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
Twenty-First Century Fox Inc., economic profit calculation
US$ in millions
Based on: 10-K (reporting date: 2018-06-30), 10-K (reporting date: 2017-06-30), 10-K (reporting date: 2016-06-30), 10-K (reporting date: 2015-06-30), 10-K (reporting date: 2014-06-30), 10-K (reporting date: 2013-06-30).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2018 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 4,669 – 16.73% × 47,272 = -3,240
The analysis of economic profit from 2013 to 2018 reveals a period of significant instability and a general failure to consistently generate value above the cost of capital. Economic profit fluctuated between positive and negative territory, with the company recording negative economic profit in four of the six analyzed years.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited extreme volatility throughout the period. A substantial peak occurred in 2015 at 9,417 million US$, followed by a sharp decline to 4,025 million US$ in 2016. While a modest recovery was observed through 2018, the operating profit levels remained significantly lower than the 2013 and 2015 highs, indicating inconsistent operational efficiency.
- Cost of Capital
- The cost of capital remained relatively high, fluctuating within a narrow range between 14.70% and 16.73%. A gradual decline was observed from 2013 to 2016, but this trend reversed in 2018, reaching a period high of 16.73%. This elevated hurdle rate placed continuous pressure on the company to generate higher operating returns to achieve a positive economic profit.
- Invested Capital
- Invested capital fluctuated between 42,462 million US$ and 48,265 million US$. After an initial increase in 2014, the capital base contracted until 2016, before expanding again through 2018. The increase in invested capital toward the end of the period, coupled with a rising cost of capital, increased the total capital charge required to break even on an economic basis.
- Economic Profit Trends
- Economic profit was positive only in 2013 and 2015, coinciding with years of higher NOPAT. In all other years, the company experienced value destruction, with the most significant losses occurring in 2014 (-3,317 million US$) and 2018 (-3,240 million US$). The persistent negative values from 2016 to 2018 suggest that the returns generated from invested capital were insufficient to cover the financing costs, indicating a decline in the company's ability to create economic value for its stakeholders during the latter half of the period.
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Net Operating Profit after Taxes (NOPAT)
Twenty-First Century Fox Inc., NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2018-06-30), 10-K (reporting date: 2017-06-30), 10-K (reporting date: 2016-06-30), 10-K (reporting date: 2015-06-30), 10-K (reporting date: 2014-06-30), 10-K (reporting date: 2013-06-30).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowances for returns and doubtful accounts.
3 Addition of increase (decrease) in deferred revenue.
4 Addition of increase (decrease) in restructuring program liabilities.
5 Addition of increase (decrease) in equity equivalents to net income attributable to Twenty-First Century Fox, Inc. stockholders.
6 2018 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 1,553 × 6.01% = 93
7 2018 Calculation
Tax benefit of interest expense, net = Adjusted interest expense, net × Statutory income tax rate
= 1,341 × 28.00% = 376
8 Addition of after taxes interest expense to net income attributable to Twenty-First Century Fox, Inc. stockholders.
9 2018 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 39 × 28.00% = 11
10 Elimination of after taxes investment income.
11 Elimination of discontinued operations.
The financial performance between June 30, 2013, and June 30, 2018, is characterized by significant volatility in both net income and net operating profit after taxes (NOPAT). A cyclical trend is evident, with a pronounced peak in 2015 followed by a sharp contraction in 2016 and a subsequent gradual recovery leading into 2018.
- NOPAT Trend Analysis
- Net operating profit after taxes exhibited substantial fluctuations over the six-year period. After a decline from US$ 7,896 million in 2013 to US$ 4,517 million in 2014, NOPAT surged to a peak of US$ 9,417 million in 2015. This peak was followed by a steep decline to US$ 4,025 million in 2016. In the final two years of the period, a modest but consistent recovery was observed, with NOPAT rising to US$ 4,273 million in 2017 and US$ 4,669 million in 2018.
