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
Roper Technologies Inc., economic profit calculation
US$ in thousands
Based on: 10-K (reporting date: 2022-12-31), 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).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2022 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 1,275,289 – 16.21% × 26,216,800 = -2,974,022
The analysis of economic value added over the five-year period reveals a persistent failure to generate positive economic profit, with a general trend of deteriorating value creation. Although net operating profit after taxes showed a brief surge in 2019, the overall trajectory is characterized by increasing capital charges that outpace operational earnings.
- Invested Capital Growth
- A consistent and substantial increase in invested capital is observed, rising from approximately 14.79 billion USD in 2018 to 26.22 billion USD by 2022. This represents a significant expansion of the asset base, with the most pronounced increase occurring between 2019 and 2020, during which invested capital rose by approximately 5.85 billion USD.
- Net Operating Profit After Taxes (NOPAT) Volatility
- NOPAT exhibits significant fluctuations, reaching a peak of 1.99 billion USD in 2019 before retreating and stabilizing between 1.25 billion USD and 1.34 billion USD from 2020 through 2022. The failure of operational profits to grow in proportion to the expanded capital base has contributed to a widening gap in economic value creation.
- Cost of Capital and Economic Profit Correlation
- The cost of capital has remained relatively stable, fluctuating within a narrow range between 14.82% and 16.21%. However, because the cost of capital is applied to an ever-increasing base of invested capital, the total capital charge has risen significantly. This has resulted in a deepening economic profit deficit, which expanded from negative 1.22 billion USD in 2018 to negative 2.97 billion USD in 2022.
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Net Operating Profit after Taxes (NOPAT)
Roper Technologies Inc., NOPAT calculation
US$ in thousands
Based on: 10-K (reporting date: 2022-12-31), 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).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowance for doubtful accounts and sales allowances.
3 Addition of increase (decrease) in deferred revenue.
4 Addition of increase (decrease) in equity equivalents to net earnings.
5 2022 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 210,600 × 2.40% = 5,054
6 2022 Calculation
Tax benefit of interest expense, net = Adjusted interest expense, net × Statutory income tax rate
= 197,454 × 21.00% = 41,465
7 Addition of after taxes interest expense to net earnings.
8 Elimination of discontinued operations.
The financial performance between 2018 and 2022 exhibits a significant divergence between bottom-line net earnings and core operational profitability as measured by Net Operating Profit After Taxes (NOPAT).
- Net Earnings Volatility
- Net earnings demonstrated substantial fluctuations throughout the period. After reaching 1,767,900 thousand USD in 2019, earnings declined to 949,700 thousand USD in 2020. A subsequent recovery trend culminated in a sharp increase in 2022, with net earnings rising to 4,544,700 thousand USD, the highest value recorded in the analyzed timeframe.
- NOPAT Performance Trends
- Operational profitability remained more stable than net earnings, although it mirrored early volatility. NOPAT increased from 1,152,486 thousand USD in 2018 to a peak of 1,986,174 thousand USD in 2019. A contraction followed in 2020 to 1,253,044 thousand USD, after which the figure remained relatively stagnant, ending 2022 at 1,275,289 thousand USD.
- Analysis of Operational Divergence
- A pronounced disparity is observed in 2022, where net earnings surged to 4,544,700 thousand USD while NOPAT remained nearly flat at 1,275,289 thousand USD. This decoupling suggests that the significant increase in net earnings was driven by non-operating factors—such as one-time gains, tax benefits, or investment income—rather than an improvement in core operational efficiency or organic business growth.
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Cash Operating Taxes
Roper Technologies Inc., cash operating taxes calculation
US$ in thousands
Based on: 10-K (reporting date: 2022-12-31), 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).
An analysis of the tax profile between 2018 and 2022 reveals a consistent divergence between accrual-based income tax expenses and actual cash operating taxes. Both metrics exhibited significant volatility, characterized by a sharp peak in 2019 followed by a contraction in 2020, though their recovery trajectories diverged in the final two years of the period.
