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
Steel Dynamics 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
= 3,611,424 – 19.21% × 8,550,168 = 1,969,104
The financial performance from 2017 to 2021 is characterized by significant volatility in value creation, culminating in a substantial increase in economic profit by the end of the period. While the company experienced periods of value destruction where operating returns failed to cover the cost of capital, the 2021 fiscal year represents a pivot toward aggressive value generation.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited extreme fluctuations throughout the five-year period. After an initial rise from 755.4 million USD in 2017 to 1.42 billion USD in 2018, a downward trend occurred over the following two years, with profit dipping to 696.1 million USD by 2020. This trajectory reversed sharply in 2021, with NOPAT increasing more than fivefold to reach 3.61 billion USD, indicating a massive expansion in operational efficiency or market demand.
- Invested Capital and Cost of Capital
- Invested capital grew consistently and linearly, rising from 5.96 billion USD in 2017 to 8.55 billion USD in 2021. This steady increase suggests continuous investment in the company's asset base. Simultaneously, the cost of capital remained relatively stable, fluctuating within a narrow range between 16.74% and 19.69%. The consistently high cost of capital created a high threshold for the company to achieve positive economic profit.
- Economic Profit Trends
- Economic profit remained negative for three of the five years analyzed, specifically in 2017, 2019, and 2020, with the most significant value destruction occurring in 2020 at -504.5 million USD. A brief period of value creation was noted in 2018 with an economic profit of 200.9 million USD. However, the most notable shift occurred in 2021, where economic profit surged to 1.97 billion USD. This suggests that by 2021, the return on invested capital significantly exceeded the cost of capital, transforming the business from a value-destroying state to a high-value-generating state.
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Net Operating Profit after Taxes (NOPAT)
Steel Dynamics 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 allowances for credit losses.
3 Addition of increase (decrease) in equity equivalents to net income attributable to Steel Dynamics, Inc..
4 2021 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 100,074 × 3.60% = 3,603
5 2021 Calculation
Tax benefit of interest expense, net of capitalized interest = Adjusted interest expense, net of capitalized interest × Statutory income tax rate
= 60,812 × 21.00% = 12,770
6 Addition of after taxes interest expense to net income attributable to Steel Dynamics, Inc..
The financial performance from 2017 to 2021 is characterized by significant volatility, featuring a period of contraction followed by an exponential increase in profitability during the final year of the observation period.
- Net Operating Profit After Taxes (NOPAT) Trends
- NOPAT exhibited a fluctuating trajectory, initially rising from 755,373 thousand USD in 2017 to 1,420,457 thousand USD in 2018. A downward trend followed over the next two fiscal years, with values declining to 827,375 thousand USD in 2019 and further to 696,079 thousand USD in 2020. This trend reversed sharply in 2021, as NOPAT surged to 3,611,424 thousand USD, marking a significant expansion in core operating profitability.
- Net Income Performance
- Net income attributable to the company followed a pattern closely aligned with NOPAT. After increasing to 1,258,379 thousand USD in 2018, net income experienced a multi-year decline, reaching a low of 550,822 thousand USD in 2020. In 2021, a substantial recovery occurred, with net income increasing to 3,214,066 thousand USD.
- Comparative Analysis of Operating vs. Net Profitability
- A consistent divergence is observed between NOPAT and net income beginning in 2018. From 2018 through 2021, NOPAT remained consistently higher than net income, with the gap widening significantly in 2021 to approximately 397,358 thousand USD. This indicates that non-operating items, such as interest expenses associated with the capital structure, exerted a downward pressure on net income relative to the operational performance of the business.
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Cash Operating Taxes
Steel Dynamics 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 the tax-related figures from 2017 to 2021 reveals significant volatility, characterized by a marked increase in both accrual-based and cash-based tax obligations toward the end of the period.
- Income Tax Expense Trends
- The income tax expense exhibited a non-linear progression, rising from US$ 129,439 thousand in 2017 to US$ 363,969 thousand in 2018. This was followed by a two-year contraction, reaching a period low of US$ 134,650 thousand in 2020. A substantial surge occurred in 2021, with the expense climbing to US$ 962,256 thousand, representing a significant increase in the reported tax burden.
- Cash Operating Taxes Trends
- Cash operating taxes followed a similar trajectory to the income tax expense but displayed different magnitudes. Payments remained relatively stable between 2017 and 2018, hovering around US$ 317 million to US$ 332 million. A downward trend was observed through 2020, where cash taxes fell to US$ 109,566 thousand. Similar to the expense trend, 2021 saw a sharp reversal, with cash taxes rising to US$ 656,409 thousand.
