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Economic Value Added (EVA)

Difficulty: Advanced

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

USD $ in millions

 
12 months ended Jun 30, 2017 Jun 30, 2016 Jun 30, 2015 Jun 30, 2014 Jun 30, 2013 Jun 30, 2012
Net operating profit after taxes (NOPAT)1
Cost of capital2 % % % % % %
Invested capital3
Economic profit4

Source: Based on data from Twenty-First Century Fox Inc. Annual Reports

2017 Calculations

1 NOPAT. See Details »

2 Cost of capital. See Details »

3 Invested capital. See Details »

4 Economic profit = NOPAT – Cost of capital × Invested capital
= % × =

Item Description The company
Economic profit Economic profit is a measure of corporate performance computed by taking the spread between the return on invested capital and the cost of capital, and multiplying by the invested capital. Twenty-First Century Fox Inc.'s economic profit declined from 2015 to 2016 and from 2016 to 2017.

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Net Operating Profit after Taxes (NOPAT)

Twenty-First Century Fox Inc., NOPAT calculation

USD $ in millions

 
12 months ended Jun 30, 2017 Jun 30, 2016 Jun 30, 2015 Jun 30, 2014 Jun 30, 2013 Jun 30, 2012
Net income attributable to Twenty-First Century Fox, Inc. stockholders
Deferred income tax expense (benefit)1
Increase (decrease) in allowances for returns and doubtful accounts2
Increase (decrease) in deferred revenue3
Increase (decrease) in restructuring program liabilities4
Increase (decrease) in equity equivalents5
Interest expense, net
Interest expense, operating lease obligations6
Adjusted interest expense, net
Tax benefit of interest expense, net7
Adjusted interest expense, net, after taxes8
(Gain) loss on marketable securities
Interest income
Investment income, before taxes
Tax expense (benefit) of investment income9
Investment income, after taxes10
(Income) loss from discontinued operations, net of tax11
Net income (loss) attributable to noncontrolling interest
Net operating profit after taxes (NOPAT)

Source: Based on data from Twenty-First Century Fox Inc. Annual Reports

2017 Calculations

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 Addition of interest expense on capitalized operating leases. See Details »

7 Tax benefit of interest expense, net = Adjusted interest expense, net × Statutory income tax rate
= × 35% =

8 Addition of after taxes interest expense to net income attributable to Twenty-First Century Fox, Inc. stockholders.

9 Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= × 35% =

10 Elimination of after taxes investment income.

11 Elimination of discontinued operations.

Item Description The company
NOPAT Net operating profit after taxes is income from operations, but after removement of taxes calculated on cash basis that are relevant to operating income. Twenty-First Century Fox Inc.'s NOPAT declined from 2015 to 2016 but then slightly increased from 2016 to 2017.

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Cash Operating Taxes

Twenty-First Century Fox Inc., cash operating taxes calculation

USD $ in millions

 
12 months ended Jun 30, 2017 Jun 30, 2016 Jun 30, 2015 Jun 30, 2014 Jun 30, 2013 Jun 30, 2012
Provision for income taxes from continuing operations
Less: Deferred income tax expense (benefit)
Add: Tax savings from interest expense, net
Less: Tax imposed on investment income
Cash operating taxes

Source: Based on data from Twenty-First Century Fox Inc. Annual Reports

Item Description The company
Cash operating taxes Cash operating taxes are estimated by adjusting income tax expense for changes in deferred taxes and tax benefit from the interest deduction. Twenty-First Century Fox Inc.'s cash operating taxes declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level.

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Invested Capital

Twenty-First Century Fox Inc., invested capital calculation (financing approach)

USD $ in millions

 
Jun 30, 2017 Jun 30, 2016 Jun 30, 2015 Jun 30, 2014 Jun 30, 2013 Jun 30, 2012
Current borrowings
Non-current borrowings
PV of operating lease payments1
Total reported debt & leases
Total Twenty-First Century Fox, Inc. stockholders' equity
Net deferred tax (assets) liabilities2
Allowances for returns and doubtful accounts3
Deferred revenue4
Restructuring program liabilities5
Equity equivalents6
Accumulated other comprehensive (income) loss, net of tax7
Redeemable noncontrolling interests
Noncontrolling interests
Adjusted total Twenty-First Century Fox, Inc. stockholders' equity
Construction in progress8
Available-for-sale securities9
Invested capital

Source: Based on data from Twenty-First Century Fox Inc. Annual Reports

1 Addition of capitalized operating leases. See Details »

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.

Item Description The company
Invested capital Capital is an approximation of the economic book value of all cash invested in going-concern business activities. Twenty-First Century Fox Inc.'s invested capital declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level.

