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 – 15.98% × 9,245,498 = 399,772
Analysis of economic value creation reveals a general upward trajectory in operational profitability and capital investment, interrupted by a significant contraction in the fiscal year ending January 30, 2021.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited steady growth from 2017 to 2020, rising from $1.20 billion to $1.77 billion. A sharp decline occurred in 2021, with profits falling to $209.9 million, before rebounding strongly to $1.88 billion in 2022, marking the highest absolute level in the observed period.
- Invested Capital and Cost of Capital
- Invested capital grew consistently from $6.02 billion in 2017 to $9.25 billion in 2022. Throughout this period, the cost of capital remained stable, fluctuating within a narrow range between 15.98% and 16.86%, which suggests a consistent risk profile and funding cost despite the expansion of the capital base.
- Economic Profit Trends
- Economic profit increased consistently from 2017 ($204.7 million) through 2020 ($628.6 million), indicating that the entity generated returns well above its cost of capital. This trend reversed sharply in 2021, resulting in an economic loss of $1.23 billion, as NOPAT was insufficient to cover the required return on the invested capital. A recovery was observed in 2022, with economic profit returning to a positive $399.8 million.
The volatility in economic profit is primarily attributable to the fluctuations in NOPAT rather than changes in the cost of capital or the scale of invested capital. While the recovery in 2022 demonstrates a return to value creation, the economic profit remains below the 2020 peak, reflecting the impact of the increased invested capital base requiring a higher absolute NOPAT to achieve previous levels of economic profit.
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Net Operating Profit after Taxes (NOPAT)
Ross Stores Inc., NOPAT calculation
US$ 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.
An analysis of the financial performance from January 2017 through January 2022 reveals a trajectory of consistent growth, a sharp systemic contraction, and a subsequent strong recovery.
- Net Earnings Performance
- Net earnings demonstrated a steady increase over the first four years of the period, rising from US$ 1,117,654 thousand in 2017 to a peak of US$ 1,660,928 thousand in 2020. A significant downturn occurred in 2021, with earnings falling to US$ 85,382 thousand. This was followed by a robust recovery in 2022, where net earnings reached US$ 1,722,589 thousand, exceeding pre-contraction levels.
- Net Operating Profit After Taxes (NOPAT) Trends
- NOPAT followed a pattern closely mirroring net earnings, increasing from US$ 1,203,081 thousand in 2017 to US$ 1,766,422 thousand in 2020. The 2021 period saw a substantial decline to US$ 209,948 thousand. By January 2022, NOPAT rebounded to US$ 1,877,216 thousand, marking the highest operating profit level within the observed timeframe.
- Comparative Analysis of Profitability Metrics
- Throughout the six-year period, NOPAT consistently remained higher than net earnings. This positive variance indicates that the core operating performance of the business was stronger than the final bottom-line results, suggesting the influence of non-operating expenses, such as interest costs, on the net earnings. The high correlation between the fluctuations of both metrics—specifically the simultaneous crash in 2021 and the recovery in 2022—confirms that the volatility was driven by operational factors rather than changes in capital structure or non-operating financial items.
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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 analysis of tax-related obligations from 2017 to 2022 reveals a period of relative stability followed by extreme volatility in 2021, before returning to normalized levels in 2022.
- Provision for Income Taxes Trends
- Tax provisions remained relatively stable between 2017 and 2018, with values residing between 668.5 million USD and 678.0 million USD. A notable contraction occurred in 2019, where the provision decreased to 463.4 million USD, followed by a slight increase to 503.4 million USD in 2020. A precipitous decline was recorded in 2021, with the provision falling to 20.9 million USD, representing the lowest point in the observed period. By 2022, the provision recovered to 536.0 million USD.
- Cash Operating Taxes Trends
- Cash outflows for operating taxes followed a trajectory similar to the tax provisions. Values peaked in 2018 at 761.2 million USD after starting at 727.9 million USD in 2017. A sharp decline was observed in 2019, dropping to 457.5 million USD, with a minor increase to 490.9 million USD in 2020. A significant reduction occurred in 2021, with cash taxes falling to 89.2 million USD, before rebounding to 557.1 million USD in 2022.
- Comparative Variance Analysis
- A consistent discrepancy is observed where cash operating taxes generally exceed the provision for income taxes. This divergence was most pronounced in 2021, where cash operating taxes of 89.2 million USD were more than four times higher than the reported provision of 20.9 million USD. This indicates a substantial gap between the accounting tax expense and the actual cash liquidity required for tax payments during that period. In 2022, the trend continued with cash payments of 557.1 million USD exceeding the provision of 536.0 million USD.
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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.
The total invested capital exhibits a consistent upward trajectory over the analyzed six-year period, growing from US$ 6,022,627 thousand in January 2017 to US$ 9,245,498 thousand by January 2022. This represents an overall increase of approximately 53.5%, indicating a significant expansion of the capital base employed in the business operations.
- Total Reported Debt and Leases
- A period of moderate growth is observed between 2017 and 2019, followed by a slight contraction in 2020. However, a substantial increase occurred in January 2021, where debt and leases rose from US$ 3,487,900 thousand to US$ 5,732,799 thousand, a surge of approximately 64%. This spike is the primary driver for the sharp increase in total invested capital during that fiscal year. The value remained relatively stable into January 2022, with a marginal decline to US$ 5,622,139 thousand.
