018. This growth trend reversed in 2019, as NOPAT fell to US$ 1,577 million.
- Net Income Analysis
- Net Income followed a pattern nearly identical to NOPAT, beginning at US$ 859 million in 2015 and dipping to US$ 780 million in 2016. A substantial increase occurred over the next two years, with Net Income climbing to US$ 1,372 million in 2017 and peaking at US$ 1,907 million in 2018. In 2019, a downward adjustment was recorded, bringing Net Income to US$ 1,273 million.
- Relationship Between NOPAT and Net Income
- NOPAT remained consistently higher than Net Income throughout the entire period. The gap between operating profit after taxes and net income was most significant in 2018, with NOPAT exceeding Net Income by US$ 353 million. This persistent variance indicates that non-operating expenses, such as interest payments on debt, consistently reduced the final net earnings relative to the core operational profitability of the business.
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Cash Operating Taxes
Marriott International Inc., cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
The financial data indicates a period of significant volatility in tax obligations between 2015 and 2019, characterized by a substantial surge in both tax provisions and cash outflows during the 2017 fiscal year.
- Tax Outflow Volatility
- Cash operating taxes remained relatively stable between 2015 and 2016, moving from 315 million USD to 386 million USD. However, a sharp increase occurred in 2017, with cash operating taxes peaking at 1,691 million USD. This represents an increase of approximately 338% over the previous year. Following this peak, expenditures declined to 626 million USD in 2018 and 577 million USD in 2019.
- Comparison of Provisions and Cash Payments
- A divergence between the provision for income taxes and actual cash operating taxes is observed throughout the period. In 2017, cash operating taxes exceeded the tax provision by 227 million USD. This trend of cash payments exceeding accounting provisions continued into 2018 and 2019, with the gap widening to 251 million USD by the end of 2019, despite the absolute values of both metrics decreasing.
- Impact on Economic Value Added (EVA) Components
- The significant spike in cash operating taxes in 2017 suggests a substantial temporary reduction in cash flow available for EVA calculations during that period. The subsequent normalization of these figures in 2018 and 2019 indicates a return to a more consistent tax payment structure, although cash outflows remained higher than the recorded tax provisions.
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Invested Capital
Marriott International Inc., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 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 deferred revenue.
5 Addition of equity equivalents to shareholders’ equity (deficit).
6 Removal of accumulated other comprehensive income.
7 Subtraction of construction in progress.
The capital structure of the organization underwent a significant transformation between 2015 and 2019, characterized by a substantial increase in total leverage and a volatile equity position. A primary shift occurred between 2015 and 2016, where invested capital experienced an exponential increase, transitioning from a relatively lean base to a significantly larger scale of employed capital.
- Debt and Lease Obligations
- A consistent upward trajectory in total reported debt and leases is observed throughout the five-year period. Liabilities rose from 4,913 million USD in 2015 to 11,952 million USD by 2019, reflecting a sustained increase in the reliance on debt financing.
- Shareholders' Equity Dynamics
- Equity levels exhibited extreme volatility, beginning with a deficit of 3,590 million USD in 2015. This was followed by a sharp reversal to a peak of 5,357 million USD in 2016. From 2017 onward, a steady decline is evident, with equity falling to 703 million USD by 2019, indicating a diminishing equity base relative to the growing debt load.
- Invested Capital Trends
- Invested capital surged from 758 million USD in 2015 to 16,537 million USD in 2016. Following this peak, the total invested capital entered a period of gradual contraction, ending at 13,992 million USD in 2019. The correlation between the surge in debt and the volatility in equity suggests a major structural realignment in 2016, followed by a period of incremental capital reduction.
