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
O’Reilly Automotive Inc., economic profit calculation
US$ in thousands
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 = 1,454,561
An analysis of the financial performance from 2017 to 2021 reveals a significant and consistent expansion in economic value creation. The most prominent trend is the steady growth of economic profit, which more than tripled over the five-year period, indicating that the entity is generating returns well in excess of its cost of capital.
- Net Operating Profit After Taxes (NOPAT)
- A continuous upward trajectory is observed in NOPAT, rising from 1,241,849 thousand US$ in 2017 to 2,362,405 thousand US$ in 2021. This represents a substantial increase in core operational profitability, with the most significant year-over-year growth occurring between 2020 and 2021.
- Cost of Capital
- The cost of capital remained relatively stable throughout the period, fluctuating within a narrow range between 14.61% and 15.74%. Despite a slight peak in 2021, the stability of this rate indicates a consistent risk profile and financing cost environment.
- Invested Capital
- Invested capital exhibited a gradual increase from 2017 through 2020, peaking at 6,200,132 thousand US$. However, a reversal occurred in 2021, where invested capital decreased to 5,766,861 thousand US$. This suggests a shift toward greater capital efficiency or a reduction in the asset base required to generate revenue.
- Economic Profit
- Economic profit demonstrated robust growth, increasing from 447,060 thousand US$ in 2017 to 1,454,561 thousand US$ in 2021. The acceleration of economic profit is particularly evident in the final two years of the period, coinciding with the simultaneous increase in NOPAT and the reduction in invested capital.
The convergence of rising operational profits and a contraction in the capital base during the final year indicates an improvement in the return on invested capital. The ability to grow economic profit while reducing the amount of capital employed reflects strong operational leverage and enhanced value creation for stakeholders.
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Net Operating Profit after Taxes (NOPAT)
O’Reilly Automotive Inc., NOPAT calculation
US$ in thousands
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.
A consistent upward trajectory is observed in both Net Income and Net Operating Profit After Taxes (NOPAT) over the five-year period from 2017 to 2021. The growth is characterized by steady increases in the first three years, followed by a more pronounced acceleration in profitability between 2019 and 2021.
- Net Operating Profit After Taxes (NOPAT) Trend
- NOPAT exhibited continuous growth, rising from 1,241,849 thousand US$ in 2017 to 2,362,405 thousand US$ in 2021. The most significant absolute increase occurred between 2020 and 2021, where the figure grew by 408,686 thousand US$. This steady climb indicates an improvement in core operational efficiency and an increasing ability to generate profit from operations regardless of capital structure.
- Net Income Growth Pattern
- Net Income followed a similar growth path, starting at 1,133,804 thousand US$ in 2017 and reaching 2,164,685 thousand US$ by 2021. While growth was moderate between 2018 and 2019, the period from 2019 to 2021 saw a substantial surge, with Net Income increasing by approximately 55% over those two years.
- Comparative Analysis of NOPAT and Net Income
- Throughout the analyzed period, NOPAT consistently remained higher than Net Income. This gap suggests that non-operating expenses, such as interest payments on debt, reduced the final net profit available to shareholders. However, the close correlation between the two metrics indicates that the growth in net earnings was primarily driven by operational performance rather than financial engineering or non-recurring gains.
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Cash Operating Taxes
O’Reilly Automotive Inc., cash operating taxes calculation
US$ in thousands
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).
An analysis of tax-related outflows between 2017 and 2021 reveals a trend characterized by a significant contraction in 2018 followed by a consistent four-year expansion. Both net income tax expense and cash operating taxes exhibit a strong positive correlation, moving in tandem across the observed period.
- Cash Operating Taxes Performance
- Cash operating taxes decreased from 565,004 thousand US$ in 2017 to a period low of 392,060 thousand US$ in 2018. Following this decline, a steady upward trajectory was established, with payments increasing to 422,745 thousand US$ in 2019, 551,050 thousand US$ in 2020, and reaching 641,484 thousand US$ by December 31, 2021. This growth indicates a substantial increase in the actual cash burden associated with tax operations over the final three years of the period.
- Net Income Tax Expense Comparison
- Net income tax expense mirrored the movement of cash taxes, dropping to 369,600 thousand US$ in 2018 before rising sequentially to 617,229 thousand US$ in 2021. The close tracking of these two figures suggests that accounting tax expenses were largely driven by the same operational factors as the cash disbursements.
- Tax Variance and Cash Impact
- A persistent gap is observed where cash operating taxes consistently exceed net income tax expense in every reported year. This discrepancy highlights that the cash drain for tax purposes is higher than the tax expense recognized in the income statement, which typically suggests the payment of deferred tax liabilities or timing differences between accrual-based accounting and cash-based tax obligations. For the purposes of Economic Value Added (EVA) calculations, the higher cash operating tax figures represent the true cash outflow, reducing the available net operating profit after tax (NOPAT) more than the income statement expense would suggest.
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Invested Capital
O’Reilly Automotive Inc., invested capital calculation (financing approach)
US$ in thousands
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.
Invested capital exhibited a general upward trajectory from 2017 through 2020, peaking at US$ 6,200,132 thousand before experiencing a contraction in 2021 to US$ 5,766,861 thousand. This progression indicates a period of expansion in the total capital employed by the business, followed by a reduction in the final year of the analyzed period.
