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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.

Economic Profit
Net Operating Profit after Taxes (NOPAT)
Cash Operating Taxes
Invested Capital
Cost of Capital
Economic Spread Ratio
Economic Profit Margin

O’Reilly Automotive Inc., economic profit calculation

US$ in thousands

12 months ended:	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017
Net operating profit after taxes (NOPAT)¹	2,362,405)	1,953,719)	1,589,868)	1,512,921)	1,241,849)
Cost of capital²	15.74%	15.02%	14.97%	15.33%	14.61%
Invested capital³	5,766,861)	6,200,132)	6,076,741)	5,606,204)	5,440,691)

Economic profit⁴	1,454,508)	1,022,502)	680,063)	653,530)	447,014)

Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).

¹ NOPAT. See details »

² Cost of capital. See details »

³ Invested capital. See details »

⁴ 2021 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 2,362,405 – 15.74% × 5,766,861 = 1,454,508

The financial performance between 2017 and 2021 indicates a period of sustained value creation, characterized by a significant acceleration in economic profit. The ability to generate returns consistently exceeding the cost of capital suggests strong operational efficiency and effective capital management.

Net Operating Profit After Taxes (NOPAT): A consistent upward trajectory is observed in NOPAT, which grew from 1,241,849 thousand US dollars in 2017 to 2,362,405 thousand US dollars in 2021. This represents a substantial increase in core operational profitability over the five-year period, reflecting enhanced earnings power.
Invested Capital and Cost of Capital: Invested capital exhibited a growth trend from 2017, peaking at 6,200,132 thousand US dollars in 2020, before declining to 5,766,861 thousand US dollars in 2021. Concurrently, the cost of capital remained relatively stable, fluctuating within a narrow range between 14.61% and 15.74%. The reduction in invested capital in 2021, paired with rising NOPAT, indicates an improvement in capital productivity.
Economic Profit: Economic profit demonstrated the most aggressive growth of all metrics, rising from 447,014 thousand US dollars in 2017 to 1,454,508 thousand US dollars in 2021. The sharpest increase occurred between 2019 and 2021, where economic profit more than doubled. This expansion is the result of NOPAT growing at a rate that significantly outpaced the growth of the capital charge.

The divergence between the increasing NOPAT and the stabilized or decreasing invested capital suggests that the organization has successfully scaled its operations without a proportional increase in required investment. Consequently, the economic profit has expanded rapidly, confirming that the company is creating substantial value for its stakeholders above the minimum required rate of return.

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O’Reilly Automotive Inc., NOPAT calculation

US$ in thousands

12 months ended:	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017
Net income	2,164,685)	1,752,302)	1,391,042)	1,324,487)	1,133,804)
Deferred income tax expense (benefit)¹	20,383)	12,381)	21,158)	20,160)	(4,760)
Increase (decrease) in allowance for doubtful accounts²	(800)	(1,747)	1,179)	521)	677)
Increase (decrease) in deferred revenue liability³	(1,100)	400)	(200)	(400)	(100)
Increase (decrease) in product warranty liabilities⁴	11,313)	4,817)	8,849)	7,822)	7,775)
Increase (decrease) in equity equivalents⁵	29,796)	15,851)	30,986)	28,103)	3,592)
Interest expense	144,768)	161,126)	139,975)	122,129)	91,349)
Interest expense, operating lease liability⁶	75,465)	81,659)	80,826)	81,643)	75,294)
Adjusted interest expense	220,233)	242,785)	220,801)	203,772)	166,643)
Tax benefit of interest expense⁷	(46,249)	(50,985)	(46,368)	(42,792)	(58,325)
Adjusted interest expense, after taxes⁸	173,984)	191,800)	174,433)	160,980)	108,318)
(Gain) loss on marketable securities	(5,700)	(5,400)	(5,800)	1,700)	(3,600)
Interest income	(1,971)	(2,491)	(2,545)	(2,521)	(2,347)
Investment income, before taxes	(7,671)	(7,891)	(8,345)	(821)	(5,947)
Tax expense (benefit) of investment income⁹	1,611)	1,657)	1,752)	172)	2,081)
Investment income, after taxes¹⁰	(6,060)	(6,234)	(6,593)	(649)	(3,866)
Net operating profit after taxes (NOPAT)	2,362,405)	1,953,719)	1,589,868)	1,512,921)	1,241,849)

Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).