- Net Income Correlation
- Net income attributable to stockholders mirrored the general trajectory of NOPAT, suggesting that the volatility was primarily driven by operating performance. The most significant divergence is noted in 2015, where net income reached US$ 8,306 million, and 2016, where it dropped precipitously to US$ 2,755 million. The recovery phase from 2016 to 2018 shows net income increasing from US$ 2,755 million to US$ 4,464 million.
- Operating Profit vs. Net Income Spread
- NOPAT remained consistently higher than net income for nearly the entire period, with the exception of 2014, where the two figures were nearly equal (US$ 4,517 million for NOPAT versus US$ 4,514 million for net income). The spread widened significantly between 2016 and 2017, with NOPAT exceeding net income by over US$ 1.2 billion in both years. This widening gap indicates that while operating profitability remained relatively stable during those years, non-operating factors—such as interest expenses or taxes—exerted a greater downward pressure on the final net income.
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Cash Operating Taxes
Twenty-First Century Fox Inc., cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2018-06-30), 10-K (reporting date: 2017-06-30), 10-K (reporting date: 2016-06-30), 10-K (reporting date: 2015-06-30), 10-K (reporting date: 2014-06-30), 10-K (reporting date: 2013-06-30).
The analysis of tax-related expenditures between June 2013 and June 2018 reveals significant volatility and a widening divergence between accrual-based tax provisions and actual cash outflows. While the provision for income taxes from continuing operations generally trended downward over the six-year period, cash operating taxes exhibited a more fluctuating pattern, remaining positive even when accounting provisions indicated a tax benefit.
- Provision for Income Taxes Trends
- The provision for income taxes from continuing operations experienced a general decline from 1,690 million USD in 2013 to 1,130 million USD in 2016. After a temporary increase to 1,419 million USD in 2017, the figure shifted dramatically to a negative 364 million USD in 2018, representing a transition from a tax expense to a tax benefit in the final year of the period.
- Cash Operating Tax Fluctuations
- Cash operating taxes demonstrated a non-linear trend, peaking at 1,781 million USD in 2017. The lowest cash outlay occurred in 2018, dropping to 904 million USD. Unlike the provision for income taxes, cash operating taxes remained positive throughout the entire duration, indicating consistent cash outflows for tax obligations regardless of accounting provisions.
- Divergence Between Accrual and Cash Taxes
- A notable discrepancy is observed in the relationship between accounting provisions and cash payments. In 2014 and 2017, cash operating taxes exceeded the provision for income taxes. This divergence reached its peak in 2018, where a significant gap emerged: the company recorded a tax benefit of 364 million USD on an accrual basis, yet maintained a cash tax expenditure of 904 million USD.
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Invested Capital
Twenty-First Century Fox Inc., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2018-06-30), 10-K (reporting date: 2017-06-30), 10-K (reporting date: 2016-06-30), 10-K (reporting date: 2015-06-30), 10-K (reporting date: 2014-06-30), 10-K (reporting date: 2013-06-30).
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 restructuring program liabilities.
6 Addition of equity equivalents to total Twenty-First Century Fox, Inc. stockholders’ equity.
7 Removal of accumulated other comprehensive income.
8 Subtraction of construction in progress.
9 Subtraction of available-for-sale securities.
The analysis of invested capital from 2013 to 2018 reveals a fluctuating trajectory characterized by an initial expansion, a mid-period contraction, and a subsequent recovery phase.
- Invested Capital Volatility
- Invested capital peaked at US$ 48,265 million in 2014 before experiencing a steady decline over the next two years, reaching a minimum of US$ 42,462 million in 2016. A reversal occurred thereafter, with capital increasing to US$ 45,055 million in 2017 and ending the period at US$ 47,272 million in 2018.