- Income Tax Expense Trends
- The income tax expense demonstrated a non-linear trajectory, rising from 254,000 thousand US$ in 2018 to a peak of 459,500 thousand US$ in 2019. A substantial correction occurred in 2020, with expenses falling to 259,600 thousand US$, after which the figures stabilized with moderate year-over-year increases, reaching 296,400 thousand US$ by December 31, 2022.
- Cash Operating Tax Trends
- Cash operating taxes followed a similar initial pattern to the tax expense, peaking at 590,630 thousand US$ in 2019. However, unlike the relative stability seen in the accrual expense after 2020, cash taxes showed increased volatility. After dipping to 332,378 thousand US$ in 2021, there was a significant surge to 511,065 thousand US$ in 2022, marking the highest cash tax outflow in the five-year period.
- Variance Analysis and EVA Implications
- Cash operating taxes remained consistently higher than the reported income tax expense throughout the entire period. The variance reached its maximum in 2022, where cash operating taxes exceeded income tax expenses by approximately 214,665 thousand US$. This persistent gap indicates that cash outflows for taxes are significantly higher than the accounting charges recognized in the income statement, a factor that reduces the cash-based Net Operating Profit After Tax (NOPAT) and consequently lowers the Economic Value Added (EVA).
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Invested Capital
Roper Technologies Inc., invested capital calculation (financing approach)
US$ in thousands
Based on: 10-K (reporting date: 2022-12-31), 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).
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 stockholders’ equity.
6 Removal of accumulated other comprehensive income.
Invested capital demonstrated a strong upward trajectory between 2018 and 2022, increasing from 14.79 billion USD to 26.22 billion USD. This expansion indicates a significant growth in the total capital base deployed to generate economic value, with the most aggressive increase occurring between 2019 and 2020.
- Debt and Lease Obligations
- Total reported debt and leases experienced a period of volatility, characterized by a sharp increase that peaked in 2020 at 9.85 billion USD. Following this peak, a consistent deleveraging trend was observed, with obligations decreasing to 8.15 billion USD in 2021 and further declining to 6.87 billion USD by the end of 2022.
- Stockholders' Equity
- A consistent and accelerating growth pattern is evident in stockholders' equity, which rose from 7.74 billion USD in 2018 to 16.04 billion USD in 2022. The most substantial increase occurred in the final year of the period, where equity grew by approximately 4.47 billion USD, representing a significant strengthening of the company's internal funding base.
- Invested Capital Dynamics
- The drivers of invested capital shifted notably over the five-year period. The surge in invested capital observed in 2020 was primarily attributable to the spike in reported debt and leases. However, by 2022, the growth in the capital base was driven almost exclusively by the increase in stockholders' equity, occurring simultaneously with a reduction in total debt. This suggests a strategic shift toward equity-based financing of the invested capital base.
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Cost of Capital
Roper Technologies Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 45,577,303) | 45,577,303) | ÷ | 51,773,203) | = | 0.88 | 0.88 | × | 18.13% | = | 15.96% | ||
| Long-term debt, including current portion3 | 5,985,300) | 5,985,300) | ÷ | 51,773,203) | = | 0.12 | 0.12 | × | 2.63% × (1 – 21.00%) | = | 0.24% | ||
| Operating lease liability4 | 210,600) | 210,600) | ÷ | 51,773,203) | = | 0.00 | 0.00 | × | 2.40% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 51,773,203) | 1.00 | 16.21% | ||||||||||
Based on: 10-K (reporting date: 2022-12-31).
1 US$ in thousands
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 | 46,381,821) | 46,381,821) | ÷ | 54,735,421) | = | 0.85 | 0.85 | × | 18.13% | = | 15.36% | ||
| Long-term debt, including current portion3 | 8,121,300) | 8,121,300) | ÷ | 54,735,421) | = | 0.15 | 0.15 | × | 2.57% × (1 – 21.00%) | = | 0.30% | ||
| Operating lease liability4 | 232,300) | 232,300) | ÷ | 54,735,421) | = | 0.00 | 0.00 | × | 2.70% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 54,735,421) | 1.00 | 15.67% | ||||||||||
Based on: 10-K (reporting date: 2021-12-31).