¹ Elimination of deferred tax expense. See details »

² Addition of increase (decrease) in allowance for doubtful accounts.

³ Addition of increase (decrease) in deferred revenue liability.

⁴ Addition of increase (decrease) in product warranty liabilities.

⁵ Addition of increase (decrease) in equity equivalents to net income.

⁶ 2021 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 2,039,589 × 3.70% = 75,465

⁷ 2021 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 220,233 × 21.00% = 46,249

⁸ Addition of after taxes interest expense to net income.

⁹ 2021 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 7,671 × 21.00% = 1,611

¹⁰ Elimination of after taxes investment income.

The financial performance over the examined five-year period demonstrates consistent growth in profitability metrics.

Net Income: The net income shows a steady upward trend, increasing each year from approximately 1.13 billion US dollars in 2017 to about 2.16 billion US dollars in 2021. This represents a near doubling of net income over the period, suggesting effective management of costs and/or increased revenues contributing to bottom-line growth.
Net Operating Profit After Taxes (NOPAT): The NOPAT also exhibits a consistent increase over the years, rising from roughly 1.24 billion US dollars in 2017 to approximately 2.36 billion US dollars in 2021. This confirms improving operating efficiency and profitability from core operations after accounting for taxes. The growth in NOPAT outpaces net income slightly, indicating favorable operational performance trends.

The patterns indicate sustained improvement in both net income and operating profits, reflecting positive financial health and operational effectiveness over the analyzed timeframe. No volatility or decline is noted, implying stability and strong earnings progression year on year.

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O’Reilly Automotive Inc., cash operating taxes calculation

US$ in thousands

12 months ended:	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017
Net income tax expense	617,229)	514,103)	399,287)	369,600)	504,000)
Less: Deferred income tax expense (benefit)	20,383)	12,381)	21,158)	20,160)	(4,760)
Add: Tax savings from interest expense	46,249)	50,985)	46,368)	42,792)	58,325)
Less: Tax imposed on investment income	1,611)	1,657)	1,752)	172)	2,081)
Cash operating taxes	641,484)	551,050)	422,745)	392,060)	565,004)

Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).

The financial data for the period ending December 31, 2017 through December 31, 2021 reveals notable trends in the company's tax-related expenses.

Net Income Tax Expense: This item exhibits fluctuations over the years with an overall upward trend. Beginning at $504,000 thousand in 2017, the figure decreases significantly to $369,600 thousand in 2018. Thereafter, it rises moderately to $399,287 thousand in 2019, followed by a substantial increase to $514,103 thousand in 2020, and continues to increase, reaching $617,229 thousand in 2021. The data indicates a recovery and growth in net income tax expense after the dip in 2018, potentially reflecting higher taxable income or changes in tax strategy or rates.
Cash Operating Taxes: This measure closely aligns with the net income tax expense pattern but consistently remains higher. It starts at $565,004 thousand in 2017 and follows a similar decline to $392,060 thousand in 2018. Following this, it rises steadily to $422,745 thousand in 2019, then more markedly to $551,050 thousand in 2020, and finally to $641,484 thousand in 2021. The steady increase after 2018 suggests growing cash tax obligations, which could be indicative of increased profitability, changes in tax payments timing, or adjustments in deferred tax assets and liabilities.

Overall, both tax expense and cash operating taxes show a notable decline in 2018, followed by consistent and significant increases through 2021. The gap between cash operating taxes and net income tax expense remains evident, with cash taxes being higher throughout, which may highlight timing differences or other tax accounting adjustments. The progressive increase in taxes by 2021 aligns with likely improvements in company earnings or changes in tax policy impacting the effective tax rates or cash tax payments.