- Stockholders’ Equity
- Equity grew steadily from US$ 2,748,017 thousand in 2017 to US$ 3,359,249 thousand in 2020. A slight decrease was noted in January 2021, dropping to US$ 3,290,640 thousand, coinciding with the peak in reported debt. A significant recovery and expansion followed in January 2022, with equity reaching US$ 4,060,050 thousand, reflecting a year-over-year increase of approximately 23%.
- Invested Capital Composition and Trends
- The growth in invested capital was relatively linear between 2017 and 2020, increasing by roughly 13% over those four years. The most aggressive expansion occurred between February 2020 and January 2021, where invested capital jumped by approximately 28.8% (from US$ 6,807,292 thousand to US$ 8,769,230 thousand), almost entirely attributable to the increase in debt and lease obligations. By January 2022, the capital base continued to expand to US$ 9,245,498 thousand, driven this time by the strengthening of stockholders' equity.
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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 | × | 18.29% | = | 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 | 15.98% | ||||||||||
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 | × | 18.29% | = | 16.04% | ||
| 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 | 16.37% | ||||||||||
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 | × | 18.29% | = | 16.43% | ||
| 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 | 16.71% | ||||||||||
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 | × | 18.29% | = | 16.55% | ||
| 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 | × | 18.29% | = | 16.37% | ||
| 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 | × | 18.29% | = | 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 | 399,772) | (1,225,510) | 628,604) | 556,368) | 353,981) | 204,748) | |
| 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% | 3.40% | |
| Benchmarks | |||||||
| Economic Spread Ratio, Competitors4 | |||||||
| Amazon.com Inc. | -21.72% | -1.96% | — | — | — | — | |
| Home Depot Inc. | 21.37% | 12.21% | — | — | — | — | |
| Lowe’s Cos. Inc. | 21.63% | 9.18% | — | — | — | — | |
| TJX Cos. Inc. | 4.25% | -12.60% | — | — | — | — | |
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 × 399,772 ÷ 9,245,498 = 4.32%
4 Click competitor name to see calculations.
The financial performance from 2017 to 2022 is characterized by a period of steady value creation, a sharp contraction in 2021, and a subsequent recovery in 2022.
- Economic Spread Ratio Trends
- The economic spread ratio exhibited a consistent upward trajectory between 2017 and 2020, increasing from 3.40% to a peak of 9.23%. This trend indicates an improving ability to generate returns significantly above the cost of capital. A severe reversal occurred in 2021, with the ratio dropping to -13.98%, reflecting a period where the cost of capital exceeded the returns generated. By 2022, the ratio returned to positive territory at 4.32%, although it remained below the levels achieved in the 2019-2020 period.
- Economic Profit Analysis
- Economic profit grew steadily from US$ 204.7 million in 2017 to a peak of US$ 628.6 million in 2020. This growth phase was interrupted in 2021 by a substantial deficit of US$ 1.23 billion, marking a significant loss in economic value. The 2022 fiscal year showed a recovery, with economic profit returning to a positive US$ 399.8 million, signaling a restoration of value creation capabilities.
- Invested Capital Evolution
- Invested capital followed a general growth pattern, rising from US$ 6.02 billion in 2017 to US$ 9.25 billion by 2022. A notable acceleration in capital investment occurred between 2020 and 2021, where the base increased from US$ 6.81 billion to US$ 8.77 billion. This expansion of the capital base, coinciding with the collapse in economic profit in 2021, exacerbated the decline in the economic spread ratio, as more capital was deployed during a period of diminished returns.
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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 | 399,772) | (1,225,510) | 628,604) | 556,368) | 353,981) | 204,748) | |
| 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. | -11.34% | -0.84% | — | — | — | — | |
| Home Depot Inc. | 6.79% | 4.60% | — | — | — | — | |
| Lowe’s Cos. Inc. | 5.88% | 2.91% | — | — | — | — | |
| 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 × 399,772 ÷ 18,916,244 = 2.11%
3 Click competitor name to see calculations.
The financial performance from 2017 to 2022 is characterized by a period of steady growth, a severe contraction in 2021, and a subsequent recovery in 2022. The relationship between sales and economic profit indicates a high sensitivity to operational disruptions, particularly evident during the fiscal year ending January 30, 2021.
- Economic Profit Trajectory
- Economic profit exhibited consistent growth between 2017 and 2020, rising from 204,748 thousand US dollars to a peak of 628,604 thousand US dollars. This upward trend was abruptly reversed in 2021, where the figure plummeted to a deficit of 1,225,510 thousand US dollars. A recovery occurred by January 29, 2022, with economic profit returning to a positive value of 399,772 thousand US dollars, although this remains below the 2019 and 2020 levels.
- Sales Volume and Revenue Patterns
- Sales grew steadily from 12,866,757 thousand US dollars in 2017 to 16,039,073 thousand US dollars in 2020. A significant decline was recorded in 2021, with sales falling to 12,531,565 thousand US dollars, the lowest point in the analyzed period. By 2022, sales experienced a sharp rebound, reaching a period high of 18,916,244 thousand US dollars.
- Economic Profit Margin Analysis
- The economic profit margin expanded from 1.59% in 2017 to a peak of 3.92% in 2020, signaling improved efficiency in generating value above the cost of capital. The margin collapsed to -9.78% in 2021, coinciding with the decline in sales and the shift to negative economic profit. While the margin recovered to 2.11% in 2022, the recovery in profitability margin lagged behind the recovery in gross sales volume, as the 2022 margin did not reach the pre-2021 highs.
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