- Debt and Lease Performance
- Total reported debt and leases remained relatively stable over the six-year period, fluctuating between a low of US$ 19,912 million in 2013 and a high of US$ 22,748 million in 2014. From 2015 onwards, these obligations maintained a narrow range, ending at US$ 21,076 million in 2018, indicating that debt was not the primary driver of the volatility seen in total invested capital.
- Equity Contribution and Impact
- Stockholders' equity exhibited a significant dip in 2016, falling to US$ 13,661 million from previous levels of approximately US$ 17 billion. This contraction directly correlates with the trough in invested capital observed in the same year. The subsequent growth in equity to US$ 19,564 million by 2018 served as the principal catalyst for the restoration of the invested capital base.
The relationship between the components suggests that while debt levels remained consistent, the overall capital structure was heavily influenced by shifts in equity. The recovery in invested capital from 2016 to 2018 was driven primarily by equity growth, offsetting the relative stagnation in debt and lease obligations.
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Cost of Capital
Twenty-First Century Fox Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 83,959) | 83,959) | ÷ | 108,102) | = | 0.78 | 0.78 | × | 20.30% | = | 15.76% | ||
| Borrowings3 | 22,591) | 22,591) | ÷ | 108,102) | = | 0.21 | 0.21 | × | 6.01% × (1 – 28.00%) | = | 0.90% | ||
| Operating lease liability4 | 1,553) | 1,553) | ÷ | 108,102) | = | 0.01 | 0.01 | × | 6.01% × (1 – 28.00%) | = | 0.06% | ||
| Total: | 108,102) | 1.00 | 16.73% | ||||||||||
Based on: 10-K (reporting date: 2018-06-30).
1 US$ in millions
2 Equity. See details »
3 Borrowings. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 52,218) | 52,218) | ÷ | 77,801) | = | 0.67 | 0.67 | × | 20.30% | = | 13.62% | ||
| Borrowings3 | 23,853) | 23,853) | ÷ | 77,801) | = | 0.31 | 0.31 | × | 6.03% × (1 – 35.00%) | = | 1.20% | ||
| Operating lease liability4 | 1,729) | 1,729) | ÷ | 77,801) | = | 0.02 | 0.02 | × | 6.03% × (1 – 35.00%) | = | 0.09% | ||
| Total: | 77,801) | 1.00 | 14.91% | ||||||||||
Based on: 10-K (reporting date: 2017-06-30).
1 US$ in millions
2 Equity. See details »
3 Borrowings. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 48,724) | 48,724) | ÷ | 74,216) | = | 0.66 | 0.66 | × | 20.30% | = | 13.33% | ||
| Borrowings3 | 23,986) | 23,986) | ÷ | 74,216) | = | 0.32 | 0.32 | × | 6.17% × (1 – 35.00%) | = | 1.30% | ||
| Operating lease liability4 | 1,506) | 1,506) | ÷ | 74,216) | = | 0.02 | 0.02 | × | 6.17% × (1 – 35.00%) | = | 0.08% | ||
| Total: | 74,216) | 1.00 | 14.70% | ||||||||||
Based on: 10-K (reporting date: 2016-06-30).
1 US$ in millions
2 Equity. See details »
3 Borrowings. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 60,826) | 60,826) | ÷ | 84,394) | = | 0.72 | 0.72 | × | 20.30% | = | 14.63% | ||
| Borrowings3 | 21,998) | 21,998) | ÷ | 84,394) | = | 0.26 | 0.26 | × | 6.30% × (1 – 35.00%) | = | 1.07% | ||
| Operating lease liability4 | 1,570) | 1,570) | ÷ | 84,394) | = | 0.02 | 0.02 | × | 6.30% × (1 – 35.00%) | = | 0.08% | ||
| Total: | 84,394) | 1.00 | 15.77% | ||||||||||
Based on: 10-K (reporting date: 2015-06-30).
