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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Marriott International Inc. pages available for free this week:
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Reportable Segments
- Common Stock Valuation Ratios
- Price to FCFE (P/FCFE)
- Capital Asset Pricing Model (CAPM)
- Selected Financial Data since 2005
- Operating Profit Margin since 2005
- Return on Equity (ROE) since 2005
- Total Asset Turnover since 2005
- Analysis of Revenues
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Economic Profit
Marriott International Inc., economic profit calculation
US$ in millions
| 12 months ended: | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 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: 2019-12-31), 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
= – × =
The analysis of economic value added reveals a significant shift in the organization's ability to generate economic profit between 2015 and 2019. After achieving a positive economic profit in 2015, the company entered a period of sustained economic loss, indicating that the returns on invested capital did not exceed the weighted average cost of capital for the subsequent four years.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited an upward trajectory from 2016 to 2018, peaking at 2,260 million US dollars. However, a notable contraction occurred in 2019, with profits falling to 1,577 million US dollars, representing a decrease from the previous year's peak.
- Invested Capital Trends
- A substantial expansion in invested capital is observed between 2015 and 2016, where the amount increased from 758 million US dollars to 16,537 million US dollars. This rapid escalation in the capital base fundamentally altered the economic profit calculation, as the subsequent NOPAT growth was insufficient to offset the capital charge associated with this increased investment.
- Cost of Capital Stability
- The cost of capital remained relatively stable throughout the period, fluctuating within a narrow range between 16.75% and 18.00%. This stability suggests that the negative economic profit was driven by the scale of invested capital and the corresponding operating returns rather than fluctuations in the cost of financing.
- Economic Profit Performance
- Economic profit shifted from a positive 970 million US dollars in 2015 to a deficit of 1,752 million US dollars in 2016. Although the deficit narrowed to 287 million US dollars by 2018, the trend reversed in 2019, with the economic loss widening to 766 million US dollars. The persistence of negative economic profit indicates that the company did not generate returns above its cost of capital from 2016 through 2019.
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
= × =
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.
8 2019 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= × 21.00% =
9 Elimination of after taxes investment income.
The financial data reflects the company's net income and net operating profit after taxes (NOPAT) over the five-year period from 2015 to 2019.
- Net Income
- Net income displayed fluctuations during the analyzed period. It began at 859 million US dollars in 2015, experienced a slight decrease to 780 million in 2016, then increased significantly to 1,372 million in 2017. The upward trend continued with a peak at 1,907 million in 2018 before declining to 1,273 million in 2019. This pattern suggests variability in profitability, with a notable peak in 2018 followed by a reduction in the subsequent year.
- Net Operating Profit After Taxes (NOPAT)
- The NOPAT figures followed a somewhat similar pattern, starting at 1,097 million US dollars in 2015 and slightly decreasing to 1,039 million in 2016. In 2017, NOPAT increased sharply to 1,463 million and continued its upward trajectory to reach the highest value of 2,260 million in 2018. However, in 2019, NOPAT saw a decrease to 1,577 million. The larger magnitude of changes in NOPAT compared to net income indicates that operating profitability experienced more pronounced fluctuations, with a strong peak in 2018.
Overall, the data reveals a pattern of growth in both net income and NOPAT leading up to 2018, followed by a decline in 2019. The significant increase in 2018 suggests a particularly strong operational and financial performance that year, which was not sustained in 2019. This trend may prompt further examination of underlying factors affecting profitability, including operating efficiency, market conditions, or extraordinary items impacting net income.
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).
- Provision for Income Taxes
- The provision for income taxes exhibits significant fluctuation over the five-year period. It started at 396 million USD in 2015, increased slightly to 404 million USD in 2016, then surged sharply to 1,464 million USD in 2017. Following this peak, it decreased substantially to 438 million USD in 2018 and further to 326 million USD in 2019. This volatility suggests irregularities potentially related to changes in taxable income, tax strategies, or one-time tax events within the observed period.
- Cash Operating Taxes
- Cash operating taxes show an upward trend from 315 million USD in 2015 to a peak of 1,691 million USD in 2017. After this peak, cash taxes declined considerably to 626 million USD in 2018 and then decreased slightly to 577 million USD in 2019. The large increase in 2017 followed by a sharp reduction indicates a potential timing difference between accrued tax provisions and actual cash taxes paid, or a resolution of prior period tax liabilities.
- Overall Insights
- Both provision for income taxes and cash operating taxes demonstrate pronounced variability, especially in 2017, where both metrics reached their highest values within the period. The 2017 spike may reflect extraordinary tax circumstances, such as adjustments for deferred tax liabilities, changes in tax legislation, or significant shifts in pre-tax income figures. The subsequent decreases in 2018 and 2019 suggest normalization or rectification following the exceptional activity in 2017.
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.
- Total Reported Debt & Leases
-
The total reported debt and leases shows a consistent upward trend throughout the period from 2015 to 2019. The amount more than doubled from approximately $4.9 billion in 2015 to roughly $12 billion in 2019. This indicates a significant increase in the company’s leverage and financial obligations over these years.
