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
Ross Stores Inc., economic profit calculation
US$ in thousands
Based on: 10-K (reporting date: 2022-01-29), 10-K (reporting date: 2021-01-30), 10-K (reporting date: 2020-02-01), 10-K (reporting date: 2019-02-02), 10-K (reporting date: 2018-02-03), 10-K (reporting date: 2017-01-28).
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
= 1,877,216 – 15.99% × 9,245,498 = 399,226
The analysis of economic value added from 2017 to 2022 reveals a period of steady growth, followed by a severe contraction in 2021 and a subsequent recovery in 2022. Value creation trended upward for the first four years, peaking in 2020 before the volatility of the following period.
- Net Operating Profit After Taxes (NOPAT)
- A consistent growth pattern is observed from 2017 through 2020, with NOPAT increasing from 1,203,081 thousand to 1,766,422 thousand. This progression was interrupted by a sharp decline in 2021, where profit fell to 209,948 thousand. However, a strong rebound occurred by 2022, with NOPAT reaching a period high of 1,877,216 thousand.
- Cost of Capital
- The cost of capital remained relatively stable throughout the analyzed timeframe, fluctuating within a narrow range between 15.99% and 16.86%. A slight downward trend is noted in the final two years, ending at 15.99% in 2022.
- Invested Capital
- Invested capital exhibited a general upward trajectory, growing from 6,022,627 thousand in 2017 to 9,245,498 thousand in 2022. Notably, there was a significant acceleration in capital investment during 2021 and 2022, despite the operational downturn observed in 2021.
- Economic Profit
- Economic profit grew steadily from 204,379 thousand in 2017 to a peak of 628,181 thousand in 2020, indicating increasing efficiency in generating returns above the cost of capital. This was followed by a substantial reversal in 2021, resulting in a negative economic profit of -1,226,041 thousand. By 2022, the figure returned to positive territory at 399,226 thousand.
The negative economic profit recorded in 2021 was the result of a simultaneous collapse in NOPAT and a sharp increase in invested capital. Because the capital charge—calculated as the product of invested capital and the cost of capital—far exceeded the operating profit, significant economic value was destroyed during that fiscal year.
The 2022 results indicate a restoration of value creation. Although invested capital continued to rise to its highest level in the period, the recovery of NOPAT to 1,877,216 thousand was sufficient to overcome the capital charge, returning the company to a state of positive economic profit.
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Net Operating Profit after Taxes (NOPAT)
Ross Stores Inc., NOPAT calculation
US$ in thousands
Based on: 10-K (reporting date: 2022-01-29), 10-K (reporting date: 2021-01-30), 10-K (reporting date: 2020-02-01), 10-K (reporting date: 2019-02-02), 10-K (reporting date: 2018-02-03), 10-K (reporting date: 2017-01-28).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in equity equivalents to net earnings.
3 2022 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 3,169,814 × 3.20% = 101,434
4 2022 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 176,595 × 21.00% = 37,085
5 Addition of after taxes interest expense to net earnings.
6 2022 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 833 × 21.00% = 175
7 Elimination of after taxes investment income.
The financial data reveals the following trends over the six-year period:
- Net Earnings
- Net earnings generally increased from 2017 through 2020, rising from approximately 1,117,654 thousand US dollars to 1,660,928 thousand US dollars. However, in 2021 there was a significant decline to 85,382 thousand US dollars, which represents a substantial drop. In 2022, net earnings recovered strongly to 1,722,589 thousand US dollars, exceeding prior peak levels.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT followed a similar upward trend initially, climbing steadily from 1,203,081 thousand US dollars in 2017 to 1,766,422 thousand US dollars in 2020. In 2021, there was a sharp decrease to 209,948 thousand US dollars, mirroring the decline seen in net earnings. In 2022, NOPAT rebounded to 1,877,216 thousand US dollars, representing the highest value recorded during the period.