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O’Reilly Automotive Inc., invested capital calculation (financing approach)

US$ in thousands

	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017
Long-term debt	3,826,978)	4,123,217)	3,890,527)	3,417,122)	2,978,390)
Operating lease liability¹	2,039,589)	2,041,469)	1,971,358)	1,976,830)	1,945,593)
Total reported debt & leases	5,866,567)	6,164,686)	5,861,885)	5,393,952)	4,923,983)
Shareholders’ equity (deficit)	(66,423)	140,258)	397,340)	353,667)	653,046)
Net deferred tax (assets) liabilities²	175,212)	155,899)	133,280)	105,566)	85,406)
Allowance for doubtful accounts³	11,870)	12,670)	14,417)	13,238)	12,717)
Deferred revenue liability⁴	3,400)	4,500)	4,100)	4,300)	4,700)
Product warranty liabilities⁵	77,199)	65,886)	61,069)	52,220)	44,398)
Equity equivalents⁶	267,681)	238,955)	212,866)	175,324)	147,221)
Accumulated other comprehensive (income) loss, net of tax⁷	6,799)	2,155)	(4,890)	—)	—)
Adjusted shareholders’ equity (deficit)	208,057)	381,368)	605,316)	528,991)	800,267)
Construction in progress⁸	(255,307)	(305,511)	(358,259)	(291,246)	(257,853)
Marketable securities⁹	(52,456)	(40,411)	(32,201)	(25,493)	(25,706)
Invested capital	5,766,861)	6,200,132)	6,076,741)	5,606,204)	5,440,691)

Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).

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 liability.

⁵ Addition of product warranty liabilities.

⁶ Addition of equity equivalents to shareholders’ equity (deficit).

⁷ Removal of accumulated other comprehensive income.

⁸ Subtraction of construction in progress.

⁹ Subtraction of marketable securities.

Total Reported Debt & Leases: The total reported debt and leases demonstrated a consistent upward trend from 2017 through 2020, increasing from approximately 4.92 billion US dollars to about 6.16 billion US dollars. However, in 2021, there was a noticeable decline to approximately 5.87 billion US dollars, indicating a reduction in debt levels after several years of accumulation.
Shareholders’ Equity (Deficit): Shareholders’ equity experienced a significant downward trajectory over the period. Starting at around 653 million US dollars in 2017, equity decreased sharply in 2018 to approximately 354 million US dollars, then displayed a modest rise in 2019 to roughly 397 million US dollars. Following this brief improvement, equity plunged to about 140 million US dollars in 2020 and turned negative by 2021, reaching a deficit of approximately 66 million US dollars. This shift to negative equity signals financial strain and potential solvency concerns.
Invested Capital: Invested capital increased steadily from roughly 5.44 billion US dollars in 2017 to a peak of around 6.20 billion US dollars in 2020. However, in 2021, a decline occurred, bringing invested capital down to approximately 5.77 billion US dollars. This pattern suggests that after a phase of capital expansion, a contraction phase began in the most recent year under review.
Overall Analysis: The financial data reveals increasing leverage up to 2020, followed by a reduction in debt levels in 2021. Concurrently, the persistent decrease in shareholders’ equity, culminating in a deficit, indicates deteriorating net worth and potentially heightened financial risk. The invested capital trajectory reflects these shifts, with initial growth succeeded by a downturn in the final year. Together, these trends suggest the company faced mounting financial pressures, necessitating deleveraging and potentially restructuring efforts in 2021.

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O’Reilly Automotive Inc., cost of capital calculations

Dec 31, 2021

	Capital (fair value)¹	Weights					Cost of capital
Equity²	43,239,980)	43,239,980)	÷	49,415,198)	=	0.88	0.88	×	17.58%	=	15.38%
Long-term debt³	4,135,629)	4,135,629)	÷	49,415,198)	=	0.08	0.08	×	3.62% × (1 – 21.00%)	=	0.24%
Operating lease liability⁴	2,039,589)	2,039,589)	÷	49,415,198)	=	0.04	0.04	×	3.70% × (1 – 21.00%)	=	0.12%
Total:	49,415,198)					1.00					15.74%

Based on: 10-K (reporting date: 2021-12-31).