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Cost of Capital

Twenty-First Century Fox Inc., cost of capital calculations

Fair Value1 Weights Cost of Capital
Equity2 ÷ = × % = %
Borrowings3 ÷ = × % × (1 – 35%) = %
PV of operating lease payments4 ÷ = × % × (1 – 35%) = %
Total: %

Source: Based on data from Twenty-First Century Fox Inc. Annual Reports

1 USD $ in millions

2 Equity. See Details »

3 Borrowings. See Details »

4 PV of operating lease payments. See Details »

Fair Value1 Weights Cost of Capital
Equity2 ÷ = × % = %
Borrowings3 ÷ = × % × (1 – 35%) = %
PV of operating lease payments4 ÷ = × % × (1 – 35%) = %
Total: %

Source: Based on data from Twenty-First Century Fox Inc. Annual Reports

1 USD $ in millions

2 Equity. See Details »

3 Borrowings. See Details »

4 PV of operating lease payments. See Details »

Fair Value1 Weights Cost of Capital
Equity2 ÷ = × % = %
Borrowings3 ÷ = × % × (1 – 35%) = %
PV of operating lease payments4 ÷ = × % × (1 – 35%) = %
Total: %

Source: Based on data from Twenty-First Century Fox Inc. Annual Reports

1 USD $ in millions

2 Equity. See Details »

3 Borrowings. See Details »

4 PV of operating lease payments. See Details »

Fair Value1 Weights Cost of Capital
Equity2 ÷ = × % = %
Borrowings3 ÷ = × % × (1 – 35%) = %
PV of operating lease payments4 ÷ = × % × (1 – 35%) = %
Total: %

Source: Based on data from Twenty-First Century Fox Inc. Annual Reports

1 USD $ in millions

2 Equity. See Details »

3 Borrowings. See Details »

4 PV of operating lease payments. See Details »

Fair Value1 Weights Cost of Capital
Equity2 ÷ = × % = %
Borrowings3 ÷ = × % × (1 – 35%) = %
PV of operating lease payments4 ÷ = × % × (1 – 35%) = %
Total: %

Source: Based on data from Twenty-First Century Fox Inc. Annual Reports

1 USD $ in millions

2 Equity. See Details »

3 Borrowings. See Details »

4 PV of operating lease payments. See Details »

Fair Value1 Weights Cost of Capital
Equity2 ÷ = × % = %
Borrowings3 ÷ = × % × (1 – 35%) = %
PV of operating lease payments4 ÷ = × % × (1 – 35%) = %
Total: %

Source: Based on data from Twenty-First Century Fox Inc. Annual Reports

1 USD $ in millions

2 Equity. See Details »

3 Borrowings. See Details »

4 PV of operating lease payments. See Details »

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Economic Spread

Twenty-First Century Fox Inc., economic spread calculation

 
Jun 30, 2017 Jun 30, 2016 Jun 30, 2015 Jun 30, 2014 Jun 30, 2013 Jun 30, 2012
Selected Financial Data (USD $ in millions)
Economic profit1
Invested capital2
Ratio
Economic spread3 % % % % % %

Source: Based on data from Twenty-First Century Fox Inc. Annual Reports

2017 Calculations

1 Economic profit. See Details »

2 Invested capital. See Details »

3 Economic spread = 100 × Economic profit ÷ Invested capital
= 100 × ÷ = %

Ratio Description The company
Economic spread The ratio of economic profit to invested capital, also equal to the difference between return on invested capital (ROIC) and cost of capital. Twenty-First Century Fox Inc.'s economic spread deteriorated from 2015 to 2016 and from 2016 to 2017.

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Economic Profit Margin

Twenty-First Century Fox Inc., economic profit margin calculation

 
Jun 30, 2017 Jun 30, 2016 Jun 30, 2015 Jun 30, 2014 Jun 30, 2013 Jun 30, 2012
Selected Financial Data (USD $ in millions)
Economic profit1
Revenues
Increase (decrease) in deferred revenue
Ratio
Economic profit margin2 % % % % % %

Source: Based on data from Twenty-First Century Fox Inc. Annual Reports

2017 Calculations

1 Economic profit. See Details »

2 Economic profit margin = 100 × Economic profit ÷ (Revenues + Change in deferred revenue)
= 100 × ÷ ( + ) = %

Ratio Description The company
Economic profit margin The ratio of economic profit to sales. It is the company's profit margin covering income efficiency and asset management. Economic profit margin is not biased in favor of capital-intensive business models, because any added capital is a cost to the economic profit margin. Twenty-First Century Fox Inc.'s economic profit margin deteriorated from 2015 to 2016 and from 2016 to 2017.

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