The data reflects strong growth from 2017 to 2020 in both net earnings and NOPAT. The pronounced dip in 2021 could indicate an extraordinary circumstance or operational disruption impacting profitability. The swift recovery in 2022 suggests that the company regained operational efficiency and profitability following the 2021 downturn. Overall, despite the temporary contraction, the longer-term trend is one of increasing profitability.
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Cash Operating Taxes
Ross Stores Inc., cash operating taxes calculation
US$ in thousands
Based on: 10-K (reporting date: 2022-01-29), 10-K (reporting date: 2021-01-30), 10-K (reporting date: 2020-02-01), 10-K (reporting date: 2019-02-02), 10-K (reporting date: 2018-02-03), 10-K (reporting date: 2017-01-28).
The financial data reveals significant fluctuations in the provision for income taxes and cash operating taxes over the six-year period ending in early 2022. A detailed examination of the trends is as follows:
- Provision for Income Taxes
- Beginning with a value of approximately $668.5 million in early 2017, the provision for income taxes remains relatively stable through 2018 at around $678 million. However, it experiences a notable decline in 2019 to about $463.4 million and maintains a similar level in 2020 with approximately $503.4 million. A remarkable drop occurs in 2021, with the provision plummeting to roughly $20.9 million, before rebounding sharply in 2022 to approximately $535.9 million. This inconsistency suggests potential variations in taxable income, adjustments in tax strategy, or the impact of extraordinary items during the observed timeframe.
- Cash Operating Taxes
- Cash operating taxes start at approximately $727.9 million in early 2017 and increase moderately to about $761.2 million in 2018. Similar to the provision for income taxes, cash operating taxes show a marked decline in 2019, dropping to around $457.5 million, and a slight further decrease in 2020 to approximately $490.9 million. The value again dramatically decreases in 2021 to approximately $89.2 million, followed by a rise in 2022 to about $557.1 million. This pattern aligns with the trends seen in the provision for income taxes, indicating consistent fluctuations in actual tax payments, which could be influenced by changes in earnings, tax regulation modifications, or cash flow management strategies.
Overall, both tax-related items exhibit a pronounced dip in 2021 amid general declines during 2019 and 2020, followed by recovery in 2022. The significant reduction in 2021 for both metrics merits further investigation to understand the underlying causes, which might include one-time tax benefits, changes in corporate earnings, or legislative impacts.
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Invested Capital
Ross Stores Inc., invested capital calculation (financing approach)
US$ in thousands
Based on: 10-K (reporting date: 2022-01-29), 10-K (reporting date: 2021-01-30), 10-K (reporting date: 2020-02-01), 10-K (reporting date: 2019-02-02), 10-K (reporting date: 2018-02-03), 10-K (reporting date: 2017-01-28).
1 Addition of capitalized operating leases.
2 Elimination of deferred taxes from assets and liabilities. See details »
3 Addition of equity equivalents to stockholders’ equity.
4 Removal of accumulated other comprehensive income.
5 Subtraction of construction-in-progress.
- Total Reported Debt & Leases
- The total reported debt and leases showed a generally increasing trend from 2017 through 2019, rising from approximately $3.22 billion to $3.63 billion. In 2020, this leveled off slightly to around $3.49 billion before experiencing a significant surge in 2021 to $5.73 billion, followed by a slight decrease to $5.62 billion in 2022. This indicates a notable increase in leverage starting in 2021.
- Stockholders’ Equity
- Stockholders' equity increased steadily from $2.75 billion in 2017 to approximately $3.36 billion in 2020, reflecting consistent growth over these years. There was a slight decline in 2021 to $3.29 billion, which was followed by a substantial increase to $4.06 billion in 2022. Overall, equity growth has been positive with a dip in 2021, possibly influenced by broader financial adjustments during that period.