- Shareholders’ Equity (Deficit)
-
Shareholders’ equity exhibits notable volatility over the period. It started with a deficit of about $3.6 billion in 2015, turned positive to reach a peak of approximately $5.4 billion in 2016, and then gradually declined in subsequent years to a much smaller positive value of around $0.7 billion by the end of 2019. The sharp swing from deficit to surplus and the subsequent erosion suggests fluctuations in net assets, possibly driven by operational performance, capital changes, or valuation adjustments.
- Invested Capital
-
Invested capital experienced substantial growth from 2015 to 2016, jumping from $758 million to over $16.5 billion, reflecting a major change in asset base or capital structure. After this significant increase, the invested capital decreases slightly over the following years, stabilizing near $14 billion by 2019. This pattern indicates a period of considerable investment or acquisition activity followed by a phase of relative stabilization or modest divestment.
- Overall Insights
-
The data suggests an overall increase in leverage with rising debt levels and fluctuating equity, which may point to increased financial risk or strategic financing decisions. The large increase in invested capital followed by a moderate decline could reflect business expansion efforts followed by optimization or consolidation. The reduction in shareholders’ equity after peaking might warrant further investigation into profitability, asset impairments, or dividend policies affecting retained earnings.
Cost of Capital
Marriott International Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Long-term debt, including current portion3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2019-12-31).
1 US$ 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 | ÷ | = | × | = | |||||||||
| Long-term debt, including current portion3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Long-term debt, including current portion3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Long-term debt, including current portion3 | ÷ | = | × | × (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 Long-term debt, including current portion. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Long-term debt, including current portion3 | ÷ | = | × | × (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 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 | ||||||
| Invested capital2 | ||||||
| Performance Ratio | ||||||
| Economic spread ratio3 | ||||||
| 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 × ÷ =
4 Click competitor name to see calculations.
The financial performance between 2015 and 2019 is characterized by a significant transition from positive value creation to a period of sustained economic loss. A sharp divergence in both invested capital and economic profit occurred after 2015, resulting in a negative economic spread ratio for the remainder of the period.
- Economic Profit
- A positive economic profit of 970 million USD was recorded in 2015, followed by a substantial decline to negative 1,752 million USD in 2016. While there was a gradual recovery trend between 2017 and 2018, with losses narrowing to 287 million USD, this progress was reversed in 2019 as economic profit fell again to negative 766 million USD.
- Invested Capital
- Invested capital experienced a massive expansion from 758 million USD in 2015 to 16,537 million USD in 2016. Following this surge, the capital base remained relatively stable but showed a slight downward trajectory, ending the period at 13,992 million USD in 2019.
- Economic Spread Ratio
- The economic spread ratio shifted from a high positive value of 128.04% in 2015 to negative figures starting in 2016. The ratio reached its lowest point in 2016 at -10.59% and showed a trend toward stabilization in 2018 at -1.96%. However, the ratio deteriorated again in 2019 to -5.47%, indicating that the returns on invested capital remained below the cost of capital throughout the 2016-2019 timeframe.
The correlation between the abrupt increase in invested capital in 2016 and the subsequent decline in the economic spread ratio suggests that the expansion of the asset base did not immediately generate sufficient returns to cover the associated cost of capital. The volatility in economic profit during the latter years indicates an ongoing challenge in restoring the value-creation levels observed in 2015.
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 | ||||||
| Revenues | ||||||
| Add: Increase (decrease) in deferred revenue | ||||||
| Adjusted revenues | ||||||
| Performance Ratio | ||||||
| Economic profit margin2 | ||||||
| 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 × ÷ =
3 Click competitor name to see calculations.
An analysis of the financial performance from 2015 to 2019 reveals a significant transition from economic value creation to a sustained period of economic value destruction. While the period began with positive economic profit, the subsequent four years were characterized by negative returns, indicating that the capital employed did not generate returns sufficient to cover the cost of capital.
- Economic Profit Trends
- A sharp reversal occurred between 2015 and 2016, where economic profit dropped from a positive 970 million USD to a deficit of 1,752 million USD. Although a recovery trend was observed between 2016 and 2018, with the deficit narrowing to 287 million USD, this progress was reversed in 2019, as the economic profit fell again to 766 million USD.
- Adjusted Revenue Growth
- Revenues exhibited an upward trajectory in the early part of the period, increasing from 14,486 million USD in 2015 to a peak of 22,894 million USD in 2017. Despite this substantial growth in scale, the increase in revenue did not translate into positive economic profit, suggesting that the costs of expansion or the cost of capital outweighed the operational gains.
- Economic Profit Margin Analysis
- The economic profit margin mirrors the volatility of the absolute economic profit. After a peak of 6.70% in 2015, the margin plummeted to -10.26% in 2016. A period of gradual improvement followed, with the margin reaching -1.37% by 2018, before deteriorating again to -3.63% in 2019. This pattern indicates an inability to maintain a sustainable economic surplus relative to the revenue generated during the observed timeframe.