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Cost of Capital
Marriott International Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 38,789) | 38,789) | ÷ | 51,023) | = | 0.76 | 0.76 | × | 20.97% | = | 15.94% | ||
| Long-term debt, including current portion3 | 11,222) | 11,222) | ÷ | 51,023) | = | 0.22 | 0.22 | × | 3.34% × (1 – 21.00%) | = | 0.58% | ||
| Operating lease liability4 | 1,012) | 1,012) | ÷ | 51,023) | = | 0.02 | 0.02 | × | 4.80% × (1 – 21.00%) | = | 0.08% | ||
| Total: | 51,023) | 1.00 | 16.60% | ||||||||||
Based on: 10-K (reporting date: 2019-12-31).
1 US$ in millions
2 Equity. See details »
3 Long-term debt, including current portion. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 42,272) | 42,272) | ÷ | 53,109) | = | 0.80 | 0.80 | × | 20.97% | = | 16.69% | ||
| Long-term debt, including current portion3 | 9,217) | 9,217) | ÷ | 53,109) | = | 0.17 | 0.17 | × | 3.51% × (1 – 21.00%) | = | 0.48% | ||
| Operating lease liability4 | 1,621) | 1,621) | ÷ | 53,109) | = | 0.03 | 0.03 | × | 3.51% × (1 – 21.00%) | = | 0.08% | ||
| Total: | 53,109) | 1.00 | 17.25% | ||||||||||
Based on: 10-K (reporting date: 2018-12-31).
1 US$ in millions
2 Equity. See details »
3 Long-term debt, including current portion. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 50,502) | 50,502) | ÷ | 60,540) | = | 0.83 | 0.83 | × | 20.97% | = | 17.49% | ||
| Long-term debt, including current portion3 | 8,219) | 8,219) | ÷ | 60,540) | = | 0.14 | 0.14 | × | 3.24% × (1 – 35.00%) | = | 0.29% | ||
| Operating lease liability4 | 1,819) | 1,819) | ÷ | 60,540) | = | 0.03 | 0.03 | × | 3.24% × (1 – 35.00%) | = | 0.06% | ||
| Total: | 60,540) | 1.00 | 17.84% | ||||||||||
Based on: 10-K (reporting date: 2017-12-31).
1 US$ in millions
2 Equity. See details »
3 Long-term debt, including current portion. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 33,750) | 33,750) | ÷ | 43,613) | = | 0.77 | 0.77 | × | 20.97% | = | 16.23% | ||
| Long-term debt, including current portion3 | 8,455) | 8,455) | ÷ | 43,613) | = | 0.19 | 0.19 | × | 3.40% × (1 – 35.00%) | = | 0.43% | ||
| Operating lease liability4 | 1,408) | 1,408) | ÷ | 43,613) | = | 0.03 | 0.03 | × | 3.40% × (1 – 35.00%) | = | 0.07% | ||
| Total: | 43,613) | 1.00 | 16.73% | ||||||||||
Based on: 10-K (reporting date: 2016-12-31).
1 US$ in millions
2 Equity. See details »
3 Long-term debt, including current portion. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 16,461) | 16,461) | ÷ | 21,433) | = | 0.77 | 0.77 | × | 20.97% | = | 16.10% | ||
| Long-term debt, including current portion3 | 4,166) | 4,166) | ÷ | 21,433) | = | 0.19 | 0.19 | × | 3.36% × (1 – 35.00%) | = | 0.42% | ||
| Operating lease liability4 | 806) | 806) | ÷ | 21,433) | = | 0.04 | 0.04 | × | 3.36% × (1 – 35.00%) | = | 0.08% | ||
| Total: | 21,433) | 1.00 | 16.61% | ||||||||||
Based on: 10-K (reporting date: 2015-12-31).