- Total Reported Debt and Leases
- A consistent increase in leveraged funding is observed from 2017 to 2020, with debt and leases rising from US$ 4,923,983 thousand to a peak of US$ 6,164,686 thousand. In 2021, this trend reversed slightly, with a decrease to US$ 5,866,567 thousand.
- Shareholders' Equity
- Equity levels demonstrate a significant and sustained decline over the five-year period. Starting at US$ 653,046 thousand in 2017, the balance decreased steadily, ultimately entering a deficit position by December 31, 2021, reaching negative US$ 66,423 thousand.
The analysis of the capital structure reveals a strategic shift toward higher leverage. While total invested capital remained relatively stable or grew through 2020, this was driven almost exclusively by the accumulation of debt, which offset the precipitous decline in shareholders' equity. By 2021, the transition to negative equity implies that the company's invested capital is funded entirely through debt and liabilities, as the equity component no longer contributes a positive value to the capital base.
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Cost of Capital
O’Reilly Automotive Inc., cost of capital calculations
| 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 »
| 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 »
| 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 »
| 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 »
| 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 »
Economic Spread Ratio
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 | 1,454,561) | 1,022,555) | 680,115) | 653,579) | 447,060) | |
| 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. | -1.96% | — | — | — | — | |
| Home Depot Inc. | 12.21% | — | — | — | — | |
| Lowe’s Cos. Inc. | 9.18% | — | — | — | — | |
| TJX Cos. Inc. | -12.60% | — | — | — | — | |
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 × 1,454,561 ÷ 5,766,861 = 25.22%
4 Click competitor name to see calculations.
The analyzed period exhibits a strong upward trajectory in value creation, characterized by a substantial increase in economic profit relative to the capital employed. There is a clear divergence between the growth of economic profit and the movement of invested capital, leading to a significant expansion in the economic spread ratio.
- Economic Profit Growth
- A consistent and accelerating growth pattern is observed in economic profit, which rose from 447,060 thousand US dollars in 2017 to 1,454,561 thousand US dollars by 2021. This represents more than a threefold increase over the five-year period, with the most significant gains occurring between 2019 and 2021.
- Invested Capital Dynamics
- Invested capital showed moderate growth between 2017 and 2020, peaking at 6,200,132 thousand US dollars. However, a contraction occurred in 2021, where invested capital decreased to 5,766,861 thousand US dollars. This suggests that the company was able to generate higher returns while reducing its capital base in the final year of the period.
- Economic Spread Ratio Expansion
- The economic spread ratio demonstrated a strong overall increase, rising from 8.22% in 2017 to 25.22% in 2021. While a marginal decline was noted in 2019 (11.19%), the ratio accelerated sharply in 2020 and 2021. The substantial leap to 25.22% in the final year indicates a high level of efficiency in generating returns above the cost of capital, further amplified by the simultaneous reduction in invested capital.
The convergence of rising economic profits and a reducing capital base in the final year points to a significant optimization of capital efficiency. The widening spread ratio confirms that the business has substantially increased its ability to create economic value per unit of capital invested.
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Economic Profit Margin
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 | 1,454,561) | 1,022,555) | 680,115) | 653,579) | 447,060) | |
| 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. | -0.84% | — | — | — | — | |
| Home Depot Inc. | 4.60% | — | — | — | — | |
| Lowe’s Cos. Inc. | 2.91% | — | — | — | — | |
| 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 × 1,454,561 ÷ 13,326,463 = 10.91%
3 Click competitor name to see calculations.
The analysis of economic value added metrics between 2017 and 2021 reveals a strong upward trajectory in both absolute value creation and operational efficiency. The company demonstrated a consistent ability to increase its economic profit at a rate significantly outpacing its sales growth, indicating a substantial improvement in capital utilization and value generation above the cost of capital.
- Economic Profit Growth
- Economic profit exhibited a continuous and accelerating increase over the five-year period. Starting at 447,060 thousand US dollars in 2017, the figure rose to 1,454,561 thousand US dollars by 2021. This represents a total increase of approximately 225%, with the most significant jumps occurring between 2019 and 2021, where the value nearly doubled.
- Adjusted Sales Performance
- Adjusted sales maintained a steady growth pattern, increasing from 8,977,626 thousand US dollars in 2017 to 13,326,463 thousand US dollars in 2021. This represents a total growth of approximately 48%. The steady rise in sales provided the necessary revenue base to support the expansion of economic profit.
- Economic Profit Margin Expansion
- The economic profit margin more than doubled over the period, moving from 4.98% in 2017 to 10.91% in 2021. While a marginal contraction was observed in 2019, where the margin dipped slightly from 6.85% to 6.70%, this was followed by a rapid acceleration. The surge to 8.81% in 2020 and 10.91% in 2021 suggests a significant increase in the efficiency of translating sales into economic value.
The divergence between the growth rates of adjusted sales and economic profit underscores a period of intensifying value creation. The fact that the economic profit margin expanded while sales grew suggests that the increase in profit was not merely a result of higher volume, but also a result of improved operational leverage or a reduction in the relative cost of capital employed.
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