1 US$ in thousands
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 | 40,288,410) | 40,288,410) | ÷ | 50,733,910) | = | 0.79 | 0.79 | × | 18.13% | = | 14.40% | ||
| Long-term debt, including current portion3 | 10,161,200) | 10,161,200) | ÷ | 50,733,910) | = | 0.20 | 0.20 | × | 2.59% × (1 – 21.00%) | = | 0.41% | ||
| Operating lease liability4 | 284,300) | 284,300) | ÷ | 50,733,910) | = | 0.01 | 0.01 | × | 2.90% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 50,733,910) | 1.00 | 14.82% | ||||||||||
Based on: 10-K (reporting date: 2020-12-31).
1 US$ in thousands
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 | 37,318,769) | 37,318,769) | ÷ | 43,134,269) | = | 0.87 | 0.87 | × | 18.13% | = | 15.69% | ||
| Long-term debt, including current portion3 | 5,538,700) | 5,538,700) | ÷ | 43,134,269) | = | 0.13 | 0.13 | × | 3.35% × (1 – 21.00%) | = | 0.34% | ||
| Operating lease liability4 | 276,800) | 276,800) | ÷ | 43,134,269) | = | 0.01 | 0.01 | × | 3.00% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 43,134,269) | 1.00 | 16.04% | ||||||||||
Based on: 10-K (reporting date: 2019-12-31).
1 US$ in thousands
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 | 33,087,145) | 33,087,145) | ÷ | 38,251,122) | = | 0.86 | 0.86 | × | 18.13% | = | 15.68% | ||
| Long-term debt, including current portion3 | 4,912,000) | 4,912,000) | ÷ | 38,251,122) | = | 0.13 | 0.13 | × | 3.53% × (1 – 21.00%) | = | 0.36% | ||
| Operating lease liability4 | 251,977) | 251,977) | ÷ | 38,251,122) | = | 0.01 | 0.01 | × | 3.53% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 38,251,122) | 1.00 | 16.06% | ||||||||||
Based on: 10-K (reporting date: 2018-12-31).
1 US$ in thousands
2 Equity. See details »
3 Long-term debt, including current portion. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Roper Technologies Inc., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Economic profit1 | (2,974,022) | (2,184,055) | (2,155,987) | (765,564) | (1,221,869) | |
| Invested capital2 | 26,216,800) | 22,504,600) | 23,002,900) | 17,154,600) | 14,785,177) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -11.34% | -9.70% | -9.37% | -4.46% | -8.26% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Apple Inc. | 200.23% | 196.59% | — | — | — | |
| Arista Networks Inc. | 16.17% | 31.22% | — | — | — | |
| Cisco Systems Inc. | 3.36% | 2.60% | — | — | — | |
| Dell Technologies Inc. | 3.17% | -1.36% | — | — | — | |
| Lumentum Holdings Inc. | -6.33% | 5.99% | — | — | — | |
| Super Micro Computer Inc. | -9.62% | -18.07% | — | — | — | |
Based on: 10-K (reporting date: 2022-12-31), 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).
1 Economic profit. See details »
2 Invested capital. See details »
3 2022 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -2,974,022 ÷ 26,216,800 = -11.34%
4 Click competitor name to see calculations.
The financial performance over the five-year period from 2018 to 2022 indicates a sustained period of negative economic value creation. A consistent trend of negative economic profit and a declining economic spread ratio suggests that the returns generated on invested capital have remained below the company's cost of capital throughout the analyzed duration.
- Invested Capital Growth
- There is a significant upward trajectory in invested capital, which grew from 14.79 billion US dollars in 2018 to 26.22 billion US dollars by the end of 2022. This represents a substantial expansion of the capital base, with the most pronounced increase occurring between 2019 and 2020.