1 US$ in millions
2 Equity. See details »
3 Long-term debt, including current portion. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Marriott International Inc., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | (745) | (264) | (1,076) | (1,726) | 971) | |
| Invested capital2 | 13,992) | 14,627) | 14,229) | 16,537) | 758) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -5.32% | -1.80% | -7.56% | -10.44% | 128.19% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Airbnb Inc. | — | — | — | — | — | |
| Booking Holdings Inc. | — | — | — | — | — | |
| Chipotle Mexican Grill Inc. | — | — | — | — | — | |
| DoorDash, Inc. | — | — | — | — | — | |
| McDonald’s Corp. | — | — | — | — | — | |
| Starbucks Corp. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 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 × -745 ÷ 13,992 = -5.32%
4 Click competitor name to see calculations.
The analysis of economic value added reveals a significant transition from value creation in 2015 to a period of sustained value destruction between 2016 and 2019. This period is characterized by a dramatic expansion of the capital base which was not accompanied by a proportional increase in economic returns.
- Invested Capital Trends
- A substantial increase in invested capital is observed between 2015 and 2016, where the figure rose from 758 million US$ to 16,537 million US$. Following this surge, the capital base remained relatively stable, fluctuating between 13,992 million US$ and 14,627 million US$ from 2017 through 2019.
- Economic Profit Performance
- Economic profit shifted from a positive 971 million US$ in 2015 to a deficit of 1,726 million US$ in 2016. Although a trend of recovery was evident through 2018, with losses narrowing to 264 million US$, this progress was reversed in 2019 as economic profit declined again to 745 million US$.
- Economic Spread Ratio Analysis
- The economic spread ratio experienced a severe contraction, plummeting from 128.19% in 2015 to -10.44% in 2016. A gradual improvement in the spread was noted between 2016 and 2018, reaching a peak of -1.80%, indicating a narrowing gap between the return on invested capital and the cost of capital. However, the ratio deteriorated to -5.32% in 2019, confirming a persistent inability to generate a positive spread during this timeframe.
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Economic Profit Margin
Marriott International Inc., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | (745) | (264) | (1,076) | (1,726) | 971) | |
| Revenues | 20,972) | 20,758) | 22,894) | 17,072) | 14,486) | |
| Add: Increase (decrease) in deferred revenue | 129) | 146) | —) | —) | —) | |
| Adjusted revenues | 21,101) | 20,904) | 22,894) | 17,072) | 14,486) | |
| Performance Ratio | ||||||
| Economic profit margin2 | -3.53% | -1.26% | -4.70% | -10.11% | 6.71% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Airbnb Inc. | — | — | — | — | — | |
| Booking Holdings Inc. | — | — | — | — | — | |
| Chipotle Mexican Grill Inc. | — | — | — | — | — | |
| DoorDash, Inc. | — | — | — | — | — | |
| McDonald’s Corp. | — | — | — | — | — | |
| Starbucks Corp. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 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 ÷ Adjusted revenues
= 100 × -745 ÷ 21,101 = -3.53%
3 Click competitor name to see calculations.
Between 2015 and 2019, a significant volatility in economic value creation is observed, characterized by a transition from positive economic profit to a sustained period of economic loss. Despite an overall increase in adjusted revenues during this timeframe, the company struggled to generate returns exceeding its cost of capital for four consecutive years.
- Economic Profit Margin Trends
- The economic profit margin underwent a sharp contraction, falling from a positive 6.71% in 2015 to a low of -10.11% in 2016. A gradual recovery followed, with the margin improving to -4.70% in 2017 and reaching its closest point to break-even at -1.26% in 2018. However, this upward trajectory was reversed in 2019, as the margin declined again to -3.53%.
- Revenue Growth and Economic Profit Correlation
- Adjusted revenues exhibited a growth trend, rising from 14,486 million US$ in 2015 to a peak of 22,894 million US$ in 2017. The fact that economic profit became deeply negative during this period of revenue expansion suggests that the capital investments required to drive this growth, or the associated cost of capital, outweighed the resulting operational gains.
- Analysis of Economic Profit Magnitude
- The most severe economic loss occurred in 2016, with a deficit of 1,726 million US$. While the magnitude of the loss decreased significantly by 2018 to 264 million US$, the resurgence of losses to 745 million US$ in 2019 indicates a persistent inability to maintain a positive economic value added (EVA) despite stabilized revenue levels above 21,000 million US$.
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