- Analysis of Accrual vs. Cash Divergence
- A notable variance is observed between the accounting tax expense and actual cash outflows. In 2017, cash operating taxes were significantly higher than the reported income tax expense. This relationship inverted starting in 2018 and became most pronounced in 2021, where the income tax expense exceeded cash operating taxes by US$ 305,847 thousand. Such divergences are critical for the determination of Economic Value Added (EVA), as the use of cash taxes rather than accrual expenses provides a more accurate reflection of the actual cash flow available to the firm.
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Invested Capital
Steel Dynamics 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 equity equivalents to total Steel Dynamics, Inc. equity.
5 Removal of accumulated other comprehensive income.
6 Subtraction of construction in progress.
7 Subtraction of trading securities.
Invested capital exhibited a consistent upward trajectory from 2017 through 2021, growing from 5,964,900 thousand to 8,550,168 thousand. This growth indicates a steady expansion of the capital base used to generate economic value, with a marked acceleration occurring in the final year of the period.
- Total Reported Debt and Leases
- A steady increase in debt and lease obligations is observed, rising from 2,429,040 thousand in 2017 to 3,205,950 thousand by 2021. The most significant annual growth occurred between 2018 and 2020, while the increase between 2020 and 2021 was relatively marginal, suggesting a stabilization of debt-funded financing toward the end of the period.
- Total Equity
- Equity experienced substantial growth, increasing from 3,351,574 thousand in 2017 to 6,304,641 thousand in 2021. While the growth was gradual between 2017 and 2020, a sharp spike is evident in 2021, where equity rose by approximately 44.8% in a single year. This indicates a strong shift toward equity-based capitalization or a significant retention of earnings.
- Invested Capital Composition and Trends
- The total invested capital grew by approximately 43.3% over the five-year period. Between 2017 and 2020, the growth was linear and moderate, moving from 5,964,900 thousand to 6,781,124 thousand. However, the jump to 8,550,168 thousand in 2021 represents the largest single-year increase in the series. The data reveals that equity became the primary driver of invested capital growth, particularly in 2021, reducing the relative reliance on debt to fund the capital base.
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Cost of Capital
Steel Dynamics Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 13,501,895) | 13,501,895) | ÷ | 16,901,969) | = | 0.80 | 0.80 | × | 23.42% | = | 18.71% | ||
| Long-term debt, including current maturities3 | 3,300,000) | 3,300,000) | ÷ | 16,901,969) | = | 0.20 | 0.20 | × | 3.12% × (1 – 21.00%) | = | 0.48% | ||
| Operating lease liability4 | 100,074) | 100,074) | ÷ | 16,901,969) | = | 0.01 | 0.01 | × | 3.60% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 16,901,969) | 1.00 | 19.21% | ||||||||||
Based on: 10-K (reporting date: 2021-12-31).
1 US$ in thousands
2 Equity. See details »
3 Long-term debt, including current maturities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 9,286,334) | 9,286,334) | ÷ | 12,776,650) | = | 0.73 | 0.73 | × | 23.42% | = | 17.02% | ||
| Long-term debt, including current maturities3 | 3,400,000) | 3,400,000) | ÷ | 12,776,650) | = | 0.27 | 0.27 | × | 3.14% × (1 – 21.00%) | = | 0.66% | ||
| Operating lease liability4 | 90,316) | 90,316) | ÷ | 12,776,650) | = | 0.01 | 0.01 | × | 3.84% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 12,776,650) | 1.00 | 17.70% | ||||||||||
Based on: 10-K (reporting date: 2020-12-31).
1 US$ in thousands
2 Equity. See details »
3 Long-term debt, including current maturities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 5,742,479) | 5,742,479) | ÷ | 8,617,908) | = | 0.67 | 0.67 | × | 23.42% | = | 15.61% | ||
| Long-term debt, including current maturities3 | 2,800,000) | 2,800,000) | ÷ | 8,617,908) | = | 0.32 | 0.32 | × | 4.31% × (1 – 21.00%) | = | 1.11% | ||
| Operating lease liability4 | 75,429) | 75,429) | ÷ | 8,617,908) | = | 0.01 | 0.01 | × | 3.96% × (1 – 21.00%) | = | 0.03% | ||
| Total: | 8,617,908) | 1.00 | 16.74% | ||||||||||
Based on: 10-K (reporting date: 2019-12-31).
1 US$ in thousands
2 Equity. See details »
3 Long-term debt, including current maturities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 8,504,794) | 8,504,794) | ÷ | 10,977,855) | = | 0.77 | 0.77 | × | 23.42% | = | 18.15% | ||
| Long-term debt, including current maturities3 | 2,400,000) | 2,400,000) | ÷ | 10,977,855) | = | 0.22 | 0.22 | × | 5.06% × (1 – 21.00%) | = | 0.87% | ||
| Operating lease liability4 | 73,061) | 73,061) | ÷ | 10,977,855) | = | 0.01 | 0.01 | × | 5.06% × (1 – 21.00%) | = | 0.03% | ||
| Total: | 10,977,855) | 1.00 | 19.05% | ||||||||||
Based on: 10-K (reporting date: 2018-12-31).
