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 – 16.69% × 13,992 = -759
The analysis of economic profit from 2015 to 2019 reveals a significant transition from value creation to value destruction. While the period began with a positive economic profit, the subsequent four years were characterized by consistent negative results, indicating that the returns generated were insufficient to cover the cost of the capital employed.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited a volatile but generally upward trend until 2018. After starting at 1,097 million in 2015, it reached a peak of 2,260 million in 2018 before declining to 1,577 million in 2019. Although operating profits increased over the long term, the growth was not proportional to the increase in the capital base.
- Invested Capital
- A dramatic increase in invested capital is observed between 2015 and 2016, where the figure surged from 758 million to 16,537 million. This capital base remained substantially elevated through 2019, fluctuating between approximately 14 billion and 16.5 billion. This massive expansion of the asset base significantly raised the nominal profit required to achieve a positive economic profit.
- Cost of Capital
- The cost of capital remained relatively stable throughout the analyzed period, fluctuating within a narrow range between 16.69% and 17.95%. The stability of this percentage indicates that the deterioration in economic profit was driven by the scale of invested capital and the volatility of NOPAT rather than a shift in the required rate of return.
- Economic Profit
- Economic profit shifted from a positive 971 million in 2015 to a deficit of 1,743 million in 2016. Despite a partial recovery toward 2018, where the deficit narrowed to 279 million, the value returned to a negative 759 million by 2019. The persistent negative values from 2016 onward demonstrate that the company operated below its cost of capital for the majority of the five-year period.
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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 | × | 21.10% | = | 16.04% | ||
| 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 | 16.69% | ||||||||||
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 | × | 21.10% | = | 16.79% | ||
| 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 | 17.36% | ||||||||||
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 | × | 21.10% | = | 17.60% | ||
| 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 | 17.95% | ||||||||||
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 | × | 21.10% | = | 16.33% | ||
| 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 | 16.83% | ||||||||||
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 | × | 21.10% | = | 16.20% | ||
| 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 | 16.71% | ||||||||||
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 | (759) | (279) | (1,091) | (1,743) | 971) | |
| Invested capital2 | 13,992) | 14,627) | 14,229) | 16,537) | 758) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -5.42% | -1.91% | -7.67% | -10.54% | 128.09% | |
| 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 × -759 ÷ 13,992 = -5.42%
4 Click competitor name to see calculations.
The analysis of economic value creation reveals a sharp transition from value generation to value destruction starting in 2016. A significant expansion in the capital base occurred during this period, which coincided with a sustained period of negative economic profit, indicating that the returns generated on the deployed capital were insufficient to cover the cost of capital.
- Economic Profit
- A positive economic profit of 971 million US dollars in 2015 reversed to a substantial deficit of 1,743 million US dollars in 2016. While a recovery trend was observed between 2016 and 2018, reducing the deficit to 279 million US dollars, the trend reversed in 2019, resulting in a loss of 759 million US dollars.
- Invested Capital
- Invested capital experienced a dramatic increase from 758 million US dollars in 2015 to 16,537 million US dollars in 2016. Following this surge, the capital base remained relatively stable, fluctuating within a range of 13,992 million to 14,627 million US dollars through 2019.
- Economic Spread Ratio
- The economic spread ratio shifted from a high of 128.09% in 2015 to -10.54% in 2016. A gradual improvement was noted as the ratio moved toward zero, peaking at -1.91% in 2018, before declining again to -5.42% in 2019. This persistent negative spread confirms that the company failed to generate returns above its cost of capital for four consecutive years.
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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 | (759) | (279) | (1,091) | (1,743) | 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 | -3.60% | -1.33% | -4.77% | -10.21% | 6.70% | |
| 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 × -759 ÷ 21,101 = -3.60%
3 Click competitor name to see calculations.
The analysis of economic value added reveals a significant transition from value creation to persistent value destruction between 2015 and 2019. While the organization experienced substantial growth in adjusted revenues, this expansion did not translate into positive economic profit after 2015, indicating that the returns on invested capital failed to exceed the cost of capital for four consecutive years.
- Economic Profit Trends
- A sharp reversal is observed starting in 2016, where economic profit dropped from a positive 971 million US$ to a deficit of 1,743 million US$. Although a recovery trend emerged between 2017 and 2018, with losses narrowing to 279 million US$, this progress was interrupted in 2019 as the deficit widened again to 759 million US$.
- Adjusted Revenue Performance
- Adjusted revenues demonstrated a strong upward trajectory in the early part of the period, increasing from 14,486 million US$ in 2015 to a peak of 22,894 million US$ in 2017. Following this peak, revenues stabilized, fluctuating between 20,904 million US$ and 21,101 million US$ in 2018 and 2019, respectively.
- Economic Profit Margin Analysis
- The economic profit margin mirrored the volatility of the absolute economic profit, plummeting from 6.70% in 2015 to a low of -10.21% in 2016. A gradual improvement was noted through 2018, where the margin reached -1.33%, suggesting a near-break-even point in terms of economic value. However, the margin declined to -3.60% in 2019, confirming a continued inability to generate returns above the required cost of capital.
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