- Invested Capital
- Invested capital closely followed a growth pattern from 2017 to 2019, rising from $6.02 billion to about $6.88 billion, with a minor dip in 2020 to $6.81 billion. There was a sharp increase in 2021 to $8.77 billion and a further rise to $9.25 billion in 2022. This demonstrates an overall expansion in the capital base, particularly pronounced from 2021 onwards, aligning with the increased debt levels.
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Cost of Capital
Ross Stores Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 33,527,776) | 33,527,776) | ÷ | 39,297,590) | = | 0.85 | 0.85 | × | 18.30% | = | 15.61% | ||
| Senior Notes3 | 2,600,000) | 2,600,000) | ÷ | 39,297,590) | = | 0.07 | 0.07 | × | 3.25% × (1 – 21.00%) | = | 0.17% | ||
| Operating lease liability4 | 3,169,814) | 3,169,814) | ÷ | 39,297,590) | = | 0.08 | 0.08 | × | 3.20% × (1 – 21.00%) | = | 0.20% | ||
| Total: | 39,297,590) | 1.00 | 15.99% | ||||||||||
Based on: 10-K (reporting date: 2022-01-29).
1 US$ in thousands
2 Equity. See details »
3 Senior Notes. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 42,918,281) | 42,918,281) | ÷ | 48,937,995) | = | 0.88 | 0.88 | × | 18.30% | = | 16.05% | ||
| Senior Notes3 | 2,800,000) | 2,800,000) | ÷ | 48,937,995) | = | 0.06 | 0.06 | × | 3.33% × (1 – 21.00%) | = | 0.15% | ||
| Operating lease liability4 | 3,219,714) | 3,219,714) | ÷ | 48,937,995) | = | 0.07 | 0.07 | × | 3.40% × (1 – 21.00%) | = | 0.18% | ||
| Total: | 48,937,995) | 1.00 | 16.38% | ||||||||||
Based on: 10-K (reporting date: 2021-01-30).
1 US$ in thousands
2 Equity. See details »
3 Senior Notes. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 30,952,347) | 30,952,347) | ÷ | 34,462,356) | = | 0.90 | 0.90 | × | 18.30% | = | 16.44% | ||
| Senior Notes3 | 335,000) | 335,000) | ÷ | 34,462,356) | = | 0.01 | 0.01 | × | 4.03% × (1 – 21.00%) | = | 0.03% | ||
| Operating lease liability4 | 3,175,009) | 3,175,009) | ÷ | 34,462,356) | = | 0.09 | 0.09 | × | 3.50% × (1 – 21.00%) | = | 0.25% | ||
| Total: | 34,462,356) | 1.00 | 16.72% | ||||||||||
Based on: 10-K (reporting date: 2020-02-01).
1 US$ in thousands
2 Equity. See details »
3 Senior Notes. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 34,526,840) | 34,526,840) | ÷ | 38,155,973) | = | 0.90 | 0.90 | × | 18.30% | = | 16.56% | ||
| Senior Notes3 | 316,000) | 316,000) | ÷ | 38,155,973) | = | 0.01 | 0.01 | × | 4.03% × (1 – 21.00%) | = | 0.03% | ||
| Operating lease liability4 | 3,313,133) | 3,313,133) | ÷ | 38,155,973) | = | 0.09 | 0.09 | × | 4.03% × (1 – 21.00%) | = | 0.28% | ||
| Total: | 38,155,973) | 1.00 | 16.86% | ||||||||||
Based on: 10-K (reporting date: 2019-02-02).
1 US$ in thousands
2 Equity. See details »
3 Senior Notes. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 28,857,959) | 28,857,959) | ÷ | 32,236,646) | = | 0.90 | 0.90 | × | 18.30% | = | 16.38% | ||
| Senior Notes3 | 411,000) | 411,000) | ÷ | 32,236,646) | = | 0.01 | 0.01 | × | 4.53% × (1 – 34.00%) | = | 0.04% | ||
| Operating lease liability4 | 2,967,687) | 2,967,687) | ÷ | 32,236,646) | = | 0.09 | 0.09 | × | 4.53% × (1 – 34.00%) | = | 0.28% | ||
| Total: | 32,236,646) | 1.00 | 16.69% | ||||||||||
Based on: 10-K (reporting date: 2018-02-03).