1 US$ in millions
2 Equity. See details »
3 Borrowings. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 78,316) | 78,316) | ÷ | 104,698) | = | 0.75 | 0.75 | × | 20.30% | = | 15.18% | ||
| Borrowings3 | 22,692) | 22,692) | ÷ | 104,698) | = | 0.22 | 0.22 | × | 6.40% × (1 – 35.00%) | = | 0.90% | ||
| Operating lease liability4 | 3,690) | 3,690) | ÷ | 104,698) | = | 0.04 | 0.04 | × | 6.40% × (1 – 35.00%) | = | 0.15% | ||
| Total: | 104,698) | 1.00 | 16.23% | ||||||||||
Based on: 10-K (reporting date: 2014-06-30).
1 US$ in millions
2 Equity. See details »
3 Borrowings. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 72,612) | 72,612) | ÷ | 94,822) | = | 0.77 | 0.77 | × | 20.30% | = | 15.54% | ||
| Borrowings3 | 18,756) | 18,756) | ÷ | 94,822) | = | 0.20 | 0.20 | × | 6.51% × (1 – 35.00%) | = | 0.84% | ||
| Operating lease liability4 | 3,454) | 3,454) | ÷ | 94,822) | = | 0.04 | 0.04 | × | 6.51% × (1 – 35.00%) | = | 0.15% | ||
| Total: | 94,822) | 1.00 | 16.53% | ||||||||||
Based on: 10-K (reporting date: 2013-06-30).
1 US$ in millions
2 Equity. See details »
3 Borrowings. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Twenty-First Century Fox Inc., economic spread ratio calculation, comparison to benchmarks
| Jun 30, 2018 | Jun 30, 2017 | Jun 30, 2016 | Jun 30, 2015 | Jun 30, 2014 | Jun 30, 2013 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Economic profit1 | (3,240) | (2,446) | (2,219) | 2,427) | (3,317) | 549) | |
| Invested capital2 | 47,272) | 45,055) | 42,462) | 44,315) | 48,265) | 44,434) | |
| Performance Ratio | |||||||
| Economic spread ratio3 | -6.86% | -5.43% | -5.23% | 5.48% | -6.87% | 1.24% | |
| Benchmarks | |||||||
| Economic Spread Ratio, Competitors4 | |||||||
| Alphabet Inc. | — | — | — | — | — | — | |
| Comcast Corp. | — | — | — | — | — | — | |
| Meta Platforms Inc. | — | — | — | — | — | — | |
| Netflix Inc. | — | — | — | — | — | — | |
| Walt Disney Co. | — | — | — | — | — | — | |
Based on: 10-K (reporting date: 2018-06-30), 10-K (reporting date: 2017-06-30), 10-K (reporting date: 2016-06-30), 10-K (reporting date: 2015-06-30), 10-K (reporting date: 2014-06-30), 10-K (reporting date: 2013-06-30).
1 Economic profit. See details »
2 Invested capital. See details »
3 2018 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -3,240 ÷ 47,272 = -6.86%
4 Click competitor name to see calculations.
The financial performance from 2013 to 2018 is characterized by significant volatility in value creation, with a prevailing trend of economic value destruction. While positive economic profit was achieved in two of the six years, the overall trajectory indicates a struggle to consistently generate returns exceeding the cost of capital.
- Economic Spread Ratio Trends
- The economic spread ratio exhibited extreme fluctuations, swinging from a positive 1.24% in 2013 to a sharp decline of -6.87% in 2014. A recovery was observed in 2015, reaching a peak of 5.48%, before entering a sustained negative phase from 2016 through 2018. By June 30, 2018, the ratio fell to -6.86%, nearly mirroring the low observed in 2014, which signals a consistent failure to create economic value in the latter half of the period.
- Economic Profit Analysis
- Economic profit followed a pattern of instability, mirroring the movements of the spread ratio. Positive values were recorded in 2013 (US$ 549 million) and 2015 (US$ 2,427 million). However, these were offset by substantial losses in the remaining years, most notably in 2014 (-US$ 3,317 million) and 2018 (-US$ 3,240 million). The persistence of negative economic profit since 2016 suggests a systemic inability to cover the imputed cost of invested capital.