¹ US$ in thousands

² Equity. See details »

³ Long-term debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2020

	Capital (fair value)¹	Weights					Cost of capital
Equity²	31,405,549)	31,405,549)	÷	38,094,613)	=	0.82	0.82	×	17.58%	=	14.49%
Long-term debt³	4,647,595)	4,647,595)	÷	38,094,613)	=	0.12	0.12	×	3.70% × (1 – 21.00%)	=	0.36%
Operating lease liability⁴	2,041,469)	2,041,469)	÷	38,094,613)	=	0.05	0.05	×	4.00% × (1 – 21.00%)	=	0.17%
Total:	38,094,613)					1.00					15.02%

Based on: 10-K (reporting date: 2020-12-31).

¹ US$ in thousands

² Equity. See details »

³ Long-term debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2019

	Capital (fair value)¹	Weights					Cost of capital
Equity²	27,616,051)	27,616,051)	÷	33,730,334)	=	0.82	0.82	×	17.58%	=	14.39%
Long-term debt³	4,142,925)	4,142,925)	÷	33,730,334)	=	0.12	0.12	×	4.01% × (1 – 21.00%)	=	0.39%
Operating lease liability⁴	1,971,358)	1,971,358)	÷	33,730,334)	=	0.06	0.06	×	4.10% × (1 – 21.00%)	=	0.19%
Total:	33,730,334)					1.00					14.97%

Based on: 10-K (reporting date: 2019-12-31).

¹ US$ in thousands

² Equity. See details »

³ Long-term debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2018

	Capital (fair value)¹	Weights					Cost of capital
Equity²	28,839,089)	28,839,089)	÷	34,218,965)	=	0.84	0.84	×	17.58%	=	14.82%
Long-term debt³	3,403,046)	3,403,046)	÷	34,218,965)	=	0.10	0.10	×	4.13% × (1 – 21.00%)	=	0.32%
Operating lease liability⁴	1,976,830)	1,976,830)	÷	34,218,965)	=	0.06	0.06	×	4.13% × (1 – 21.00%)	=	0.19%
Total:	34,218,965)					1.00					15.33%

Based on: 10-K (reporting date: 2018-12-31).

¹ US$ in thousands

² Equity. See details »

³ Long-term debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2017

	Capital (fair value)¹	Weights					Cost of capital
Equity²	20,431,597)	20,431,597)	÷	25,451,357)	=	0.80	0.80	×	17.58%	=	14.11%
Long-term debt³	3,074,167)	3,074,167)	÷	25,451,357)	=	0.12	0.12	×	3.87% × (1 – 35.00%)	=	0.30%
Operating lease liability⁴	1,945,593)	1,945,593)	÷	25,451,357)	=	0.08	0.08	×	3.87% × (1 – 35.00%)	=	0.19%
Total:	25,451,357)					1.00					14.61%

Based on: 10-K (reporting date: 2017-12-31).

¹ US$ in thousands

² Equity. See details »

³ Long-term debt. See details »

⁴ Operating lease liability. See details »

O’Reilly Automotive Inc., economic spread ratio calculation, comparison to benchmarks

	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017
Selected Financial Data (US$ in thousands)
Economic profit¹	1,454,508)	1,022,502)	680,063)	653,530)	447,014)
Invested capital²	5,766,861)	6,200,132)	6,076,741)	5,606,204)	5,440,691)
Performance Ratio
Economic spread ratio³	25.22%	16.49%	11.19%	11.66%	8.22%
Benchmarks
Economic Spread Ratio, Competitors⁴
Amazon.com Inc.	-1.99%	—	—	—	—
Home Depot Inc.	12.21%	—	—	—	—
Lowe’s Cos. Inc.	9.17%	—	—	—	—
TJX Cos. Inc.	-12.59%	—	—	—	—

Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).

¹ Economic profit. See details »

² Invested capital. See details »

³ 2021 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × 1,454,508 ÷ 5,766,861 = 25.22%

⁴ Click competitor name to see calculations.

The financial performance from 2017 to 2021 reflects a period of substantial value creation, characterized by a significant increase in economic profit and a marked improvement in capital efficiency.