1 US$ in thousands
2 Equity. See details »
3 Senior Notes. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 25,774,944) | 25,774,944) | ÷ | 29,020,534) | = | 0.89 | 0.89 | × | 18.30% | = | 16.25% | ||
| Senior Notes3 | 419,000) | 419,000) | ÷ | 29,020,534) | = | 0.01 | 0.01 | × | 4.54% × (1 – 35.00%) | = | 0.04% | ||
| Operating lease liability4 | 2,826,590) | 2,826,590) | ÷ | 29,020,534) | = | 0.10 | 0.10 | × | 4.54% × (1 – 35.00%) | = | 0.29% | ||
| Total: | 29,020,534) | 1.00 | 16.58% | ||||||||||
Based on: 10-K (reporting date: 2017-01-28).
1 US$ in thousands
2 Equity. See details »
3 Senior Notes. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Ross Stores Inc., economic spread ratio calculation, comparison to benchmarks
| Jan 29, 2022 | Jan 30, 2021 | Feb 1, 2020 | Feb 2, 2019 | Feb 3, 2018 | Jan 28, 2017 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | |||||||
| Economic profit1 | 399,226) | (1,226,041) | 628,181) | 555,938) | 353,586) | 204,379) | |
| Invested capital2 | 9,245,498) | 8,769,230) | 6,807,292) | 6,884,089) | 6,397,687) | 6,022,627) | |
| Performance Ratio | |||||||
| Economic spread ratio3 | 4.32% | -13.98% | 9.23% | 8.08% | 5.53% | 3.39% | |
| Benchmarks | |||||||
| Economic Spread Ratio, Competitors4 | |||||||
| Amazon.com Inc. | -21.75% | -1.99% | — | — | — | — | |
| Home Depot Inc. | 21.36% | 12.21% | — | — | — | — | |
| Lowe’s Cos. Inc. | 21.62% | 9.17% | — | — | — | — | |
| TJX Cos. Inc. | 4.26% | -12.59% | — | — | — | — | |
Based on: 10-K (reporting date: 2022-01-29), 10-K (reporting date: 2021-01-30), 10-K (reporting date: 2020-02-01), 10-K (reporting date: 2019-02-02), 10-K (reporting date: 2018-02-03), 10-K (reporting date: 2017-01-28).
1 Economic profit. See details »
2 Invested capital. See details »
3 2022 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × 399,226 ÷ 9,245,498 = 4.32%
4 Click competitor name to see calculations.
The analysis of economic value added indicates a period of steady growth in value creation from 2017 through 2020, followed by a severe contraction in 2021 and a subsequent recovery in 2022. The overall trajectory reflects a significant volatility event that disrupted a previously positive trend in efficiency and profitability.
- Economic Profit
- Economic profit demonstrated a consistent upward trajectory for the first four years, increasing from 204,379 thousand dollars in 2017 to a peak of 628,181 thousand dollars in 2020. This growth was sharply reversed in 2021, when economic profit plummeted to a deficit of 1,226,041 thousand dollars. A recovery was observed in 2022, with profit returning to positive territory at 399,226 thousand dollars, although this remains below the 2019 and 2020 levels.
- Invested Capital
- Invested capital exhibited a general growth trend over the six-year period, rising from 6,022,627 thousand dollars in 2017 to 9,245,498 thousand dollars by 2022. While growth was gradual between 2017 and 2020, a notable acceleration occurred in 2021, where capital increased by approximately 1.96 billion dollars. This expansion in the capital base continued into 2022, indicating a sustained increase in the resources deployed to generate returns.