- Economic Profit Trends
- Economic profit remained negative across all reported years. While a brief improvement was noted in 2019, where the deficit narrowed to 765.56 million US dollars, the subsequent years saw a marked deterioration. By December 31, 2022, the economic profit reached its lowest point at negative 2.97 billion US dollars, indicating that the absolute value destroyed increased as the capital base expanded.
- Economic Spread Ratio Analysis
- The economic spread ratio, which measures the difference between the return on invested capital and the cost of capital, exhibits a general downward trend. After an initial improvement to negative 4.46% in 2019, the ratio declined steadily to negative 11.34% by 2022. This deepening negative spread confirms that the efficiency of capital utilization decreased relative to the cost of funding, with the widening gap suggesting that the additional capital invested did not yield proportional returns sufficient to cover the cost of that capital.
In summary, the correlation between the rapid growth in invested capital and the worsening economic spread ratio points to a decrease in capital efficiency. The expansion of the balance sheet has coincided with a deepening of the economic profit deficit, resulting in a diminished economic spread by the end of the period.
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Economic Profit Margin
Roper Technologies Inc., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Economic profit1 | (2,974,022) | (2,184,055) | (2,155,987) | (765,564) | (1,221,869) | |
| Net revenues | 5,371,800) | 5,777,800) | 5,527,100) | 5,366,800) | 5,191,200) | |
| Add: Increase (decrease) in deferred revenue | 306,000) | 172,600) | 172,700) | 157,300) | 109,500) | |
| Adjusted net revenues | 5,677,800) | 5,950,400) | 5,699,800) | 5,524,100) | 5,300,700) | |
| Performance Ratio | ||||||
| Economic profit margin2 | -52.38% | -36.70% | -37.83% | -13.86% | -23.05% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Apple Inc. | 23.66% | 22.84% | — | — | — | |
| Arista Networks Inc. | 11.14% | 18.28% | — | — | — | |
| Cisco Systems Inc. | 3.77% | 2.90% | — | — | — | |
| Dell Technologies Inc. | 1.66% | -1.17% | — | — | — | |
| Lumentum Holdings Inc. | -9.25% | 6.75% | — | — | — | |
| Super Micro Computer Inc. | -4.09% | -6.51% | — | — | — | |
Based on: 10-K (reporting date: 2022-12-31), 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).
1 Economic profit. See details »
2 2022 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted net revenues
= 100 × -2,974,022 ÷ 5,677,800 = -52.38%
3 Click competitor name to see calculations.
The financial performance between 2018 and 2022 is characterized by a persistent inability to generate positive economic profit, with a notable deterioration in the economic profit margin over the observed period. Despite a period of revenue growth, the gap between operating returns and the cost of capital expanded significantly.
- Economic Profit Trends
- Economic profit remained negative throughout the five-year period. After a moderate improvement in 2019, where losses narrowed to approximately 765.6 million USD, there was a sharp decline starting in 2020. Losses accelerated through 2022, reaching a peak negative value of approximately 2.97 billion USD, representing a significant increase in value destruction relative to the cost of capital.
- Adjusted Net Revenues
- Revenues exhibited a steady growth trajectory from 2018 to 2021, rising from 5.3 billion USD to a peak of 5.95 billion USD. However, this growth trend reversed in 2022, with revenues contracting to 5.68 billion USD. This decline in the final year coincides with the period of most severe economic profit loss.
- Economic Profit Margin Analysis
- The economic profit margin reflects a volatile and downward trajectory. The margin improved from -23.05% in 2018 to -13.86% in 2019, but plummeted to -37.83% in 2020. While the margin remained relatively stable in 2021 at -36.70%, it deteriorated sharply to -52.38% by the end of 2022. This indicates that the cost of capital grew disproportionately relative to the revenue-generating capacity of the firm's assets.
The divergence between increasing revenues from 2018 to 2021 and the simultaneous widening of economic losses suggests that revenue growth was not sufficient to offset the increasing cost of capital or the expenses associated with the capital employed during this period.
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