Economic Profit Growth: Economic profit demonstrates a consistent upward trajectory, rising from 447,014 thousand US$ in 2017 to 1,454,508 thousand US$ by 2021. This represents a more than threefold increase over the five-year period, with the most pronounced growth occurring between 2019 and 2021, where profit levels accelerated from 680,063 thousand US$ to over 1.4 billion US$.
Invested Capital Trends: Invested capital exhibited moderate growth between 2017 and 2020, peaking at 6,200,132 thousand US$. However, a reversal occurred in 2021, with capital decreasing to 5,766,861 thousand US$. This indicates a transition toward a more optimized capital base or a strategic reduction in invested assets during the final year of the analyzed period.
Economic Spread Ratio Expansion: The economic spread ratio grew from 8.22% in 2017 to 25.22% in 2021. Despite a marginal contraction to 11.19% in 2019, the ratio accelerated sharply in subsequent years. The expansion of this ratio, particularly the peak of 25.22% in 2021, signifies that the return on invested capital increased significantly relative to the cost of capital, reflecting enhanced operational efficiency and superior value generation.

The divergence between rising economic profits and a declining capital base in 2021 underscores a strong increase in capital productivity. The widening economic spread confirms that the organization is generating returns that far exceed its cost of capital, resulting in accelerated wealth creation.

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O’Reilly Automotive Inc., economic profit margin calculation, comparison to benchmarks

	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017
Selected Financial Data (US$ in thousands)
Economic profit¹	1,454,508)	1,022,502)	680,063)	653,530)	447,014)

Sales	13,327,563)	11,604,493)	10,149,985)	9,536,428)	8,977,726)
Add: Increase (decrease) in deferred revenue liability	(1,100)	400)	(200)	(400)	(100)
Adjusted sales	13,326,463)	11,604,893)	10,149,785)	9,536,028)	8,977,626)
Performance Ratio
Economic profit margin²	10.91%	8.81%	6.70%	6.85%	4.98%
Benchmarks
Economic Profit Margin, Competitors³
Amazon.com Inc.	-0.85%	—	—	—	—
Home Depot Inc.	4.59%	—	—	—	—
Lowe’s Cos. Inc.	2.90%	—	—	—	—
TJX Cos. Inc.	-8.77%	—	—	—	—

Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).

¹ Economic profit. See details »

² 2021 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted sales
= 100 × 1,454,508 ÷ 13,326,463 = 10.91%

³ Click competitor name to see calculations.

Analysis of the financial performance between 2017 and 2021 reveals a consistent upward trajectory in both absolute economic value creation and operational efficiency. There is a sustained ability to increase economic profit while simultaneously scaling adjusted sales, leading to a significant expansion of the economic profit margin.

Economic Profit Growth: Economic profit experienced substantial growth over the five-year period, rising from 447,014 thousand US dollars in 2017 to 1,454,508 thousand US dollars by the end of 2021. A notable acceleration occurred between 2019 and 2021, during which the profit more than doubled, indicating a strong capacity to generate returns well above the cost of capital.
Adjusted Sales Performance: Adjusted sales demonstrated steady year-over-year growth, increasing from 8,977,626 thousand US dollars in 2017 to 13,326,463 thousand US dollars in 2021. This consistent expansion in sales provided the fundamental scale required to support the growth in economic value.
Economic Profit Margin Evolution: The economic profit margin expanded from 4.98% in 2017 to 10.91% in 2021. Although a slight contraction was observed in 2019, falling to 6.70% from 6.85% in 2018, the subsequent two years showed aggressive improvement. The fact that the margin more than doubled over the total period indicates that economic profit grew at a faster rate than adjusted sales, reflecting enhanced capital efficiency and increased value creation per dollar of revenue.

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O’Reilly Automotive Inc. (NASDAQ:ORLY)

Economic Value Added (EVA)

Economic Profit

Net Operating Profit after Taxes (NOPAT)

Cash Operating Taxes

Invested Capital

Cost of Capital

Economic Spread Ratio

Economic Profit Margin