1 US$ in thousands
2 Equity. See details »
3 Long-term debt, including current maturities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 11,215,751) | 11,215,751) | ÷ | 13,762,850) | = | 0.81 | 0.81 | × | 23.42% | = | 19.09% | ||
| Long-term debt, including current maturities3 | 2,500,000) | 2,500,000) | ÷ | 13,762,850) | = | 0.18 | 0.18 | × | 5.04% × (1 – 35.00%) | = | 0.60% | ||
| Operating lease liability4 | 47,100) | 47,100) | ÷ | 13,762,850) | = | 0.00 | 0.00 | × | 5.04% × (1 – 35.00%) | = | 0.01% | ||
| Total: | 13,762,850) | 1.00 | 19.69% | ||||||||||
Based on: 10-K (reporting date: 2017-12-31).
1 US$ in thousands
2 Equity. See details »
3 Long-term debt, including current maturities. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Steel Dynamics 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 | 1,969,104) | (504,508) | (297,887) | 200,934) | (419,307) | |
| Invested capital2 | 8,550,168) | 6,781,124) | 6,721,821) | 6,403,131) | 5,964,900) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | 23.03% | -7.44% | -4.43% | 3.14% | -7.03% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Freeport-McMoRan Inc. | -2.63% | — | — | — | — | |
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 × 1,969,104 ÷ 8,550,168 = 23.03%
4 Click competitor name to see calculations.
The financial performance from 2017 to 2021 is characterized by significant volatility in economic value creation, culminating in a substantial positive shift in the final year. While the capital base expanded consistently throughout the period, the ability to generate returns exceeding the cost of capital remained inconsistent until a sharp recovery in 2021.
- Economic Spread Ratio Trends
- The economic spread ratio exhibited a volatile trajectory, alternating between negative and positive values for the first four years. Negative spreads were recorded in 2017 (-7.03%), 2019 (-4.43%), and 2020 (-7.44%), signaling that the return on invested capital was insufficient to cover the cost of capital. A brief positive interval occurred in 2018 at 3.14%, followed by a dramatic expansion to 23.03% in 2021, indicating a profound increase in value creation efficiency.
- Invested Capital Growth
- A consistent upward trend in invested capital is observed, increasing from 5.96 billion US dollars in 2017 to 8.55 billion US dollars by 2021. The growth was steady between 2017 and 2020, followed by a more aggressive expansion in 2021, where invested capital grew by approximately 26% in a single year.
- Economic Profit Correlation
- Economic profit followed a pattern closely aligned with the economic spread ratio. Negative economic profits were sustained in 2017, 2019, and 2020, with the most significant deficit of 504.5 million US dollars occurring in 2020. This trend reversed sharply in 2021, as economic profit surged to 1.97 billion US dollars, demonstrating that the increase in invested capital was accompanied by a disproportionately larger increase in returns above the cost of capital.
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Economic Profit Margin
Steel Dynamics 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 | 1,969,104) | (504,508) | (297,887) | 200,934) | (419,307) | |
| Net sales | 18,408,850) | 9,601,482) | 10,464,991) | 11,821,839) | 9,538,797) | |
| Performance Ratio | ||||||
| Economic profit margin2 | 10.70% | -5.25% | -2.85% | 1.70% | -4.40% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Freeport-McMoRan Inc. | -4.01% | — | — | — | — | |
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 ÷ Net sales
= 100 × 1,969,104 ÷ 18,408,850 = 10.70%
3 Click competitor name to see calculations.
The financial performance from 2017 to 2021 is characterized by significant volatility in value creation, culminating in a substantial recovery in the final year of the period. Economic profit remained largely inconsistent, oscillating between losses and modest gains before experiencing an exponential increase in 2021.
- Economic Profit Trends
- Economic profit exhibited instability between 2017 and 2020, with values fluctuating between a low of negative US$ 504.5 million and a peak of US$ 200.9 million. This period of fluctuation ended in 2021, when economic profit rose sharply to US$ 1.97 billion, indicating a transition to substantial value generation.
- Net Sales Correlation
- Net sales showed a pattern of moderate growth followed by a contraction from 2018 to 2020, reaching a period low of approximately US$ 9.6 billion. A significant inflection point occurred in 2021, with net sales increasing to US$ 18.41 billion. This rapid expansion in revenue aligns with the surge in economic profit, suggesting that increased scale and market demand were primary catalysts for the improved financial outcome.
- Economic Profit Margin Analysis
- The economic profit margin remained negative for the majority of the observed period, reaching its lowest point of -5.25% in 2020. This indicates that the returns were insufficient to cover the cost of capital for three of the five years. The shift to a 10.70% margin in 2021 represents a dramatic improvement in operational efficiency and value creation relative to sales.
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