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 – 15.92% × 9,245,498 = 405,671
Analysis of economic profit from 2017 to 2022 reveals a period of sustained value creation, followed by a severe contraction in 2021 and a subsequent recovery in 2022.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT demonstrated a consistent growth trend from 2017 through 2020, rising from 1.20 billion to 1.77 billion US dollars. A significant outlier occurred in January 2021, when NOPAT plummeted to 209.9 million US dollars. This decline was followed by a sharp recovery in January 2022, with NOPAT reaching its highest recorded value of 1.88 billion US dollars.
- Invested Capital and Cost of Capital
- Invested capital followed a steady upward trajectory, increasing from 6.02 billion US dollars in 2017 to 9.25 billion US dollars in 2022. Notably, capital investment continued to grow during 2021, despite the collapse in operating profit. The cost of capital remained highly stable throughout the period, fluctuating minimally between a high of 16.79% in 2019 and a low of 15.92% in 2022, suggesting that the primary drivers of economic profit volatility were operational rather than financial or market-driven.
- Economic Profit Performance
- Economic profit grew steadily from 208.7 million US dollars in 2017 to a peak of 633.2 million US dollars in 2020, indicating that the entity was generating returns significantly in excess of its cost of capital. In 2021, the company experienced a substantial shift to value destruction, recording an economic loss of 1.22 billion US dollars. This occurred because the drastic reduction in NOPAT failed to cover the capital charge on an expanded invested capital base. By 2022, economic profit returned to a positive 405.7 million US dollars, although this figure remained below the 2020 peak, reflecting the increased capital intensity required to sustain operations.
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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 $9.25 billion in 2022. This demonstrates an overall expansion in the capital base, particularly pronounced from 2021 onwards, aligning with the increased debt levels.
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Cost of Capital
Ross Stores Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 33,527,776) | 33,527,776) | ÷ | 39,297,590) | = | 0.85 | 0.85 | × | 18.22% | = | 15.54% | ||
| Senior Notes3 | 2,600,000) | 2,600,000) | ÷ | 39,297,590) | = | 0.07 | 0.07 | × | 3.25% × (1 – 21.00%) | = | 0.17% | ||
| Operating lease liability4 | 3,169,814) | 3,169,814) | ÷ | 39,297,590) | = | 0.08 | 0.08 | × | 3.20% × (1 – 21.00%) | = | 0.20% | ||
| Total: | 39,297,590) | 1.00 | 15.92% | ||||||||||
Based on: 10-K (reporting date: 2022-01-29).
1 US$ 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 | × | 18.22% | = | 15.98% | ||
| 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 | 16.30% | ||||||||||
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 | × | 18.22% | = | 16.36% | ||
| 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 | 16.65% | ||||||||||
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 | × | 18.22% | = | 16.48% | ||
| 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 | 16.79% | ||||||||||
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 | × | 18.22% | = | 16.31% | ||
| 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 | 16.62% | ||||||||||
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 | × | 18.22% | = | 16.18% | ||
| 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 | 16.51% | ||||||||||
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 | 405,671) | (1,219,758) | 633,176) | 561,027) | 358,265) | 208,749) | |
| 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 | 4.39% | -13.91% | 9.30% | 8.15% | 5.60% | 3.47% | |
| Benchmarks | |||||||
| Economic Spread Ratio, Competitors4 | |||||||
| Amazon.com Inc. | -21.73% | -1.96% | — | — | — | — | |
| Home Depot Inc. | 21.43% | 12.28% | — | — | — | — | |
| Lowe’s Cos. Inc. | 21.69% | 9.24% | — | — | — | — | |
| TJX Cos. Inc. | 4.36% | -12.50% | — | — | — | — | |
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 × 405,671 ÷ 9,245,498 = 4.39%
4 Click competitor name to see calculations.
The financial trajectory between 2017 and 2022 is characterized by a period of steady value creation, a severe disruption in 2021, and a subsequent recovery. The alignment between economic profit and the economic spread ratio indicates a strong correlation between absolute value generation and the efficiency of capital utilization during this period.
- Economic Profit
- A consistent upward trend was observed from January 2017 through February 2020, with economic profit increasing from 208,749 thousand USD to a peak of 633,176 thousand USD. This growth was interrupted in January 2021, where a substantial deficit of 1,219,758 thousand USD was recorded. By January 2022, economic profit returned to positive territory, reaching 405,671 thousand USD.
- Invested Capital
- Invested capital showed a general increase over the analyzed period, rising from 6,022,627 thousand USD in 2017 to 9,245,498 thousand USD in 2022. A notable acceleration in capital investment occurred between 2020 and 2021, where capital grew from 6,807,292 thousand USD to 8,769,230 thousand USD, coinciding with the period of significant economic profit contraction.
- Economic Spread Ratio
- The economic spread ratio mirrored the volatility of economic profit, expanding steadily from 3.47% in 2017 to a maximum of 9.30% in 2020. The ratio experienced a sharp contraction to -13.91% in 2021, reflecting a period where the return on capital fell significantly below the cost of capital. In 2022, the ratio recovered to 4.39%, signaling a return to positive economic value addition, although it remained below the efficiency levels seen in 2019 and 2020.
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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 | 405,671) | (1,219,758) | 633,176) | 561,027) | 358,265) | 208,749) | |
| Sales | 18,916,244) | 12,531,565) | 16,039,073) | 14,983,541) | 14,134,732) | 12,866,757) | |
| Performance Ratio | |||||||
| Economic profit margin2 | 2.14% | -9.73% | 3.95% | 3.74% | 2.53% | 1.62% | |
| Benchmarks | |||||||
| Economic Profit Margin, Competitors3 | |||||||
| Amazon.com Inc. | -11.34% | -0.84% | — | — | — | — | |
| Home Depot Inc. | 6.81% | 4.62% | — | — | — | — | |
| Lowe’s Cos. Inc. | 5.90% | 2.93% | — | — | — | — | |
| TJX Cos. Inc. | 1.77% | -8.70% | — | — | — | — | |
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 × 405,671 ÷ 18,916,244 = 2.14%
3 Click competitor name to see calculations.
The financial trajectory from 2017 to 2022 is characterized by a phase of consistent expansion, a severe contraction in 2021, and a robust recovery in 2022. The correlation between sales volume and economic value creation remained positive until a significant disruption occurred in the 2021 fiscal period.
- Sales Performance
- A steady increase in sales is observed from 2017 through 2020, with revenue growing from 12.87 billion USD to 16.04 billion USD. A sharp decline followed in 2021, where sales fell to 12.53 billion USD. This was followed by a substantial recovery in 2022, reaching a period high of 18.92 billion USD.
- Economic Profit Trends
- Economic profit demonstrated a positive growth trend between 2017 and 2020, rising from 208.75 million USD to a peak of 633.18 million USD. This trend reversed sharply in 2021, resulting in a negative economic profit of 1.22 billion USD. A return to profitability occurred in 2022, with economic profit recovering to 405.67 million USD.
- Economic Profit Margin Analysis
- The economic profit margin expanded consistently from 1.62% in 2017 to 3.95% in 2020, indicating an improvement in the ability to generate value above the cost of capital. This efficiency collapsed in 2021, with the margin dropping to -9.73%. While the margin returned to a positive 2.14% in 2022, it did not recover to the pre-2021 peaks, suggesting that while volume recovered, the efficiency of value creation relative to sales remained lower than its 2020 high.
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