- Economic Spread Ratio
- The economic spread ratio, which measures the efficiency of capital utilization, improved steadily from 3.39% in 2017 to a high of 9.23% in 2020. This peak indicates a period of maximum efficiency in generating returns above the cost of capital. However, the ratio collapsed to -13.98% in 2021, coinciding with the sharp decline in economic profit and the spike in invested capital. By 2022, the ratio rebounded to 4.32%, signaling a restoration of value creation, though the efficiency level is comparable to the early 2017 baseline rather than the 2020 peak.
The correlation between the metrics reveals that the 2021 fiscal year was an anomaly where a significant increase in invested capital failed to yield positive economic returns, leading to a substantial destruction of economic value. The 2022 results suggest a stabilization of operations and a return to a positive spread, though the organization has not yet returned to the efficiency levels seen prior to 2021.
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Economic Profit Margin
Ross Stores Inc., economic profit margin calculation, comparison to benchmarks
| Jan 29, 2022 | Jan 30, 2021 | Feb 1, 2020 | Feb 2, 2019 | Feb 3, 2018 | Jan 28, 2017 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | |||||||
| Economic profit1 | 399,226) | (1,226,041) | 628,181) | 555,938) | 353,586) | 204,379) | |
| Sales | 18,916,244) | 12,531,565) | 16,039,073) | 14,983,541) | 14,134,732) | 12,866,757) | |
| Performance Ratio | |||||||
| Economic profit margin2 | 2.11% | -9.78% | 3.92% | 3.71% | 2.50% | 1.59% | |
| Benchmarks | |||||||
| Economic Profit Margin, Competitors3 | |||||||
| Amazon.com Inc. | -11.35% | -0.85% | — | — | — | — | |
| Home Depot Inc. | 6.79% | 4.59% | — | — | — | — | |
| Lowe’s Cos. Inc. | 5.88% | 2.90% | — | — | — | — | |
| TJX Cos. Inc. | 1.73% | -8.77% | — | — | — | — | |
Based on: 10-K (reporting date: 2022-01-29), 10-K (reporting date: 2021-01-30), 10-K (reporting date: 2020-02-01), 10-K (reporting date: 2019-02-02), 10-K (reporting date: 2018-02-03), 10-K (reporting date: 2017-01-28).
1 Economic profit. See details »
2 2022 Calculation
Economic profit margin = 100 × Economic profit ÷ Sales
= 100 × 399,226 ÷ 18,916,244 = 2.11%
3 Click competitor name to see calculations.
The financial performance from 2017 through 2022 is characterized by an initial phase of steady growth in value creation, a severe contraction in 2021, and a partial recovery in 2022.
- Economic Profit Margin Trajectory
- From 2017 to 2020, the economic profit margin exhibited a consistent upward trend, increasing from 1.59% to 3.92%. This indicates an improving ability to generate returns in excess of the company's cost of capital. This growth was abruptly interrupted in 2021, when the margin fell to -9.78%, representing a significant destruction of economic value. By 2022, the margin returned to a positive 2.11%, though this level remains below the peaks observed in 2019 and 2020.
- Sales and Economic Profit Correlation
- A direct correlation between sales volume and economic profit is observed between 2017 and 2020, with sales rising from 12.87 billion to 16.04 billion and economic profit growing from 204.38 million to 628.18 million. The 2021 fiscal year experienced a simultaneous collapse in both metrics, with sales decreasing to 12.53 billion and economic profit plunging to negative 1.23 billion. The 2022 period saw a robust recovery in sales to 18.92 billion, which successfully restored economic profit to a positive 399.23 million.
- Value Creation Efficiency
- The data suggests that while the company attained higher operational efficiency in terms of economic value added leading up to 2020, the shock in 2021 fundamentally disrupted the margin profile. Although 2022 sales exceeded all previous years in the series, the economic profit margin of 2.11% is lower than the 2018-2020 period, suggesting that the recovery in sales has not yet translated back into the same level of capital efficiency seen prior to 2021.
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