- Invested Capital Stability
- Invested capital remained relatively stable throughout the period, fluctuating between a minimum of US$ 42,462 million in 2016 and a maximum of US$ 48,265 million in 2014. Because the capital base remained within a consistent range, the volatility in economic profit and the spread ratio can be attributed to operational performance or changes in the cost of capital rather than significant expansions or contractions of the company's asset base.
- Correlation and Long-term Outlook
- A strong correlation exists between the economic spread ratio and economic profit, as both metrics declined in tandem during the final three years of the analysis. The downward trend from 2016 to 2018 indicates a widening gap between the actual return on capital and the required rate of return, resulting in an accelerating loss of economic value.
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Economic Profit Margin
Twenty-First Century Fox Inc., economic profit margin calculation, comparison to benchmarks
| Jun 30, 2018 | Jun 30, 2017 | Jun 30, 2016 | Jun 30, 2015 | Jun 30, 2014 | Jun 30, 2013 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Economic profit1 | (3,240) | (2,446) | (2,219) | 2,427) | (3,317) | 549) | |
| Revenues | 30,400) | 28,500) | 27,326) | 28,987) | 31,867) | 27,675) | |
| Add: Increase (decrease) in deferred revenue | 98) | 75) | 57) | (242) | 13) | (203) | |
| Adjusted revenues | 30,498) | 28,575) | 27,383) | 28,745) | 31,880) | 27,472) | |
| Performance Ratio | |||||||
| Economic profit margin2 | -10.63% | -8.56% | -8.10% | 8.44% | -10.40% | 2.00% | |
| Benchmarks | |||||||
| Economic Profit Margin, Competitors3 | |||||||
| Alphabet Inc. | — | — | — | — | — | — | |
| Comcast Corp. | — | — | — | — | — | — | |
| Meta Platforms Inc. | — | — | — | — | — | — | |
| Netflix Inc. | — | — | — | — | — | — | |
| Walt Disney Co. | — | — | — | — | — | — | |
Based on: 10-K (reporting date: 2018-06-30), 10-K (reporting date: 2017-06-30), 10-K (reporting date: 2016-06-30), 10-K (reporting date: 2015-06-30), 10-K (reporting date: 2014-06-30), 10-K (reporting date: 2013-06-30).
1 Economic profit. See details »
2 2018 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted revenues
= 100 × -3,240 ÷ 30,498 = -10.63%
3 Click competitor name to see calculations.
The financial performance from 2013 to 2018 is characterized by significant volatility in economic value creation, despite a relatively stable revenue base. The company experienced recurring periods of value destruction where economic profit fell below zero, indicating that returns on capital did not consistently exceed the cost of capital.
- Economic Profit Margin Trends
- The economic profit margin exhibited extreme fluctuations, shifting from a positive 2.00% in 2013 to a sharp decline of -10.40% in 2014. A temporary recovery occurred in 2015, reaching a peak of 8.44%, before returning to a sustained negative trajectory. Between 2016 and 2018, the margin remained negative and trended further downward, concluding the period at -10.63%.
- Revenue and Profit Divergence
- Adjusted revenues remained within a consistent range, fluctuating between 27,383 million and 31,880 million. This stability in top-line performance did not translate into consistent economic profit. The divergence suggests that the deficits in economic profit were driven by capital efficiency issues or the cost of capital rather than a failure in revenue generation.
- Value Destruction Analysis
- A pattern of substantial value destruction is evident in four of the six analyzed years. The most severe deficits in economic profit were recorded in 2014 and 2018, with losses of 3,317 million and 3,240 million respectively. The sustained negative margins from 2016 through 2018 indicate a persistent inability to generate operating returns sufficient to cover the imputed cost of the assets employed.
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